ITAT relief to DLF Universal: Disallowance u/s 14A is restricted to the extent of exempt income

ITAT relief to DLF Universal: Disallowance u/s 14A is restricted to the extent of exempt income

The Income Tax Appellate Tribunal (ITAT), New Delhi bench comprising of, G.S. Pannu (Vice President) and Mahavir Prasad (Judicial Member) while dismissing the appeal of the Deputy Commissioner of Income Tax (DCIT) (appellant) observed that disallowance under section 14A of the Income Tax Act, 1961 (IT Act) gets restricted to the extent of exempt income.

The respondent/assessee DLF Universal Limited claimed to be engaged in carrying out the business of real estate development. The assessment in the case of appellant-company was completed at a total income of (-)Rs.364,56,79,110 by the Assessing Officer (AO) under section 143(3) of the IT Act, thereby making addition or disallowance of Rs.2,53,10,424 under Section 14A read with Rule 8D of the IT Act. The assessee company had itself offered for assessing a sum of Rs.6,37,302 on account of direct expenses attributable to earning of tax-free dividend income of Rs.4,30,621.

The assessee preferred the first statutory appeal before the Commissioner of Income Tax (Appeals)(CIT[A]) who allowed the appeal of the assessee observingthat the total tax-free dividend income earned by the assessee amounted to Rs.4,30,621 and the disallowance in the assessee's case under section 14A read with Rule 8D of the IT Act shall, therefore, be not more than Rs.4,30,621.

Aggrieved by the same DCIT preferredsecond statutory appeal before the ITAT against the order passed by the CIT(A).

The ITAT examined the relevant records of the case and observed that, it was not in the dispute where the assessee had exempt income to the tune of Rs.4,30,621.

The ITAT referred to a judgment passed by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT (2015),where it was held that if there was no exempt income, there can be no question of making any disallowance under Section 14A of the IT Act. The ITAT further referred to a judgment again passed by the Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) wherein the relief was granted to assessee.

The ITAT pointed out that net effect of these decisions was that the disallowance under Section 14A of the IT Act gets restricted to the extent of exempt income, even if the provisions of the Section of the IT Act, are attracted.

In view of the above precedents, which were squarely applicable to the facts of the instant case, the bench felt it was correct to dismiss the appeal of the DCIT and in relief to the DLF Universal limit the disallowance to the extent ofexempt income of Rs.4,30,621. The impugned order was modified pro tanto.