THOMSON REUTERS INTERNATIONAL SERVICES PRIVATE LIMITED,MAHARASHTRA vs. COMMISSIONER OF INCOME-TAX (APPEAL), NFAC

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ITA 6592/MUM/2026Status: DisposedITAT Mumbai05 October 2026AY 2014-156 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the disallowance of Rs. 91,43,535/- made under Section 14A read with Rule 8D could not be sustained for Assessment Year 2014-15. The Tribunal found that the NFAC sustained the disallowance by treating the Explanation inserted in Section 14A by the Finance Act, 2022, as retrospective. However, the Tribunal respectfully followed the ratio laid down by the Hon'ble Delhi High Court in PCIT vs. Era Infrastructure (India) Ltd. This decision held that the amendment to Section 14A, though stated to be for removal of doubts, cannot be presumed to have retrospective effect where it alters the law. The amendment was held to be effective from April 1, 2022, applicable for Assessment Year 2022-23 onwards. Since the impugned assessment year (2014-15) is prior to the effective date of the amendment, the Explanation cannot be applied retrospectively. The Tribunal also noted that the assessee had not earned any exempt income. Therefore, the finding of the NFAC treating the amendment as retrospective was set aside, and the disallowance was deleted. The ground raised by the assessee was allowed.

What were the facts?

The assessee, Thomson Reuters International Services Private Limited, filed an appeal against the order of the National Faceless Appeal Centre (NFAC), Delhi, for Assessment Year 2014-15. The NFAC's order upheld a reassessment order passed by the Assistant Commissioner of Income Tax (ACIT), Circle 13(3)(2), Mumbai, under Section 147 of the Income Tax Act, 1961. In the reassessment, the ACIT disallowed Rs. 91,43,535/- under Section 14A read with Rule 8D. The assessee contended that no disallowance under Section 14A was permissible as no exempt income was earned during the year. The NFAC rejected this, relying on an Explanation inserted by the Finance Act, 2022, which it held to be retrospective.

What were the issues?

1. Whether, for Assessment Year 2014-15, a disallowance under Section 14A read with Rule 8D of the Income-tax Rules, 1962, can be sustained when the assessee has admittedly not earned any exempt income during the relevant previous year? Assessee's contention: The assessee argued that Section 14A is not applicable if no exempt income has been earned. It relied on the decision of the Hon'ble Delhi High Court in PCIT vs. Era Infrastructure India Private Limited, which held that the Explanation inserted by the Finance Act, 2022, is prospective and takes effect from April 1, 2022, and cannot be presumed to have retrospective effect. The assessee also submitted its return of income to demonstrate no exempt income was earned. Revenue's contention: The revenue authorities relied on the orders of the lower authorities. The NFAC, in its order, referred to the Explanation inserted in Section 14A by the Finance Act, 2022, with effect from April 1, 2022, and held that it was retrospective in operation, meaning Section 14A would apply even if no exempt income was earned. The NFAC also noted that the case laws relied upon by the assessee were prior to this amendment.

Which sections of the Income-tax Act were involved?

Section 14A,Section 139(1),Section 143(3),Section 147,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI

Before: SHRI VIKRAM SINGH YADAV & SHRI ANIKESH BANERJEE

For Respondent: Smt. Nayana K. Kumar, SR DR

आदेश / ORDER PER: SHRI ANIKESH BANERJEE, (JM):

The instant appeal of the assessee filed against the order of NFAC, Delhi [for brevity “Ld. CIT(A)”], order passed under Section 250 of the Income Tax Act, 1961 (for brevity ‘the Act’), for Assessment Year 2014-2015, date of order 18.03.2026. The impugned order emanated from the order of the Ld. Assistant Commissioner of Income Tax, Circle 13(3)(2), Mumbai (for brevity ‘Ld. AO’), order passed under Section 147 of the Act, date of order 31.05.2023.

2.

The brief facts of the case are that the assessee filed its return of income under section 139(1) of the Act for the impugned AY 2014-15. The assessment was originally completed under section 143(3) of the Act. Subsequently, the assessment was reopened and the reassessment order was passed under section 147 of the Act on 31.05.2023. In the reassessment proceedings, the Ld. AO made a disallowance of Rs.91,43,535/- under section 14A read with Rule 8D of the Income-tax Rules, 1962. The assessee challenged the said disallowance before the Ld. CIT(A), inter alia, on the ground that no exempt income had been earned during the relevant previous year and, therefore, no disallowance under section 14A of the Act could be made. The Ld. CIT(A), however, rejected the contention by referring to the Explanation inserted in section 14A by the Finance Act, 2022 with effect from 01.04.2022 and holding that the said Explanation was retrospective in operation and, consequently, section 14A would apply even where no exempt income had been earned. The assessee, being aggrieved, is in appeal before us.

3.

The Ld. AR challenged the legal ground related to validity for application of section 14A where the assessee had not earned any exempted income. The Ld. CIT(A) has dealt the issue by referring to the Explanation inserted in section 14A by the Finance Act, 2022 with effect from 01.04.2022 and holding that the said Explanation was retrospective in operation and, consequently, section 14A would apply even where no exempt income had been earned. So, the impugned assessment year shall be covered with the said provisions. The Ld.

AR contended that the observations of the Ld. CIT(A) related to retrospective effect related Explanation in Finance Act, 2022 for section 14A is bad in law. The issue is duly covered by the Hon'ble Delhi High Court in favour of the assessee in the case of PCIT vs. Era Infrastructure India Private Limited, reported in [2022] 141 taxmann.com 289, wherein the Hon'ble Court has considered that the explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effect. So, the issue is squarely covered with the fact that the assessee had not earned any exempt income. So, section 14A will not apply. The Ld. AR filed the copy of the return where it is clearly depicted that the assessee had not earned any exempt income in the impugned assessment order.

