ASSISSTANT COMMISSIONER OF INCOME TAX, MUMBAI vs. CENTRUM RETAIL SERVICES LIMITED, MUMBAI

The revenue has taken the following grounds. “1. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 2,91,15,967 made by the Assessing Officer under Section 14A of the Income Tax Act, 1961 read with Rule BD of the Income Tax Rules, 1962. 2. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that expenses are necessarily incurred to manage and hold investments, and such expenses are disallowable under Section 14A even if no exempt income is actually earned during the year, whereas the appellant held substantial investments of Rs. 281,39,85,058 which are capable of yielding exempt income. 3. Whether, on the facts and in the circumstances of the case and in law, the LA. CIT(A) erred in not correctly interpreting and applying the binding precedent of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, wherein it was categorically held that the applicability of Section 14A does not hinge on the actual earning of tax-exempt income. 4. Whether, on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to consider the binding nature of CBDT Circular No. 5/2014 dated February 11, 2014, which explicitly clarifies that disallowance under Section 14A must be made even in a year where no exempt income has been earned by the assessee.”

Brief facts of the case are that the assessee is engaged in the business of providing outsourcing and consultancy services to clients. During the assessment proceeding Ld.AO found that the assessee declared total income of Rs. 12,08,82,200/- under normal provision of the Act and book profit at Rs.14,45,37,112 under 115JB of the Act. In assessment proceeding Ld.AO assessee the income amount to Rs. 14,99,98,167 under normal provision and book profit

The Ld. DR argued and stated that the total investment of the assessee during the impugned financial year amount to Rs. 281,39,85,058/- which is reflected as non-current investment. But in factual consideration, Ld. Ld.DR conceded that the Ld. AO had not reported any exempted income during the impugned assessmentyear.

Ld.AR argued and stated that the asssesse’s case is squarely covered by the judgment of Hon’ble High Court of Delhi in the case of Cheminvest Ltd. v/s CIT, (215) 378 ITR 33Delhi. The Ld.AR heavily relied on the relevant para of impugned appellate order. The appellate order para 5.2 to 5.2.1arereproduced as below:- “5.2. Ground 2 Vide this ground, the Appellant has objected to the addition of Rs. 2,91,15,967/-u/s 14A r.w. Rule 8D. In this regard, the Appellant has submitted that since it has not earned any exempt income during the year, no disallowance can be made u/s14A of the Act. In this regard, the Appellant has placed reliance on various case laws. 5.2.1. I have considered the submission of the Appellant. I have also perused the assessment order. I find that submissions made by the Appellant in the present proceedings were also submitted during assessment proceedings. The AO, however,

Per contra, Sri. T. Ravikumar appearing on behalf of the revenue drew our attention to the marginal notes of s. 14 A pointing out that the provision would apply not only where exempted income is 'included in the total income, but also where exempt income is 'includable' in total income. 8. He relied upon a Circular issued by the Central Board of Direct taxes in Circular No.5 of 2014 dated 11.2.2014 to the effect that s.14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of s.14A are made applicable, in terms of sub section (1) thereof to income 'under the act' 242 ITR 450) in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of Income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income Tax vs. Walfort Share and Stock Brokers (P) Ltd (2010) 326 ITR 1.... The mandate of s. 14A is clear. Itdesires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income."

The provision this is clearly relatable to the earning of actual income and not notional or anticipated income. The submission of the Department to the effect that s. 14A would be attracted even to exempt income 'Includable' in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present assessment year. The computation of total income in terms of s.5 of the Act is on real income and there is no sanction in law for the assessment of admittedly notional income, particularly in the context of effecting a disallowance in connection therewith. 11. The computation of disallowance in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificial method of computation on notional and assumed income. We believe this would be carrying the artifice too far. (emphasis is ours) 13. Mr.Senthil Kumar, seeks to distinguish the judgment in Mis. Redington (India) Limited case based on the fact that Rule 8D had not kicked-in by AY 2007-08, which was the AY being considered in the said case. 14. According to us, this was not the argument, put forth, before the Division Bench. As a matter of fact, the Revenue relied heavily on Rule 8D. 14.1.Mr.Ravikumar, who appeared for the Revenue, in that matter and who is present in this Court, informs us that he had in fact argued that the Rule was clarificatory in nature and would apply retrospectively, and that, the Division Bench, therefore, discussed the impact of Rule 8D of the Rules. 15.However, it is, our view, as indicated above, independent of the reasoning given in M/s. Redington (India) Limited case that Rule 8D cannot be read in a manner, which takes it beyond the scope and content of the main provision, which is, Section 14 A of the Act. 15.1. Therefore, as adverted to above, Rule 8D, cannot come to the rescue of the Revenue.

2. In any event, the Tribunal, via, the impugned judgment has remitted the matter to the Assessing Officer. 15.3. Therefore, for the foregoing reasons, we are of the view, that no interference is called for qua the impugned judgment. 16. To our minds, questions of law, which could have arisen are already covered by the judgment of a Co-ordinate Bench of this Court rendered in M/s. Redington (India) Limited case. 17. The appeal is accordingly, dismissed. However, there shall be no order as to costs." SLP filed by the Department against the above judgement of Hon'ble Madras Court was dismissed on merits by Hon'ble Supreme Court vide order dated 02.07.2018 wherein Hon'ble Supreme Court observed that: "The Special Leave Petition is dismissed on the ground of delay as well as on merits." Hon'ble Delhi Court in the case Cheminvest Ltd. v/s CIT, [215] 378 ITR 33 (Del.) has held as under: "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year." Again, SLP filed by the Department against the above judgement of Hon'ble Delhi Court was dismissed on merits by Hon'ble Supreme Court in April 2019. In view of the discussions made hereinabove above and respectfully following the case laws cited supra, I hold that no disallowance could have been made by the AO

We have heard the rival submissions and perused the material available on record. It is noted that the assessee has made investments amounting to Rs.281,39,85,058/- in various companies, and such investments are reflected under the head “Non-Current Investments.” It is, however, an admitted factual position that the assessee has not earned any exempt income during the relevant assessment year.The precondition for invoking the provisions of section 14A read with Rule 8D is that there must be an expenditure incurred in relation to income which does not form part of the total income under the Act. In the present case, no such exempt income has been earned by the assessee which would justify the application of section 14A.We respectfully rely upon the judgment of the Hon’ble Delhi High Court in Cheminvest Ltd. (supra), wherein it has been held that in the absence of exempt income, no disallowance under section 14A can be made. Accordingly, we find no infirmity in the order of the Ld. CIT(A), and therefore no interference is warranted. So, the appeal filed by the revenue stands dismissed.

In the result, the appeal of the revenue bearing ITA No.5970/MUM/2025 is dismissed. Order pronounced in the open court on 14th November 2025 (VIKRAM SINGH YADAV) JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 14/11/2025 Disha Raut, Stenographer

अपील र्थी/The Appellant , 2. प्रदिव िी/ The Respondent. 3. आयकरआयुक्त CIT 4. दवभ गीयप्रदिदनदि, आय.अपी.अदि.,म ुंबई/DR, ITAT, MUMBAI 5. ग र्डफ इल/Guard file.