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Facts
The assessee engaged in business of technical gases filed a return showing a loss. The AO disallowed Rs. 4,51,181/- u/s 14A by applying Rule 8D. The CIT(A) confirmed this disallowance. The assessee argued that no exempt income was earned, hence section 14A was not applicable.
Held
The Tribunal held that the assessee had not earned any exempt income. Relying on the decision of the Madras High Court, it was held that no disallowance is called for u/s 14A when there is no exempt income. The explanation added to Section 14A w.e.f 01.04.2022 was held to be prospective.
Key Issues
Whether disallowance u/s 14A is applicable when the assessee has not earned any exempt income. Applicability of the explanation added to Section 14A w.e.f 01.04.2022.
Sections Cited
143(3), 143(3A), 143(3B), 14A, 8D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘D’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI JAGADISH
आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of the order of Learned Commissioner of Income Tax (NFAC), Delhi [hereinafter “CIT(A)”] dated 23.07.2025 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 143(3A) & r.w.s 143(3B) of the Income-tax Act,1961 (hereinafter “the Act”) dated 03.04.2021.
The assessee is engaged in the business of production, applied research and distribution of technical gases. The assessee has filed return of income showing total loss of Rs. 5,09,61,320/-. The A.O in the assessment order passed u/s.143(3) of the Act has made disallowance u/s. 14A of the Act of Rs. 4,51,181/- by applying Rule 8D of the Income Tax Rules, 1962. The assessee has contended that there is no exempt income and therefore, no disallowance is called for u/s. 14A of the Act. On appeal, the Ld. CIT(A) has confirmed the disallowance.
The Ld. Authorized Representative (A.R) of the assessee has submitted that the assessee has made investment in its subsidiary company during the A.Y 2015-16, which was classified as a non current investment. The subsidiary company has net less during the year and therefore, has not declared any dividend. The Ld. AR has submitted that there is no dividend or any other exempt income during the year and therefore, Section 14A r/w. 8D of the Rules has no application. The Ld. AR in this respect has relied on the decision of Hon’ble Apex Court in the case of CIT v. Chettinad Logistics (P.) Ltd.
in SLP (Civil) Diary No.016194/2018 (SC), decision of Hon’ble Madras High Court in the case of CIT vs. Chettinad Logistics (P.) Ltd. in TCS No.24 of 2017 (Mad.) and the assessee has also relied on the decision of Honb’le in the case of Redington (India) Ltd. vs. ACIT [2017] in TCA No.520/2016 (Mad.).
On the other hand, the Ld. Departmental Representative (DR), has relied on the orders of lower authorities and submitted that now it has been explained that Section 14A of the Act is applicable even if there is no income earned or approved during the year.
We have heard the rival submissions, and perused the materials available on record. It is evident from the computation of income that the assessee has not earned any exempt income. It has been held by Hon’ble Madras High Court in the case of Chettinad Logistics (P) Ltd., reported in 80 taxmann.com 221 (Mad.), that no disallowance is called for u/s. 14A of the Act, in cases where there is no exempt income. As regard to arguments of Ld. DR that explanation has been added in Section 14A of the Act regarding applicability of Section 14A of the Act even if there is no exempt income, the courts have held that the explanation added w.e.f 01.04.2022 is prospective in nature. We accordingly, delete the disallowances made by the A.O.
In the result, the appeal filed by the assessee is allowed.
Order pronounced on 27th day of November, 2025 at Chennai.