4.

The Ld. DR argued and relied on the orders of revenue authorities. The Ld. DR invited our attention in the impugned appellate order in paragraph number 5.5 to 5.5.2, which is reproduced as below: “5.5 Ground No. 4: In this ground of appeal, it is contested by the appellant that that on the facts and in the circumstances of the case and in law the AO has erred in disallowing INR 91,43,535 under Section 14A on r.w.r 8D on account of investment made in equity shares of M/s Omnesys Technologies Pvt. Ltd. Itwas submitted by appellant that disallowance under Section 14A of the IT Act cannot be made, since the Appellant has not earned any exempt income during the year. In this connection, appellant has relied upon the following case laws: Sr. Page Judgement Citation No Nos. . CIT v. Chettinad Logistics (P.) 1. [2018] 95 taxmann.com 250 (SC) 39-40 Ltd. CIT v. Chettinad Logistics (P.) [2017] 80 taxmann.com 221 (Madras 2. 41-46 Ltd. HC) PCIT v. Oil Industry Development 3. [2019] 103 taxmann.com 326 (SC) 47-48 Board 4. Cheminvest Ltd. v. CIT-IV [2015] 61 taxmann.com 118 (Delhi HC) 49-55 [2020] 121 taxmann.com 177 (Bombay 5. PCIT v. Kohinoor Project (P.) Ltd. 56-58 HC) PCIT v. Red Chillies [2020] 116 taxmann.com 770 (Bombay 6. 59-60 Entertainment (P.) Ltd. HC) 7. PCIT vs. Ballarpur Industries Ltd. ITA Nos. 51 of 2016 (Bombay HC) 61-62

5.5.1 In this connection, it is observed that an Explanation as under has been subsequently inserted by the Finance Act, 2022 wef 01.04.2022 which reads as under: "Explanation. For the removal of doubts, its 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." 5.5.2 The case laws of the higher judicial authorities, as quoted by the appellant above are respectfully perused and appear to be prior to the above amendment in statute. The above amendment clearly provides that section 14A is applicable even in the circumstance when the appellant does not have any exempt income. It is also apparent from the wording of the explanation that the same shall be deemed to have always applied, which is indicative of retrospective operation. In view of the same, I am inclined to agree with the findings of AO on this issue. Accordingly, this ground of appeal is hereby dismissed.”

5.

We have heard the rival submissions and perused the material available on record. The limited controversy before us is whether, for AY 2014-15, a disallowance under section 14A read with Rule 8D can be sustained when admittedly the assessee had not earned any exempt income during the relevant previous year. The assessee has also placed reliance on its return of income to demonstrate that no exempt income was earned during the year.

We find that the Ld. CIT(A) sustained the disallowance principally by relying upon the Explanation inserted in section 14A by the Finance Act, 2022 with effect from 01.04.2022 and treating the said amendment as retrospective. The Ld. CIT(A) observed that, by virtue of the expression “shall be deemed to have always applied”, section 14A would operate even in a year in which no exempt income had accrued, arisen or been received.

6.

The issue regarding the temporal operation of the aforesaid amendment has been considered by the Hon’ble Delhi High Court in Era Infrastructure (India) Ltd. (supra). The Hon’ble High Court, after considering the Memorandum to the Finance Bill, 2022 as well as the principles governing retrospective operation of statutory amendments, held that the amendment to section 14A introduced by the Finance Act, 2022, though couched as being “for removal of doubts”, cannot be presumed to have retrospective effect where it alters or changes the law as it earlier stood. The amendment was held to take effect from 01.04.2022 and to apply in relation to AY 2022-23 and subsequent assessment years.

7.

In the present case, the impugned assessment year is A.Y. 2014-15, which is prior to the effective date of the amendment. Therefore, respectfully following the ratio laid down by the Hon’ble Delhi High Court in Era Infrastructure (India) Ltd. (supra), the Explanation inserted in section 14A by the Finance Act, 2022 cannot be applied retrospectively to the year under consideration. The material placed before us further indicates that the assessee had not earned any exempt income during the relevant previous year. Accordingly, in the facts of the present case and respectfully following the ratio laid down in Era Infrastructure (India) Ltd. (supra), the disallowance of Rs.91,43,535/- made under section 14A read with Rule 8D cannot be sustained.

The finding of the Ld. CIT(A) treating the amendment brought by the Finance Act, 2022 as retrospective is, therefore, set aside and the impugned disallowance is deleted. The ground raised by the assessee on this issue is allowed.

8.

In the result, the appeal of the assessee bearing ITA No. 6592/Mum/2026 is allowed.

Order pronounced in the open court on 05th day of October 2026.

Sd/- Sd/-

(VIKRAM SINGH YADAV) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, िदनांक/Dated: 05/10/2026 Soumili, PS

Copy of the Order forwarded to: अपीलाथ�/The Appellant , 1. �ितवादी/ The Respondent. 2. आयकरआयु� CIT 3. िवभागीय�ितिनिध, आय.अपी.अिध., मुंबई/DR, ITAT, 4. Mumbai गाड�फाइल/Guard file. 5.

BY ORDER, ABHINAV ANANT Digitally signed by ABHINAV ANANT GAVANDE //True Copy// GAVANDE Date: 2026.10.15 15:47:02 +05'30' (Asstt. Registrar), ITAT, MUMBAI

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