Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 12th June, 2019 passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2012-13. The Assessing Officer had made an addition of ₹4.65 crores under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

However, the ITAT deleted the said disallowance on the ground that the assessee had not earned any exempt income during the relevant assessment year.

Issues Involved

  • Whether disallowance under Section 14A read with Rule 8D can be made when no exempt income has been earned during the relevant assessment year.
  • Whether the ITAT erred in deleting the addition made by the Assessing Officer under Section 14A.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in deleting the addition of ₹4.65 crores made under Section 14A.
  • Disallowance under Section 14A read with Rule 8D should be applicable irrespective of whether exempt income was earned during the year.

Respondent’s Arguments (Assessee)

  • The assessee had not earned any dividend or exempt income during the relevant assessment year.
  • Therefore, no disallowance under Section 14A read with Rule 8D could be made.
  • The findings of the CIT(A) and ITAT were based on settled legal principles and factual correctness.

Court Findings / Order

  • The Court noted that there were concurrent findings of fact that no exempt income was earned by the assessee during the year.
  • The issue was covered by the judgment in Cheminvest Ltd. vs. CIT, wherein it was held that Section 14A applies only when exempt income is actually earned.
  • The Court further relied on Pr. Commissioner of Income Tax (Central)-2 vs Era Infrastructure (India) Ltd. and clarified that the amendment to Section 14A by the Finance Act, 2022 is not retrospective in nature.

 Final Order:

  • No substantial question of law arose in the appeal.
  • The appeal filed by the Revenue was dismissed.

Important Clarification by Court

  • Section 14A applies only when exempt income is actually earned or receivable during the relevant previous year.
  • The amendment to Section 14A by the Finance Act, 2022 (even though stated “for removal of doubts”) cannot be presumed retrospective if it changes the existing legal position.

Sections Involved

  • Section 14A of the Income Tax Act, 1961
  • Rule 8D of the Income Tax Rules, 1962
  • Finance Act, 2022 (Amendment to Section 14A)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/MMH21112022ITA10252019_192631.pdf

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