2024 (6) TMI 930 - AT - Income Tax

Disallowance under Section 14A not warranted when no exempt income earned during year

Syama Prasad Mookerjee Port Versus Deputy Commissioner of Income tax, Circle -34, Kolkata

ITAT Kolkata allowed the assessee's appeal on disallowance u/s 14A r.w.r. 8D(2), holding that no disallowance is warranted when no exempt income was ... Disallowance u/s 14A r.w.r. 8D(2) - Undisputedly, the assessee had not earned any exempt income during the year - HELD THAT:- We find that the ratio laid down in the case of PCIT Vs. Era Infrastructure (India) Ltd[2022 (7) TMI 1093 - DELHI HIGH COURT] has held that the amendment made in Section 14A of the Act by Finance Act, 2022, will be applicable prospectively and also held that disallowance u/s 14A of the Act should not exceed the exempt income earned by the assessee during the year, is squarely applicable and no disallowance is called for in the present case. The common issue raised in both the years are allowed. Addition u/s 41(1) - AO made this addition based on information that certain companies claimed irrecoverable amounts from the appellant - HELD THAT:- Considering the prayer of the ld. Counsel for the assessee for admission of additional evidence under Rule 29 of the Income tax Rules and also considering the facts which prima facie suggests that there was no liability in the books of accounts in the name of the two concerns, namely, M/s. Premco Rail Engineers Ltd. and Ripley & Company Limited, we are inclined to restore the issue to the file of the jurisdictional Assessing Officer for a fresh adjudication in light of the submissions of the assessee as well as the additional evidence adduced by the assessee. Needless to mention that the assessee shall produce all necessary documents/evidence, in support of its claim before the Assessing Officer and shall co-operate till the disposal of its appeal. Accordingly, this Ground relating to addition u/s 41(1) of the Act raised by the assessee is allowed for statistical purposes. Issues Involved:- Disallowance u/s 14A r.w.r. 8D(2) of the Act- Addition u/s 41(1) of the ActDisallowance u/s 14A r.w.r. 8D(2) of the Act:In both appeals, the assessee challenged the disallowance u/s 14A r.w.r. 8D(2) of the Act for the Assessment Years 2018-19 and 2020-21. The appellant contended that since there was no exempt income earned during the years and investments were made from its own funds in port-related entities, the disallowance should be deleted. Citing the case of PCIT Vs. Era Infrastructure (India) Ltd., it was argued that the disallowance should not exceed the exempt income earned. The Tribunal found the appellant's arguments valid and allowed the common issue raised in both years.Addition u/s 41(1) of the Act:For the Assessment Year 2020-21, the appellant contested an addition of Rs. 5,35,626 u/s 41(1) of the Act. The Assessing Officer made this addition based on information that certain companies claimed irrecoverable amounts from the appellant. Despite the appellant's explanation that there were no closing balances with these companies and transactions were squared off, the addition was upheld by the CIT(A). However, upon review, the Tribunal noted that there was no liability in the books of accounts of the appellant with the concerned companies. As a result, the issue was remanded back to the Assessing Officer for fresh adjudication, allowing the appellant's appeal for statistical purposes.In conclusion, the appeal for Assessment Year 2018-19 was allowed, and for Assessment Year 2020-21, it was partly allowed for statistical purposes. The order was pronounced on 8th April, 2024, at Kolkata.