The Mumbai ITAT has held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
The assessee was involved in the business of selling holiday membership plans to its members. The assessee had an affiliation with certain hotels, which provided accommodation to its members, whenever they utilise the eligible holidays. The members of various schemes were entitled to utilise the eligible holidays on the basis of predetermined entitlements as prescribed in each scheme.
During the scrutiny proceedings, it was observed that the assessee has made the investment in unquoted shares. It was observed that the nature of investment made by the assessee is such that they can yield income in the nature of dividend which is exempt under section 10(34). The AO, passed under section 143 computed disallowance of Rs.2,30,38,866, under section 14A r/w rule 8D.
It is evident from the record that during the year, no dividend income was received from the investments made by the assessee and thus, no exemption was claimed under section 10(34) of the Act while filing the return of income.
The ITAT held that since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronouncements, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
The tribunal held that vide amendment by the Finance Act, 2022, the non–obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year.
Case Title: Citrus Check Inns Limited V/s DCIT