The Income Tax Appellate Tribunal’s decision in ITA No. 828/DEL/2019 addresses a significant tax dispute involving disallowances under Section 14A of the Income Tax Act, 1961. This case between the Deputy Commissioner of Income Tax, Circle-11(1), New Delhi, and Hero Wind Energy (P) Ltd. revolves around the proper application and interpretation of tax deductions on income deemed exempt.
The Revenue appealed against the CIT(A)’s decision that reversed a substantial disallowance imposed by the Assessing Officer under Section 14A read with Rule 8D of the Income Tax Rules. The primary contention was whether the CIT(A) was correct in limiting the disallowance to a certain amount, significantly lower than what was computed by the Assessing Officer.
The Revenue contended that the disallowance under Section 14A should not be limited to the actual exempt income earned during the year. They argued this based on the Supreme Court’s judgment in CIT v. Rajendra Prasad Moody, which stated that the allowability of an expenditure does not depend on the actual earning of income. The assessee countered by citing recent judgements that no disallowance under Section 14A can be made if no exempt income is received.
The Tribunal upheld the CIT(A)’s decision, referencing the High Court’s ruling in PCIT vs. Era Infrastructure (India) Ltd., which confirmed that amendments to Section 14A involving a non-obstante clause do not have retrospective effect. The Tribunal agreed that since the assessee had made a suo moto disallowance greater than the exempt income, further disallowance was unwarranted.
This decision is pivotal for understanding the boundaries of Section 14A disallowances. It clarifies that if the exempt income is less than the disallowance calculated under Rule 8D, the disallowance should not exceed the exempt income, supporting a taxpayer-friendly interpretation of the law.
ITA 828/DEL/2019: DCIT vs. Hero Wind Energy (P) Ltd. – Dispute over Section 14A Deductions
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform