ACIT-6(1)(1), MUMBAI, MUMBAI vs. ESSEL UTILITIES DISTRIBUTION COMPANY LTD., MUMBAI

This appeal by the Revenue is directed against order dated 18/02/2025 passed by the Ld. Commissioner of Income- tax(Appeals)-National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: i. Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in in law, the Ld. CIT(A) has erred in not appreciating that Rule not appreciating that Rule 8D of the Income Tax Rules, 1962 can be applied even when 8D of the Income Tax Rules, 1962 can be applied even when 8D of the Income Tax Rules, 1962 can be applied even when no exempt income has been earned during the year on the no exempt income has been earned during the year on the no exempt income has been earned during the year on the investments made in as much as making investments requires investments made in as much as making investments requires investments made in as much as making investments requires systematic planning and management that cannot be systematic planning and management that cannot be systematic planning and management that cannot be performed without incurring any expenses and therefore to rmed without incurring any expenses and therefore to rmed without incurring any expenses and therefore to cover such expenses, Rule 8D of Income Tax Rules, 1962 is cover such expenses, Rule 8D of Income Tax Rules, 1962 is cover such expenses, Rule 8D of Income Tax Rules, 1962 is attracted even when no exempt income is earned? attracted even when no exempt income is earned? attracted even when no exempt income is earned? ii. "Whether on the facts and in the circumstances of the case "Whether on the facts and in the circumstances of the case "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justifi and in law, the Ld. CIT(A) was justified in deletion of ed in deletion of disallowance made by the AO u/s 14A r.w.r. 8D without disallowance made by the AO u/s 14A r.w.r. 8D without disallowance made by the AO u/s 14A r.w.r. 8D without appreciating that CBDT vide circular No 5/2014 has clarified appreciating that CBDT vide circular No 5/2014 has clarified appreciating that CBDT vide circular No 5/2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of that Rule 8D r.w.s. 14A of the Act provides for disallowance of that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has the expenditure even where taxpayer in a particular year ha the expenditure even where taxpayer in a particular year ha not earned any exempt income and explanation to Section 14A not earned any exempt income and explanation to Section 14A not earned any exempt income and explanation to Section 14A has further clarified this position?" has further clarified this position?" iii. " Whether on the facts and in the circumstances of the case " Whether on the facts and in the circumstances of the case " Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition and in law, the Ld. CIT(A) has erred in deleting the addition and in law, the Ld. CIT(A) has erred in deleting the addition made to book profit on account of made to book profit on account of disallowance u/s 14A disallowance u/s 14A holding that section 14A is not applicable in the case of MAT holding that section 14A is not applicable in the case of MAT holding that section 14A is not applicable in the case of MAT provision u/s 115JB of the Act, when clause (1) of Explanation provision u/s 115JB of the Act, when clause (1) of Explanation provision u/s 115JB of the Act, when clause (1) of Explanation to Sec 115JB clearly mention that the amount relatable to any to Sec 115JB clearly mention that the amount relatable to any to Sec 115JB clearly mention that the amount relatable to any income to which section 10. (except clause 38) or section 11 or income to which section 10. (except clause 38) or income to which section 10. (except clause 38) or section 12 has to be added to the book profit which is section 12 has to be added to the book profit which is section 12 has to be added to the book profit which is applicable from A.Y. 2007 applicable from A.Y. 2007-08 and decisions quoted by the 08 and decisions quoted by the Tribunal pertain prior to the introduction of the said clause?" Tribunal pertain prior to the introduction of the said clause?" Tribunal pertain prior to the introduction of the said clause?" iv. The Appellant prays that the order of the CIT(A) on the above The Appellant prays that the order of the CIT(A) on the above The Appellant prays that the order of the CIT(A) on the above grounds unds unds be be be set set set aside aside aside and and and that that that of of of the the the Assessing Assessing Assessing Officer Officer be restored.

