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Facts
The assessee filed six appeals contesting disallowances made under Section 14A read with Rule 8D for assessment years 2013-14 to 2018-19, arguing no exempt income was earned and the relevant amendment was prospective. The revenue filed four appeals against the deletion of additions related to ESOP expenses by the CIT(A), which the Assessing Officer had originally made based on a sub-judice issue.
Held
The Tribunal allowed the assessee's appeals, directing the AO to delete the Section 14A disallowances, holding that no disallowance can be made if no exempt income is earned. It also clarified that the Finance Act, 2022 amendment to Section 14A is prospective from April 1, 2022. The Tribunal dismissed the revenue's appeals, upholding the deletion of ESOP expense additions by CIT(A) as it was in line with affirmed judicial precedents.
Key Issues
1. Whether disallowance under Section 14A r.w.r. 8D is applicable when no exempt income is earned. 2. Whether the amendment to Section 14A by Finance Act, 2022, has retrospective or prospective effect. 3. Whether Employee Stock Option Plan (ESOP) expenses are allowable deductions.
Sections Cited
Section 14A, Rule 8D, Section 4, Section 5, Section 144A, Finance Act, 2022
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI NARENDRA KUMAR BILLAIYA, HONBLE & SHRI RAJ KUMAR CHAUHAN, HONBLE
PER BENCH: INCOME TAX APPELLATE TRIBUNAL Ι.Τ.Α. No. 4248/Mum/2024 Ι.Τ.Α. No. 4249/Mum/2024 I.T.A. No. 4252/Mum/2024 Ι.Τ.Α. No. 4254/Mum/2024 I.T.A. No. 4365/Mum/2024 Ι.Τ.Α. No. 4366/Mum/2024 The captioned appeals have six appeals by the assessee and four appeals by the revenue preferred against separate orders of the ld. CIT(A) pertaining to AY 2013-14 to 2018-19. 2. The appeals by the assessee and the revenue have common grounds, therefore, all these appeals are disposed by this common order for the sake of convenience.
The common grievance in all the six appeals by the assessee relate to the disallowance of expenditure u/s 14A r.w.r. 8D. The common factor in the appeals by the assessee is that the assessee has not earned any exempt income during the captioned assessment years. The basis for the impugned disallowance by the AO is the amendment brought in the Act which according to the AO was effective from the AYs under consideration whereas the contention of the assessee is that the amendment is prospective and is effective from 01/04/2022 and, therefore, not applicable in the captioned AYs and since it is an admitted fact that the assessee has not earned any exempt income during the captioned AYs under consideration, there is no question of any disallowance u/s 14A r.w.r. 8D.
After giving a thoughtful consideration to the orders of the authorities below and after finding that the assessee has not earned any exempt income during the captioned AYs, we are of the considered view that the issue is no more res integra in light of plethora of judgments of the various Hon'ble High Courts.
The Hon'ble High Court of Delhi in the case of PCIT vs. McDonald's India (P) Ltd. reported in [2019] 101 taxmann.com 86 (Delhi), had the occasion to consider a similar issue and decided in favour of the assessee and against the revenue. The relevant findings read as under:-