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Facts
The revenue appealed an order of the CIT(A) which deleted a disallowance made under Section 14A of the Income Tax Act. The assessee had made investments and claimed finance costs, while also having reserves and borrowings.
Held
The Tribunal held that since no exempt income was earned by the assessee, Section 14A read with Rule 8D was not applicable. Furthermore, the AO's reliance on a specific ITAT decision was reversed by the Delhi High Court, and amendments to Section 14A were prospective.
Key Issues
Whether disallowance under Section 14A of the Income Tax Act is sustainable when no exempt income has been earned by the assessee.
Sections Cited
14A, 8D, 250
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: HON’BLE SHRI SANDEEP GOSAIN & HON’BLE SHRI PRABHASH SHANKAR
Date of Hearing 15.05.2025 Date of Pronouncement 04.08.2025 आदेश / ORDER
PER SANDEEP GOSAIN, JM:
The present appeal has been filed by the revenue and CO has been filed by the assessee challenging the 2 & CO. No. 87/Mum/2025 impugned order dt. 18.01.2025 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre, Delhi / CIT(A), for the A.Y 2021-22. First of all we take up revenue appeal in . A.Y 2021-22
Both the grounds raised by the revenue are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in deleting the disallowance made u/s 14A of the Act. Therefore we have decided to take all the grounds together and to adjudicate the same through the present consolidated order.
As per the facts of the case, in the balance sheet, it was noticed that assessee had made investments in books account, which has closing value of Rs. 3758.50 lakhs for the year ended 31.03.2021, further as per the balance sheet it was noticed that reserve and surplus is of Rs. 178.59 lakhs and borrowings is of Rs. 4395.00 lakhs and also the assessee has claimed finance cost of Rs. 441.20 lakhs.
Since as per AO there was investment in the books of account and the balance sheet reflects reserves and surplus and also borrowings. Therefore presuming that investment can yield exempt income and hence considering the circular No. 5 of 2014 issued by CBDT and also relying 3 & CO. No. 87/Mum/2025 upon the decision of ITAT in the case of Chem Investment Ltd Vs.ITO, 314 ITR 86, made disallowance u/s 14A r.w.r 8D of the Act.
However, Ld. CIT(A) deleted the disallowance, the operative portion of its order is at para 7.3 is as under:
7.3. In view of the facts of the case and judicial precedence, since no exempt income has been earned by the assessee, provisions of section 14A r.w.r 8D does not apply in the case of assessee. Therefore, the disallowance of Rs. 4,47,80,000/- made by the AO u/s. 14A r.w.r 8D is deleted. Accordingly, grounds of appeal are Allowed.
6. We are of the view that the order relied upon by AO of ITAT in the case of Chem Investment Ltd (supra) was reversed by Hon’ble Delhi High Court and since there was admittedly ‘no exempt income’ earned by assessee during the year under consideration and also the fact that the amendment in Sec. 14A of the Act itself is applicable prospectively from the A.Y 1.04.2022 as held by Hon’ble Madhya Pradesh High Court in the case of PCIT Vs. Keti Constructions Ltd, [2024] 162 taxman.com 278 (MP).
7. Even no new facts, circumstances or documents have been placed before us during the course of proceedings in orders to controvert or rebut the lawful findings so recorded by Ld. CIT(A). Therefore we find no reasons to interfere into or to deviate from the well reasoned finding 4 & CO. No. 87/Mum/2025 recorded by Ld.CIT(A). Thus we dismiss the grounds raised by the revenue.
In the result appeal filed by the revenue stands dismissed.
CO No. 87/Mum/2025, A.Y 2021-22. 9. Since we have dismissed the appeal filed by the revenue and upheld the order of Ld. CIT(A), thereby deleting the additions. Therefore the CO filed by the assessee has not been adjudicated as the same become academic.
In the result the appeal filed by the revenue and assessee are stands dismissed