TaxTMI 
TaxTMI 
2026 (9) TMI 1880
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..../144 of the Income-tax Act, 1961, (in short 'the Act') on the following grounds: 1. That the CIT(A) erred on facts and in law, in upholding the disallowance of Rs. 8,82,35,000/- u/s. 14A of the Act, by holding the same to be expenditure incurred for earning exempt income. 1.1 That the CIT(A) failed to appreciate that in the absence of any exempt income earned in the relevant assessment year, the provisions of section 14A of the Act had no application at the very threshold. 2. The brief facts of the case are that the assessee company engaged in the business of manufacture of polyester chops of all grades, Biaxially Oriented Polyester Film, Biaxially Oriented Poly Propylene Film (BOPP), metalized film and PVDC films, non-....
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....es, 1962, by merely presuming that certain expenditure must have been incurred which requires disallowance. It is further submitted that Ld. CIT(A) simply proceeded to uphold the aforesaid disallowance without appreciating that in the absence of any investment capable of yielding exempt income, provision of section 14A of the Act could not have been invoked, more so when the AO had failed to record any valid satisfaction thereof. He submitted that both the lower authorities erred in making the disallowance u/s. 14A on the reasons no disallowance u/s 14A in the absence of investment capable of yielding exempt income; no valid satisfaction recorded by AO and even otherwise, disallowance could not have exceeded exempt income. He further submit....
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....her note that in the subsequent assessment year 2023-24, the AO has, on identical facts, accepted the contention of the assessee that in the absence of any investment capable of yielding exempt income, provisions of section 14A of the Act is not at all applicable. It is further noted that the instant issue is squarely covered by the decision of the Coordinate Bench in assessee's own case for preceding AY 2017-18 to 2019-20 in ITA No. 1705, 1372, 1373, 1706 & 1374/Del/2023 wherein, the Tribunal deleted the similar disallowance made u/s. 14A of the Act by holding as under:- 32. Issue No. 3: As with regard to this issue arising out of the appeal of the Department, we find that during the assessment year 2017-18 and 2019-20, the assess....
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....to be made even if no exempt income is earned in the current year but in arriving at the findings, the Ld. CIT(A) did not appreciate the underlying principle that disallowance u/s. 14A of the Act r.w. Rule 8D of the I.T. Rules, 1962 will be permissible only if the nature of such income would be exempt and not taxable. The fundamental condition for invoking Section 14A is that the expenditure sought to be disallowed must be incurred in relation to income which does not form part of the total income under the Act. In other words, the applicability of Section 14A is contingent upon the existence of exempt income. Pursuant to the amendment to Section 10(34) by the Finance Act, 2020, effective from 2021-22, dividend income is taxable in the hand....