2. Briefly stated, the relevant facts of the case are that during the Briefly stated, the relevant facts of the case are that during the Briefly stated, the relevant facts of the case are that during the assessment year in question, the assessee company was engaged in assessment year in question, the assessee company was engaged in assessment year in question, the assessee company was engaged in the business of providing support services to entities operating in the business of providing support services to entities the business of providing support services to entities the domain of power distribution and transmission. The assessee the domain of power distribution and transmission. The assessee the domain of power distribution and transmission. The assessee filed its return of income on 30.09.2015, declaring Nil income. The filed its return of income on 30.09.2015, declaring Nil income. The filed its return of income on 30.09.2015, declaring Nil income. The return was selected for scrutiny assessment, and statutory notices return was selected for scrutiny assessment, and statutory notices return was selected for scrutiny assessment, and statutory notices under the Income-tax Act, 1961 (hereinafter tax Act, 1961 (hereinafter referred to as “the Act”) referred to as “the Act”) were duly issued and complied with. were duly issued and complied with.

2.1 During the course of the assessment proceedings, the Assessing During the course of the assessment proceedings, the Assessing During the course of the assessment proceedings, the Assessing Officer observed that the assessee had made investments to the Officer observed that the assessee had made investments to the Officer observed that the assessee had made investments to the tune of ₹82.80 crores in shares of related entities. However, no 82.80 crores in shares of related entities. However, no 82.80 crores in shares of related entities. However, no disallowance under Section 14A of the Act was offered suo-motu by disallowance under Section 14A of the Act was offered disallowance under Section 14A of the Act was offered the assessee. In response, the assessee submitted that no exempt the assessee. In response, the assessee submitted that no exempt the assessee. In response, the assessee submitted that no exempt income had been earned during the relevant previous year and, income had been earned during the relevant previous year and, income had been earned during the relevant previous year and, therefore, no disallowance under Section 14A was warranted. therefore, no disallowance under Section 14A was warranted. therefore, no disallowance under Section 14A was warranted.

2.2 The Assessing Officer, not being satisfied with the explanation The Assessing Officer, not being satisfied with the explanation The Assessing Officer, not being satisfied with the explanation tendered, proceeded to disallow expenditure under Section 14A of tendered, proceeded to disallow expenditure under Section 14A of tendered, proceeded to disallow expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The said the Act read with Rule 8D of the Income Tax Rules, 1962. The said the Act read with Rule 8D of the Income Tax Rules, 1962. The said disallowance was made not only for the purpose of computation of disallowance was made not only for the purpose of computati disallowance was made not only for the purpose of computati income under the regular provisions of the Act, but also for the income under the regular provisions of the Act, but also for the income under the regular provisions of the Act, but also for the computation of book profit under Section 115JB thereof. computation of book profit under Section 115JB thereof. computation of book profit under Section 115JB thereof.

2.3 Aggrieved, the assessee preferred an appeal before the Aggrieved, the assessee preferred an appeal before the Aggrieved, the assessee preferred an appeal before the ld CIT(A), who, relying upon the decision of the Income Tax Appellate , who, relying upon the decision of the Income Tax Appellate , who, relying upon the decision of the Income Tax Appellate Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for the preceding assessment year, deleted the disallowance so made. the preceding assessment year, deleted the disallowance so made. the preceding assessment year, deleted the disallowance so made.

2.4 The Revenue, in turn, being dissatisfied with the appellate The Revenue, in turn, being dissatisfied with the appellate The Revenue, in turn, being dissatisfied with the appellate order, preferred the present appeal before the Tribunal. The short order, preferred the present appeal before the Tribunal. order, preferred the present appeal before the Tribunal. question arising for consideration is whether any disallowance question arising for consideration is whether any disallowance question arising for consideration is whether any disallowance under Section 14A of the Act is permissible in a case where the under Section 14A of the Act is permissible in a case where the under Section 14A of the Act is permissible in a case where the assessee has not earned any exempt income during the relevant assessee has not earned any exempt income during the relevant assessee has not earned any exempt income during the relevant assessment year.

Particulars As at 31/03/2015 As at 31/03/2015 SND Limited (8,17,64,250 equity shares of SND Limited (8,17,64,250 equity shares of 81,76,42,500 Rs.10 each) Utilities Grid Solution Limited (formerly as Utilities Grid Solution Limited (formerly as 98,99,940 ‘Essel Adi Smart Grid Solutions Ltd’) (9,89,994 ‘Essel Adi Smart Grid Solutions Ltd’) (9,89,994 equity shares of Rs.10 each) equity shares of Rs.10 each) 5,00,000 Last Mile VAS Management Ltd (50,000 equity Last Mile VAS Management Ltd (50,000 equity shares of Rs.10 each) shares of Rs.10 each)

