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Income Tax Appellate Tribunal, MUMBAI BENCH “H (SMC
Before: SHRI OM PRAKASH KANT & SHRI RAHUL CHAUDHARY
ORDER
PER OM PRAKASH KANT, AM
This appeal has been preferred by the assessee against order dated 27.03.2025 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2018-19, raising following grounds:
1 The Ld. CIT(A) erred in confirming the action of the Ld Assessing Officer in making disallowance of Rs.21,94,223/- u/s. 14A of the Act.
Dice Districts (India) Pvt. Ltd. Dice Districts (India) Pvt. Ltd. 2 2 The Ld. AO has erred in levying 2 The Ld. AO has erred in levying interest u/s 234B/ 234C interest u/s 234B/ 234C of the Act. 3 3 3 The The The Ld. Ld. Ld. AO AO AO has has has erred erred erred in in in initiating initiating initiating penalty penalty penalty proceedings under under the Act 2. Briefly stated, the facts of the case are that the assessee is riefly stated, the facts of the case are that the assessee is riefly stated, the facts of the case are that the assessee is engaged in the activity of making investments in group companies. engaged in the activity of making investments in group companies. engaged in the activity of making investments in group companies. For the relevant assessment year, the assessee filed its return of assessment year, the assessee filed its return of assessment year, the assessee filed its return of income on 10.10.2018, declaring a total loss of ₹19,29,974/ income on 10.10.2018, declaring a total loss of 19,29,974/-. The return was selected for scrutiny, and statutory notices under the return was selected for scrutiny, and statutory notices under the return was selected for scrutiny, and statutory notices under the provisions of the Income provisions of the Income-tax Act, 1961 (hereinafter referred to as tax Act, 1961 (hereinafter referred to as "the Act") were issued and duly complied with. In the course of the ) were issued and duly complied with. In the course of the ) were issued and duly complied with. In the course of the assessment proceedings, the Assessing Officer noted that the assessment proceedings, the Assessing Officer noted that the assessment proceedings, the Assessing Officer noted that the assessee had made investments aggregating to ₹59,96,61,550/ assessee had made investments aggregating to 59,96,61,550/- in equity shares of various private limited companies. However, no equity shares of various private limited companies. However, no equity shares of various private limited companies. However, no disallowance under Section 14A of the Act was made by the owance under Section 14A of the Act was made by the owance under Section 14A of the Act was made by the assessee on the ground that no exempt income had been earned assessee on the ground that no exempt income had been earned assessee on the ground that no exempt income had been earned during the year under consideration. The Assessing Officer, during the year under consideration. The Assessing Officer, during the year under consideration. The Assessing Officer, rejecting the said contention and held that the provisions of Section rejecting the said contention and held that the provisions of Section rejecting the said contention and held that the provisions of Section 14A of the Act are applicable even in cases where no exempt income t are applicable even in cases where no exempt income t are applicable even in cases where no exempt income is earned. Invoking Rule 8D of the Income is earned. Invoking Rule 8D of the Income-tax Rules, 1962 tax Rules, 1962 (hereinafter referred to as (hereinafter referred to as "the Rules"), the Assessing Officer ), the Assessing Officer proceeded to compute and disallow a sum of ₹91,05,193/ proceeded to compute and disallow a sum of 91,05,193/-. The assessee carried the matter in appeal. The learned [CIT(A) upheld e matter in appeal. The learned [CIT(A) upheld e matter in appeal. The learned [CIT(A) upheld the disallowance made by the Assessing Officer, placing reliance on the disallowance made by the Assessing Officer, placing reliance on the disallowance made by the Assessing Officer, placing reliance on CBDT Circular No. 5/2014, which, according to the CIT(A), CBDT Circular No. 5/2014, which, according to the CIT(A), CBDT Circular No. 5/2014, which, according to the CIT(A),
Dice Districts (India) Pvt. Ltd. Dice Districts (India) Pvt. Ltd. 3 supported the view that disallowance under Section 14A can be supported the view that disallowance under Section 14A can be supported the view that disallowance under Section 14A can be made irrespective of made irrespective of whether exempt income is earned in the whether exempt income is earned in the relevant year.
