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Facts
The Assessing Officer (AO) made a disallowance of Rs. 7,50,65,938/- under Section 14A, asserting that the assessee had substantial investments. The assessee contended that no exempt income was earned during the year and that its own funds significantly exceeded the investments. The CIT(A) deleted the disallowance, relying on jurisdictional High Court precedents and previous orders, concluding that there was no nexus with borrowed funds and no exempt income.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that the assessee did not earn any exempt income for the relevant year. It also observed that the assessee's own funds were substantially higher than its investments, and the AO failed to establish a direct nexus between borrowed funds and the investments. Consequently, based on binding judicial precedents, the Tribunal found no error in the deletion of the disallowance under Section 14A.
Key Issues
Whether disallowance under Section 14A can be made when the assessee has not earned any exempt income and its own funds exceed the investments.
Sections Cited
Section 14A, Rule 8D, CBDT's Circular 05/2014, Section 143(3), Section 144B, Section 250, Income-tax Act, 1961
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “A” BENCH, AHMEDABAD
Before: DR. B.R.R. KUMAR, VICE-SHRI T.R. SENTHIL KUMAR
(Assessment Year: 2020-21) Joint Commissioner of Vs. Nirma Chemical Works Income-tax (OSD), Private Limited, Circle 3(1)(1), Ahmedabad Nirma House, Near Income Tax Circle, Ashram Road, Ahmedabad-38009 [PAN : AAACN 5353 L] (Appellant) .. (Respondent) Assessee represented by : Shri Hemanshu Shah, CA Revenue represented by: Shri Alpesh Parmar, CIT (DR) Date of Hearing 25.02.2026 Date of Pronouncement 26.02.2026 O R D E R PER DR. B.R.R. KUMAR, VICE-PRESIDENT :
This appeal has been filed by the Revenue against the order of the Ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as "CIT(A)" for short) dated 07.11.2025, passed under Section 250 of the Income-tax Act, 1961 [hereinafter referred to as "the Act" for short], for Assessment Year (AY) 2020-21. 2. The solitary ground raised by the Revenue reads as under:-
Ld. CIT(A) has erred in deleting the addition of Rs. 7,50,65,938 under section 14A computed as per Rule 8D applicable during AY 2020-21, without appreciating CBDT's Circular 05/2014 and the clarificatory Explanation to Section 14A, by relying upon decisions applicable for the period before insertion of Explanation to Section 14A and amendment of Rule 8D w.e.f. 02/06/2016.
In this case, the Assessing Officer completed assessment under section 143(3) r.w.s. 144B on 16.09.2022 and made disallowance under section 14A of Rs. 7,50,65,938/-, observing that the assessee had investments of Rs. 750.64 crores. The assessee contended that no exempt income was earned during the year and that own funds i.e. Rs. 910.74 crores, exceeded investments. JCIT Vs. Nirma Chemical Works Pvt Ltd Asst. Year : 2020-21 - 2–
Aggrieved by the order of the Assessing Officer, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A), following various decisions of the Hon’ble Gujarat High Court, including in the case UTI Bank Ltd. (32 taxmann.com 370)(Guj.), CIT Vs. Gujarat State Fertilizers & Chemicals Ltd. (217 Taxman 229)(Guj. HC), CIT Vs. Suzlon Energy Ltd. (354 ITR 630) (Guj. HC), CIT Vs. Gujarat Power Corporation Ltd. (325 ITR 583) (Guj. HC), as also relying on his predecessor’s orders in assessee’s own case for preceding assessment years i.e. AY 2015-16, 2017-18, 2018-19, deleted the disallowance holding that no nexus with borrowed funds was established and no exempt income was earned.
Aggrieved by the order of the Ld. CIT(A), the Revenue is now in appeal before the Tribunal.
We have heard the rival contentions of both the parties and perused the material available on record. It is undisputed that the assessee did not earn any exempt income during the year. Further, own funds were substantially higher than investments and no direct nexus of borrowed funds with investments has been shown by the Assessing Officer. Therefore, in view of binding judicial precedents of the jurisdictional High Court (supra), we find no infirmity in the order of the Ld. CIT(A) deleting the disallowance of Rs. 7,50,65,938/- u/s 14A of the Act. The ground raised by the Revenue is thus dismissed.
In the result, the appeal of the Revenue is dismissed.
The order is pronounced in the open Court on 26.02.2026 (T.R. SENTHIL KUMAR) VICE-PRESIDENT Ahmedabad; Dated 26/02/2026 **btk JCIT Vs. Nirma Chemical Works Pvt Ltd Asst. Year : 2020-21 - 3–