Total Non-Current Investments Current Investments 82,80,42,440 82,80,42,440 3.1 The Learned CIT(A), in adjudicating the issue, has relied upon The Learned CIT(A), in adjudicating the issue, has relied upon The Learned CIT(A), in adjudicating the issue, has relied upon the Tribunal’s decision the Tribunal’s decision in the assessee’s own case for Assessment in the assessee’s own case for Assessment Year 2014–15 (ITA No. 4707/Mum/2018), wherein it was held that 15 (ITA No. 4707/Mum/2018), wherein it was held that 15 (ITA No. 4707/Mum/2018), wherein it was held that in the absence of actual exempt income earned or received during in the absence of actual exempt income earned or received during in the absence of actual exempt income earned or received during the relevant previous year, disallowance under Section 14A cannot the relevant previous year, disallowance under Section 14A cannot the relevant previous year, disallowance under Section 14A cannot be sustained.

3.2. The Tribunal had, in turn, followed the pronouncement of the The Tribunal had, in turn, followed the pronouncement of the The Tribunal had, in turn, followed the pronouncement of the Hon’ble Delhi High Court in Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT [(2015) 378 ITR 33 (Del)], wherein it was held that the expression "income which 33 (Del)], wherein it was held that the expression "income which 33 (Del)], wherein it was held that the expression "income which does not form part of the total income" in Section 14A of the Act does not form part of the total income" in Section 14A of the A does not form part of the total income" in Section 14A of the A envisages that there must be actual receipt of income, not envisages that there must be actual receipt of income, not envisages that there must be actual receipt of income, not includible in the total income, for the provision to be attracted. includible in the total income, for the provision to be attracted. includible in the total income, for the provision to be attracted. Accordingly, in the absence of any such income, disallowance under Accordingly, in the absence of any such income, disallowance under Accordingly, in the absence of any such income, disallowance under Section 14A does not arise. Section 14A does not arise.

3.3 This legal position has also This legal position has also been affirmed by the Hon’ble been affirmed by the Hon’ble Bombay High Court in Bombay High Court in Pr. CIT v. Ballarpur Industries Ltd. Pr. CIT v. Ballarpur Industries Ltd. [ITA No. 51 of 2016, dated 13.10.2016], wherein it 51 of 2016, dated 13.10.2016], wherein it is held that in the held that in the absence of any exempt income, the question of invoking Section absence of any exempt income, the question of invoking Section absence of any exempt income, the question of invoking Section 14A does not arise. The Hon’ble Hi 14A does not arise. The Hon’ble High Court noted the factual gh Court noted the factual finding that no exempt income had been earned by the assessee finding that no exempt income had been earned by the assessee finding that no exempt income had been earned by the assessee and held that the provisions of Section 14A would not apply in such and held that the provisions of Section 14A would not apply in such and held that the provisions of Section 14A would not apply in such a scenario. It was further observed that no substantial question of a scenario. It was further observed that no substantial question of a scenario. It was further observed that no substantial question of law arose from the findings of law arose from the findings of the lower authorities.

3.4 In the present case, it is an undisputed fact that the assessee In the present case, it is an undisputed fact that the assessee In the present case, it is an undisputed fact that the assessee has not earned or received any exempt income during the relevant has not earned or received any exempt income during the relevant has not earned or received any exempt income during the relevant previous year. In view of the binding precedent of the Hon’ble previous year. In view of the binding precedent of the Hon’ble previous year. In view of the binding precedent of the Hon’ble jurisdictional High Court and the set jurisdictional High Court and the settled legal position, no tled legal position, no disallowance under Section 14A of the Act can be sustained. disallowance under Section 14A of the Act can be sustained. disallowance under Section 14A of the Act can be sustained.

3.5 We, therefore, find no infirmity in the order passed by the We, therefore, find no infirmity in the order passed by the We, therefore, find no infirmity in the order passed by the Learned CIT(A), which is in consonance with the judgment of the Learned CIT(A), which is in consonance with the judgment of the Learned CIT(A), which is in consonance with the judgment of the Hon’ble Bombay High Court in Hon’ble Bombay High Court in Ballarpur Industries Ltd. tries Ltd. (supra) and the decision of the Tribunal in the assessee’s own case. Accordingly, the decision of the Tribunal in the assessee’s own case. Accordingly, the decision of the Tribunal in the assessee’s own case. Accordingly, the grounds raised by the Revenue deserve to fail. the grounds raised by the Revenue deserve to fail.