CBDT circular on 14A disallowance in the absence of exempt income is invalid – Bang ITAT

Anriya Project Management Services(P)Ltd. v DCIT (ITA No.1799/Bang/2013 dated 20.02.2015) – Bangalore ITAT


The assessee during the year did not earn any exempt income and therefore, did not make any disallowance under section 14A in its return of income. However, the AO made disallowance u/s 14A holding that there is increase in the investment of the assessee during the relevant assessment year resulting in increase of interest on total loans and thus interest bearing funds were utilized in investments earning exempt income. Therefore, he held that proportionate interest on investments earning exempt income is disallowable


  • The Co-ordinate bench of this Tribunal in the case of Bhuwalka Steel Industries Ltd. (ITA No.349/Bang/2013 dated 4/7/2014) had relied upon the decisions of the various High Courts in coming to the conclusion that in the absence of exempt income earned by the assessee, the provisions of sec.14A cannot be invoked
  • The assessee in that case has relied upon following High Court rulings in support of its contention that if there is no exempt income during the previous year, then the provisions of section 14A of the Act cannot be invoked:
    – CIT v. Winsom Textile Industries Ltd.(2009) 319 ITR 204 (P&H)
    – CIT v Corrtech Energy P. Ltd. (Tax Appeal No.239 of 2014, dt.24.03.2014)(Guj);
    – JCIT v. Shivam Motors (P) Ltd. (ITA.17/Lkw/2012, dated 12.11.2013)(ITAT- Lucknow); and
    – CIT v. M/s Shivam Motors (P)Ltd. (ITA.88 of 2014, dated 5.5.14) Allahabad High Court 
  • CBDT vide circular No.5 of 2014 dated 11.02.2014 has opined that even in the absence of exempt income earned by the assessee during the previous year, provisions of section 14A have to be invoked.
  • The above Board circular is contrary to the Hon’ble High Court’s decisions and cannot therefore be the basis to sustain the disallowance made by the Revenue authorities. 
  • We, therefore, hold that the disallowance made u/s 14A of the Act should be deleted. 

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