We have heard the rival submissions and carefully perused the We have heard the rival submissions and carefully perused the We have heard the rival submissions and carefully perused the material available on record. Before us, learned counsel appearing material available on record. Before us, learned counsel appearing material available on record. Before us, learned counsel appearing on behalf of the assessee submitted that no exempt income was on behalf of the assessee submitted that no exempt income was on behalf of the assessee submitted that no exempt income was earned by the assessee during the relevant assessment year, and earned by the assessee during the relevant assessment year, and earned by the assessee during the relevant assessment year, and therefore, the invocation of Section 14A of the Act was legally herefore, the invocation of Section 14A of the Act was legally herefore, the invocation of Section 14A of the Act was legally unsustainable. In support of this proposition, reliance was placed unsustainable. In support of this proposition, reliance was placed unsustainable. In support of this proposition, reliance was placed on the judgment of the Hon’ble Bombay High Court in Ballarpur on the judgment of the Hon’ble Bombay High Court in on the judgment of the Hon’ble Bombay High Court in Industries Ltd. (ITA No. 51 of 2016) and the judgment of the Hon (ITA No. 51 of 2016) and the judgment of the Hon (ITA No. 51 of 2016) and the judgment of the Hon’ble Delhi High Court in Chem Investment Ltd. v. CIT Chem Investment Ltd. v. CIT [(2015) 378 ITR 33 [(2015) 378 ITR 33 (Del)]. Per contra, the ld DR referred to Explanation below the (Del)]. Per contra, the ld DR referred to Explanation below the (Del)]. Per contra, the ld DR referred to Explanation below the section 14A of the Act to support that section 14A is application section 14A of the Act to support that section 14A is applica section 14A of the Act to support that section 14A is applica even in no exempted income even in no exempted income, though it was inserted w.e , though it was inserted w.e.f. 1.4.2022. Said explanation is reproduced as under: Said explanation is reproduced as under:
“[Explanation. “[Explanation.-For the removal of doubts, it is hereby For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary clarified that notwithstanding anything to the contrary clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall contained in this Act, the provisions of this section shall contained in this Act, the provisions of this section shall apply and shall be deemed to h apply and shall be deemed to have always applied in a ave always applied in a case where the income, not forming part of the total income case where the income, not forming part of the total income case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been under this Act, has not accrued or arisen or has not been under this Act, has not accrued or arisen or has not been received during the previous year relevant to an received during the previous year relevant to an received during the previous year relevant to an assessment year and the expenditure has been incurred assessment year and the expenditure has been incurred assessment year and the expenditure has been incurred
Dice Districts (India) Pvt. Ltd. Dice Districts (India) Pvt. Ltd. 4 during the said previous year in relation to such income said previous year in relation to such income said previous year in relation to such income not forming part of the total income.]” not forming part of the total income.]”
3.1 Learned counsel also drew our attention to the judgment of the 3.1 Learned counsel also drew our attention to the judgment of the 3.1 Learned counsel also drew our attention to the judgment of the Hon’ble Delhi High Court in Hon’ble Delhi High Court in Era Infrastructure (India) Ltd. Era Infrastructure (India) Ltd. [(2022) 141 taxmann.com 289 (Del)], wherein 141 taxmann.com 289 (Del)], wherein the Hon’ble Court, while the Hon’ble Court, while examining the scope of the Explanation inserted by the Finance Act, examining the scope of the Explanation inserted by the Finance Act, examining the scope of the Explanation inserted by the Finance Act, 2022 to Section 14A of the Act, categorically held that the said 2022 to Section 14A of the Act, categorically held that the said 2022 to Section 14A of the Act, categorically held that the said amendment is prospective in nature and would not apply to amendment is prospective in nature and would not apply to amendment is prospective in nature and would not apply to assessment years preceding A.Y. 2023 assessment years preceding A.Y. 2023–24. The relevant part of the relevant part of the decision is reproduced as under: decision is reproduced as under:
“8. Consequently, this Court is of the view that the “8. Consequently, this Court is of the view that the “8. Consequently, this Court is of the view that the amendment of section 14A, which is "for removal of amendment of section 14A, which is "for removal of amendment of section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even doubts" cannot be presumed to be retrospective even doubts" cannot be presumed to be retrospective even where such language is used, if it alter where such language is used, if it alters or changes the s or changes the law as it earlier stood.” law as it earlier stood.”
3.2 In view of the foregoing and respectfully following the judgment In view of the foregoing and respectfully following the judgment In view of the foregoing and respectfully following the judgment of the Hon’ble Delhi High Court in of the Hon’ble Delhi High Court in Era Infrastructure (India) Ltd. Era Infrastructure (India) Ltd. (supra), we are of the considered view that for the assessment year (supra), we are of the considered view that for the assessment year (supra), we are of the considered view that for the assessment year under consideration— —which admittedly precedes A.Y. 2023 which admittedly precedes A.Y. 2023–24—no disallowance under Section 14A of the Act is warranted in the disallowance under Section 14A of the Act is warranted in the disallowance under Section 14A of the Act is warranted in the absence of any exempt income earned by the assessee. Accordingly, absence of any exempt income earned by the assessee. Accordingl absence of any exempt income earned by the assessee. Accordingl the order passed by the learned CIT(A) is set aside and the the order passed by the learned CIT(A) is set aside and the the order passed by the learned CIT(A) is set aside and the disallowance made by the Assessing Officer under Section 14A read disallowance made by the Assessing Officer under Section 14A read disallowance made by the Assessing Officer under Section 14A read
Dice Districts (India) Pvt. Ltd. Dice Districts (India) Pvt. Ltd. 5 with Rule 8D is directed to be deleted. with Rule 8D is directed to be deleted. The grounds of appeal raised The grounds of appeal raised by the assessee are accordingly allowed. accordingly allowed.
In the result, the appeal of the assessee is allowed. the appeal of the assessee is allowed. the appeal of the assessee is allowed.
Order pronounced in the open Court on nounced in the open Court on 30/07/2025. /07/2025.