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TMI Blog2023 (7) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... ear even though no borrowings were used in acquisition of these shares as interest free funds (its share capital and free reserves) were available for said investment and further there was no exempt income earned by the appellant company during the year." 2.1 Apropos Ground No. 1 & 2 of the assessee brief facts of the case are that the assessee company filed its e-return of income on 28-11-2014 declaring total income of Nil and current year loss of Rs. 1,475/- and tax was paid u/s 115JB of the Act. It is noted from the assessment order that the case of assessee was selected for scrutiny by issue of notice u/s 143(2)/142(1) which assessee complied from time to time. The A.O. completed assessment u/s 143(3) at an income of Rs. 10,52,209/- by making disallowance u/s 14A of I.T. Act. 1961 amounting to Rs. 10,53,684/- by holding that assessee company has made investment in shares of unlisted companies of Rs. 1,49,29,900/- from which either exempt income is generated or no income is generated and so provision of section 14A are applicable. 2.2 In first appeal, Ld. CIT(A) partly allowed the appeal restricting the disallowance made u/s 14A read with rule 8D on the fresh investment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on circular No. 5 dated 11-02-2014 issued by CBDT and taking into account of provisions of section 14A r/w rule 8D worked out disallowance of Rs. 10,53,684/- and added the same in total income computed. The assessee made investment in shares of group companies amounting to Rs. 1,49,29,900(L.Y. Rs. 99,29,900) which are partly old investment carried forward from earlier years The paid up capital of assessee company is Rs. 30,00,000/- in this year as well as in last year and its reserves and surplus in this year are Rs. 2,05,28,084/- (Last year Rs. 1,83,88,612/-) Thus its interest free funds apart from borrowings are much more than its investment in shares and there is no nexus in between the fresh investment with the interest bearing borrowed funds. Further the Ld. AO has also not denied the said facts. There being no income for shares hence obviously there are no administrative and other expenses incurred therefor. In such facts of the case no disallowance u/s 14A r.w. rule 8D is warranted as no borrowings were used in acquisition of these shares nor any administrative expenses etc. were incurred. The assessee also not earned exempt income and hence section 14A is inapplicable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own funds for investments and using borrowed funds entirely for business purposes and in absence of any finding that any expenditure by way of interest was incurred in respect of investments disallowance u/s 14A of I.T. Act. 1961 is not justified. In case of CIT Vs. Sazlon Energy Ltd. (2013) 354 ITR 630 (Guj). The court held that dividend income which was tax free but such dividends were earned from investments made out of interest free funds so that there could be no disallowance u/s 14A of I. T. Act, 1961. In view of these judicial pronouncements it is submitted that as the investment made by assessee company from its own interest free funds so there can be no disallowance u/s 14A of 1.T. Act, 1961. Further as submitted supra that the assessee earned no exempt income during the year and therefore no disallowance can be made u/s 6 ITA NO. 79/JP/2023 TRUWORTH INFOTECH PVT LTD. VS ITO , WARD 2(2), JAIPUR 14A of the I.T. Act, 1961. In case of Principal CIT Vs. Novell Software Development India P. Ltd. (2021) 434 ITR 154/278 Taxmann 390 The Hon'ble Karnataka High Court held that where there is no exempt income earned by the assessee during the year no disallowance u/s 14A was to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act, 2022 to section 14A with effect from 01-04-2022 providing that provisions shall apply whether or not exempt income has accrued, arisen or received but the provision was prospective in nature as is clear from the memo explaining the provisions appended to the Finance Bill. The Mum-Tribunal in case of ACIT Vs. Bajaj Capital Ventures (P.) Ltd. 140 taxmann.com 1/196 ITD 24 held that Explanation to section 14A which came into effect from 01-04- 2022 clarified that disallowance was to be made even if no exempt income was earned in relevant year. Since said Explanation was prospective in nature and assessee did not earn any exempt income in relevant assessment years, no disallowance could be made under section 14A. The Delhi High Court in case of Pr. CIT(Central) Vs. Era Infrastructure (India) Ltd. (2022) 448 ITR 674/(2022) 284 taxmann 384 has also held the same view. In view of the above facts of the case and position of law, no disallowance by invoking the provisions of Section 14A deserves to be made.'' 2.4 On the other hand, the ld. DR supported the order of the ld. CIT(A). 2.5 We have heard both the parties and perused the materials available on record including the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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