ACIT., CIRCLE-5(1), HYDERABAD vs. ENGENRIN HYDRO POWER LIMITED, HYDERABAD

Facts

The Revenue filed appeals against the orders of the CIT(A) which deleted the additions made by the Assessing Officer (AO) under section 14A r.w.r.8D of the Income Tax Act. The AO had disallowed expenditure related to exempt income, even though the assessee had not earned any exempt income during the assessment years.

Held

The Tribunal held that Section 14A of the Income Tax Act cannot be invoked to disallow expenditure if no exempt income has been earned by the assessee in the relevant assessment year. The amendment made by the Finance Act, 2022, inserting an Explanation to Section 14A, is effective from April 1, 2022, and cannot be applied retrospectively.

Key Issues

Whether disallowance under Section 14A can be made when no exempt income has been earned by the assessee.