ITAT Deletes Disallowance u/s 14A Against Toyota As No Exempted Income Was Earned
The Banglore Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance under section 14A of the Income Tax Act against Toyota as no exempted income was earned.The two-member bench headed by N.V. Vasudevan (Vice President) and Padmavathi S (Accountant Member) has noted that the AO has made the disallowance on the basis that the investment could potentially earn income,...
The Banglore Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance under section 14A of the Income Tax Act against Toyota as no exempted income was earned.
The two-member bench headed by N.V. Vasudevan (Vice President) and Padmavathi S (Accountant Member) has noted that the AO has made the disallowance on the basis that the investment could potentially earn income, which substantiates the contention of the assessee that in the year under consideration the assessee has not earned any exempt income.
Section 14A of the Income Tax Act pertains to expenditure incurred in relation to income not includible in total income. For computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income.
The appellant/assessee is in the business of trading in automobile components, operating turnkey projects and logistics, primarily catering to the automotive industry. The assessee is a wholly owned subsidiary of Toyota Tsusho Corporation, Japan (AE). The assessee filed a return of income for the AY 2017-18 on November 28, 2017, declaring NIL income. The case was selected for scrutiny and notice was duly served on the assessee.
During the course of the proceedings, the AO discovered that the assessee had invested in unlisted equity and claimed interest expenditure.The AO invoked the provisions of section 14A and made a disallowance. The DRP upheld the disallowance made by the AO.
The assessee does not have any exempt income and, therefore, the provisions of section 14A cannot be invoked. The provisions of Section 14A provide for the disallowance of expenses incurred in connection with the earning of exempt income. The precondition for disallowance under section 14A is that the assessee should have earned exempt income during the year, which is not included in the total income of the assessee. The disallowance cannot exceed the exempt income earned by the taxpayer. Hence, in the absence of the receipt of exempt income during the year, section 14A cannot be invoked.
The assessee submitted before the lower authorities that the company had not earned any exempt income and, thus, the disallowance under section 14A was unwarranted. The disallowance under section 14A is not attracted since the assessee has not earned any exempt income. The assessee has not incurred any specific expenditure in undertaking the investments and therefore there is no disallowance under section 14A.
The ITAT relied on the decision of the Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Ltd. and held that no disallowance was warranted under section 14A and deleted the disallowance.
Case Title: Toyota Tsusho India P. Ltd. Versus The Joint / Deputy Commissioner of Income Tax
Citation: IT(TP)A No.175/Bang/2022
Date: 09.09.2022
Counsel For Appellant: CA Darpan Kriplani
Counsel For Respondent: CIT (DR) V S Chakrapani