Top Stories Disallowance u/s 14A of Income Tax Act should be limited to Exempted Income: ITAT [Read Order] By Aparna. M – On March 18, 2024 3:42 pm – 2 mins read The Two member bench of Income Tax Appellate Tribunal ( ITAT ) of Bangalore held that disallowance under Section 14A of the Income Tax Act, 1961 should be limited to exempted income. The Assessee Ambika Ghorpade filed this appeal with regard to disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962.

According to the assessee who has earned exempt income to the tune of Rs.31,600/- only by way of dividend. As such, the assessee argued that the disallowance made under Section 14A of the Income Tax Act at Rs.4,05,636/- is unjustifiable and same to be deleted. During the adjudication It was observed that the exempt income is only Rs.31,600/- by way of dividend and the disallowance under Section 14A read with Rule 8D of the Rules cannot exceed the exempt income earned by assessee in the assessment year.

According to the decision of Karnataka High Court in the case of Biocon Ltd. Vs. DCIT wherein it was held that “when there is no exempt income, there could not be any disallowance under Section 14A of the Income Tax Act. In other words, it means that disallowance under Section 14A of the Income Tax Act should be limited to the exempted income”. After reviewing the facts the ITAT bench of George George K., Vice President and Chandra Poojari,( Accountant Member ) sustained the addition to the tune of Rs.31,600/- only up to the exempt income earned by the assessee. K.R. Pradeep & Ms. Girija GA counsel appeared for the assessee and Subramanian S.counsel appeared for revenue.