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Facts
The assessee, Nagreeka Foils Ltd., filed appeals against CIT(A) orders for AYs 2010-11, 2011-12, and 2013-14. The appeals contested disallowances made by the AO under Section 14A read with Rule 8D for expenses related to exempt income, and for AY 2011-12, an additional disallowance of interest under Section 36(1)(iii) for interest-free advances to subsidiaries. A delay in filing for AY 2011-12 was condoned by the Tribunal.
Held
The Tribunal, following jurisdictional High Court judgments, held that the disallowance under Section 14A read with Rule 8D should be restricted to only those investments that actually yielded exempt income, and the Finance Act, 2022 amendment to Section 14A applies prospectively. Regarding Section 36(1)(iii), the Tribunal found that the assessee had sufficient interest-free own funds and that advances to subsidiaries were for commercial expediency, thus deleting the interest disallowance. All appeals were allowed.
Key Issues
1. Whether disallowance under Section 14A read with Rule 8D should be restricted to investments that yielded exempt income. 2. Whether the amendment to Section 14A by Finance Act, 2022 applies prospectively. 3. Whether disallowance of interest under Section 36(1)(iii) for interest-free advances to subsidiaries is justified when the assessee has sufficient own funds and the advances are for commercial expediency.
Sections Cited
14A, Rule 8D, 250, 143(3), 263, 143(1), 142(1), 115JB, 40a(ia), 2(24)(x), 36(1)(iii)
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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SHRI PRADIP KUMAR CHOUBEY & SHRI RAKESH MISHRA
order : 22-July-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: These appeals filed by the assessee are against the separate orders of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AYs 2010-11, 2011-12 & 2013- 14 dated 27.06.2024, which have been passed against the assessment Page 2 of 11 Page 3 of 11
Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who deleted the disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 of ₹75,58,500/- and further disallowance of 0.5% of the average value of investments at ₹30,37,03,361/- and granted additional relief to the assessee and the appeal was partly allowed. Further aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before this Tribunal.
Rival submissions were heard and the record and the submissions made have been examined. The assessee has filed the written submission as under: