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Bharat Electronics Limited vs. Assistant Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (31 Aug 2023)

While calculating disallowance under Section 14A of the IT Act, only investment that have generated exempt income should be taken into consideration


Direct Taxation

Present appeal at the instance of the assessee is directed against CIT(A)'s order passed under Section 250 of the Income Tax Act, 1961. The solitary issue raised is whether CIT(A) is justified in confirming the addition made by the AO amounting to Rs. 4,69,055 under Section 14A of the Act.

Only investment yielding non-taxable income has to be considered and not all the investments. This proposition has been held correct by the Hon'ble Delhi High Court in the case of ACB India Ltd., Vs. ACIT. The Hon'ble Delhi High Court had held that, for the purpose of Section 14A, instead of taking into account total investment, the investment attributable to dividend (exempt income) was only required to be adopted and thereafter the disallowance was to be arrived.

While calculating disallowance under Section 14A of the Act, only investment that have generated exempt income should be taken into consideration.Before concluding, it is also to be mentioned that explanation inserted by Finance Act, 2022, has been held to be prospective by the judgment of the Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. In light of the aforesaid reasoning and judicial pronouncements, the disallowance made under Section 14A of the Act, amounting to Rs.4,69,055 is deleted. Appeal filed by the assessee is allowed.


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