RAJDHANI TEXTILES PRIVATE LIMITED (MERGED ENTITY OF SIRIUS FINANCIAL SERVICES PRIVATE LIMITED),MUMBAI vs. THE DY. CIT, CIRCLE-3(1)(1), AHMEDABAD

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ITA 1945/AHD/2025Status: DisposedITAT Ahmedabad13 May 2026AY 2017-184 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the assessee did not earn any tax-exempt income during the year, no disallowance under Section 14A is warranted. The Tribunal followed the Delhi High Court's decision that the explanation to Section 14A is prospective.

What were the facts?

The assessee's appeal concerns a disallowance of Rs. 2,79,29,860/- under Section 14A read with Rule 8D for the Assessment Year 2017-18. The disallowance was made for expenditure incurred for earning tax-exempt income.

What were the issues?

Whether disallowance under Section 14A is attracted when no tax-exempt income is earned. Applicability of the explanation to Section 14A, specifically its retrospective or prospective nature.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD

Before: Shri Sanjay Garg & Annapurna Gupta

For Appellant: Shri P.D. Shah, AR

आयकर अपीलीय अिधकरण, अहमदाबाद �ायपीठ “डी“, अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL “ D ” BENCH, AHMEDABAD

�ी संजय गग�, �ाियक सद� एवं अ�पूणा� गु�ा, लेखा सद� के सम�। ] ] Before Shri Sanjay Garg, Judicial Member And Annapurna Gupta, Accountant Member आयकर अपील सं /ITA No.1945/Ahd/2025 िनधा�रण वष� /Assessment Year : 2017-18 Rajdhani Textiles Private Limited The Dy.CIT बनाम (Merged entity of Sirius Financial Circle-3(1)(1) / Services Private Limited) Ahmedabad – 380 015 v/s. 702, 7th Floor Samudra Setu Near Parsi Agiary Opp. Anand Bhavan, Opp. BD Desai Mumbai – 400 026 Maharashtra �थायी लेखा सं./PAN: AABCR 1737 R (अपीलाथ�/ Appellant) (�� यथ�/ Respondent) Assessee by : Shri P.D. Shah, AR Revenue by : Shri Rameshwar P. Meena, Sr.DR सुनवाई की तारीख/Date of Hearing : 26 /02/2026 घोषणा की तारीख /Date of Pronouncement: 13 /05/2026 आदेश/O R D E R Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) [ADDL/JCT(A)-4 BENGALURU, [hereinafter referred to as ‘CIT(A)’] dated 19/08/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2017-2018.

2 2. The solitary issue involved in this appeal is against disallowance of Rs.2,79,29,860/- u/s.14A r.w.Rule 8D of the IT Rules, 1962 made by the Assessing Officer (AO) and further confirmed by the Ld. CIT(A) under normal provisions and thereby to book profits also u/s 115JB of the Act on account of expenditure incurred for the purpose of earning of tax exempt income.

3.

At the outset, the Ld.AR of the assessee has submitted that the lower authorities were not justified in making the disallowance of expenditure u/s.14A of the Act. He has contended that the assessee, during the assessment year, had not earned any tax exempt income, whereas the disallowance u/s.14A of the Act has been made. The ld. AR of the assessee, has submitted that since the assessee did not earn any tax exempt income during the year under consideration, therefore, no disallowance is warranted u/s 14A of the Act. He in this respect has relied upon the following case laws: 1. Cheminvest Ltd. vs. CIT 378 ITR 33 (Del); 2. CIT vs. M/s. Holcim India Pvt. Ltd. in ITA No. 486/2014 and ITA No. 299/2014; Judgment dated 05-09-2014 3. CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63; 4. CIT vs. Ashika Global Securities Ltd. (G.A. No. 2122 of 2014) 11/06/2018.

3.1. In all these case laws, Hon'ble High Courts have been unanimous to hold that where the assessee has not derived any tax exempt income from investments, then no disallowance is attracted u/s 14A of the Act.

3 4. The ld. DR, however, has relied upon the newly inserted explanations to Section 14A of the Act, which is extracted for the sake of ready reference:-

"14A. [(1)] [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, 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 under this Act.] ************************ *********************** [Explanation.--For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]" 4.1. The ld. DR has further relied on the decision of the Co-ordinate Bench of ITAT Guwahati in the case of ACIT vs. Williamson Financial Services Ltd. reported in [2022] 140 taxmann.com 164 (Guwahati - Trib.). (Judicial Member herein being party to the said decision), to submit that the said explanation to Section 14A of the Act is retrospectively applicable.

5.

However, the ld. AR of the assessee, has relied upon the recent decision of the Hon'ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd. (ITA 204/2022) judgment dated 20/07/2022, wherein, it has been held that the aforesaid explanation inserted to Section 14A of the Act is applicable prospectively.

6.

Respectfully abiding by the principle of judicial hierarchy, the Hon'ble Delhi High Court being a Higher Court, we allow the appeal of the assessee.

4 7. In view of the above, the addition made by the lower authorities are not sustainable and the same are ordered to be deleted.

8.

In the result, the appeal of the assessee stands allowed.

Order pronounced in the Open Court on 13/05/2026.

Sd/- Sd/- (Annapurna Gupta ) ( Sanjay Garg) Accountant Member Judicial Member True copy

अहमदाबाद/Ahmedabad, िदनांक/Dated 13/05/2026 टी.सी.नायर, व.िन.स./T.C. NAIR, Sr. PS आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��थ� / The Respondent. 3. संबंिधत आयकर आयु� / Concerned CIT 4. आयकर आयु� अपील ( ) / The CIT(A)- 5. िवभागीय �ितिनिध आयकर अपीलीय अिधकरण अहमदाबाद/DR,ITAT, Ahmedabad. , , 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�ािपत �ित //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपीलीय अिधकरण, ITAT, Ahmedabad

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