DCIT, CENTRAL CRICLE 29, NEW DELHI vs. M/S PANACEA BIOTECH LIMITED, DELHI

ITA 1518/DEL/2026Status: DisposedITAT Delhi06 October 2026AY 2018-197 pages
AI SummaryDismissed

What were the facts?

The Revenue is in appeal against the order of the Ld. CIT(A) for Assessment Year 2018-19. The assessee, M/s Panacea Biotech Limited, filed its return declaring a total loss and book profits of Nil. The Assessing Officer (AO) selected the case for scrutiny and, after issuing notices and considering submissions, passed an assessment order u/s 143(3) r.w.s. 144B. The AO made an addition of Rs. 2,19,07,998/- towards duty drawback and a disallowance of Rs. 3,38,56,490/- under Section 14A read with Rule 8D. The assessee appealed to the Ld. CIT(A), who deleted the disallowance under Section 14A. The Revenue has appealed this deletion to the Income Tax Appellate Tribunal (ITAT). The appeal was filed with a delay of 11 days, which was condoned by the Tribunal.

What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A of the Act read with Rule 8D cannot exceed the exempt income earned during the relevant previous year. The assessee's exempt income was Rs. 24,000/-, and the assessee had made a suo motu disallowance of Rs. 24,000/-, which was not controverted by the Revenue. Regarding the applicability of the Finance Act, 2022 amendment, the Tribunal relied on the decision of the Hon'ble jurisdictional High Court in Pr.CIT vs. Era Infrastructure India Ltd., which held that the amendment takes effect from 1st April 2022 and applies from AY 2022-23 onwards, thus not operating retrospectively. Since the assessment year in question is 2018-19, the amendment has no application. Consequently, as the assessee had already made a suo motu disallowance equal to the exempt income, no further disallowance was required. The Tribunal found no infirmity in the order of the Ld. CIT(A) and dismissed the grounds of appeal raised by the Revenue.

What were the issues?

1. Whether the Ld. CIT(A) erred in deleting the disallowance of Rs. 3,38,56,490/- made under Section 14A of the Income Tax Act, 1961 ('the Act') read with Rule 8D, without considering that the Assessing Officer had correctly invoked the computation mechanism? 2. Whether the Ld. CIT(A) erred in relying on the decision of the Hon'ble Delhi High Court in Joint Investments Pvt. Ltd. Vs CIT, as the principle that disallowance cannot exceed the exempt income earned during the year is contrary to the clarification provided by the Finance Act, 2022, which confirms that disallowance under Section 14A is attracted even if no exempt income is earned? Assessee's Contentions: The assessee contended that the exempt income for the year was Rs. 24,000/- only, and disallowance cannot exceed the exempt income. They relied on various decisions supporting this principle and also argued that the amendment brought by the Finance Act, 2022, is applicable prospectively. The assessee also relied on its own case for AY 2020-21 on identical issues. Revenue's Contentions: The Revenue contended that even in cases where there is no exempt income, disallowance under Section 14A can be made as per the amendment brought about by the Finance Act, 2022. They further contended that this amendment is applicable retrospectively and prayed that the order of the AO be upheld.

Which sections of the Income-tax Act were involved?

Section 14A,Section 250,Section 143(3),Section 144B,Section 40A(7)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI

Before: MS KAVITHA RAJAGOPAL

For Appellant: Shri Madhur Aggarwal, Advocate
For Respondent: Shri Raghuveer Singh, Sr. DR
Hearing: 06.07.2026Pronounced: 06.10.2026

Per Kavitha Rajagopal, JM: This appeal is filed by the Revenue challenging the order of the Ld. Commissioner of Income Tax (Appeals) [‘the Ld. CIT(A)’, for short] passed u/s 250 of the Income Tax Act, 1961 (‘the Act’, for short) relevant to Assessment Year 2018-19. DCIT vs. M/s Panacea Biotech Ltd.

2.

The Revenue has raised the following grounds of appeal:- “1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of Rs.3,38,56,490/- made under Section 14A of the Act read with Rule 8D, without considering that the Assessing Officer had correctly invoked the computation mechanism.

2.

That on the facts and in the

The order continues below.

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