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Facts
The assessee appealed against an addition made under Section 14A read with Rule 8D for AY 2017-18, contending that no exempt income was earned during the year. The CIT(A) had upheld the addition, applying the Explanation to Section 14A, which was inserted by the Finance Act, 2022, holding it applicable even without accrued exempt income.
Held
The Tribunal held that no disallowance under Section 14A read with Rule 8D can be made if the assessee has not earned any exempt income. It further ruled that the Explanation to Section 14A, inserted by the Finance Act, 2022, is prospective in nature and therefore not applicable to the Assessment Year 2017-18.
Key Issues
Whether an addition under Section 14A read with Rule 8D is justified when no exempt income is earned, and whether the Explanation to Section 14A, inserted by the Finance Act, 2022, has retrospective application.
Sections Cited
14A, 8D
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI K.NARASIMHA CHARY & SHRI S. BALAKRISHNAN
आदेश / ORDER PER K. NARASIMHA CHARY, J.M: Aggrieved by the order dated 04/01/2024 passed by the learned Commissioner of Income Tax (Appeals), Na�onal Faceless Appeal Centre, Delhi (“Ld. CIT(A)”), in the case of Ace Urban Developers Private Limited (“the assessee”), assessee preferred this appeal. 2. Only issue involved in this appeal is the addi�on U/s. 14A of the Income Tax Act, 1961 (“the Act”) read with rule 8D of the Income Tax Rules, 1962 (“the Rules”). According to the assessee, during the year, assessee did not earn any exempt income and therefore, in terms of the consistent view taken by various High Courts, no addi�on could be made by invoking the provisions of sec�on 14A read with rule 8D of the Act.
The assessee pleaded so before the learned CIT(A) also. But, as could be seen from paragraph 6.6 of the impugned order, learned CIT(A) discarded the same by holding that under Explana�on to sec�on 14A inserted by the Finance Act, 2022, with effect from 01/04/2022, the provisions of sec�on 14A shall apply even in a case, where no exempt income had accrued during the year.
Aggrieved by such finding of learned CIT(A), assessee preferred this appeal and submi�ed that the Explana�on inserted to sec�on 14A in the Finance Act, 2022 with effect from 01/04/2022 cannot be given retrospec�ve effect and, it is so held by the Hon’ble High Court of Delhi in the case of PCIT vs. Era Infrastructure (India) Limited [2022] 141 taxmann.com 289 (Delhi).
Learned Departmental Representa�ve (“learned DR”) vehemently relied on the orders of the lower Authori�es.
We have gone through the record in the light of the submissions made on either side. It can be seen from the impugned order that the assessee had taken the plea that no exempt income was earned by it during the year under considera�on. In the case of Principle Commissioner of Income Tax vs. IL&FS Energy Development Company Ltd (2017) 84 taxmann.com 186 (Delhi), the Hon’ble Delhi High Court held that no disallowance could be made U/s. 14A of the Act, if no exempt income was earned by the assessee. Further, in the case of PCIT vs. Era Infrastructure (India) Limited (supra), the Hon’ble Delhi High Court has held that the Explana�on to sec�on 14A cannot be presumed to have retrospec�ve effect and it shall be made applicable only with effect from 01/04/2022.
Respec�ully following the view taken by the Hon’ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Limited (supra), wherein it was held that the Explana�on to sec�on 14A is only prospec�ve in nature and cannot be made applicable to the AY 2017-18, we hold that there cannot be any addi�on by invoking the provisions of sec�on 14A read with Rule 8D of the Act in the year in which no exempt income is earned by the assessee. The Grounds raised
by the assessee are answered accordingly.
8. In the result, appeal of the assessee is allowed. Order pronounced in the open court on the 17th January, 2025.