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TMI Blog2024 (6) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 - ITAT AHMEDABAD] held that disallowances made under section 14A read with rule 8D could not exceed amount of exempt income earned by assessee during year. In the case of Asian Grantio India Ltd [ 2019 (10) TMI 1193 - ITAT AHMEDABAD] the Ahmedabad ITAT held that Disallowance of expenses under section 14A read with rule 8D of 1962 Rules cannot be made in absence of exempt income. Further, as observed by the Delhi High Court in the case of Era Infrastructure [ 2022 (7) TMI 1093 - DELHI HIGH COURT] amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 01-04-2022 and cannot be presumed to have retrospective effect and therefore will not apply to the impugned assessment year under consideration. Whether disallowance made u/s 14A could not be added in assessee-company's income for purpose of computation of income u/s 115JB - Supreme Court of India in the case of Atria Power Corporation Ltd. [ 2022 (8) TMI 1322 - SC ORDER] dismissed the SLP of the Department against High Court ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 45,69,620/-, it has offered interest income of Rs 99.41 lacs which means that net interest income is earned. The appellant has also contended that it has sufficient interest free funds in form of Share Capital and Reserves Surplus which is in excess of such investments hence disallowance of interest is not justified. The appellant has also contended that exempt income earned during the year is Rs 2,088/- only hence in any case, disallowance should be restricted to such amount for which reliance was placed on various judicial precedents. However, the assessing officer disallowed a sum of Rs 9,60,100/- by applying section 14A of read with Rule 8D. Further, disallowance made u/s 14A of the Act was also used for re-computing the book profits u/s 115JB of the Act. 4. The assessee filed appeal against the order before Ld. CIT(A). However, Ld. CIT(A) dismissed the appeal of the assessee by observing that the amendment in section 14A of the Act, introduced with effect from 1 April 2022, is clarificatory in nature since the amendment clearly contains the words for the removal of the doubts and therefore, amendment has been introduced only to explain the existing provisions, as they have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realization of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. 8.18 It is observed that though Hon'ble Delhi High Court in the case of Cheminvest Ltd. (61 Taxmann.com 118), CIT Vs. Holcim India Pvt. Ltd. (57 Taaxmann.com 28), CIT Vs. Corrtech Energy Pvt. Ltd. (Gujarat High Court) 45 Taxmann.corn 116, CIT Vs. Shivam Motors Pvt. Ltd. (Allahabad high Court) 55 Taxmann.com 262, Redington India Ltd. Vs. Addl. Commissioner of Income Tax (Madras High Court) 77 Taxmann.com 257, Pr. CIT Vs. GVK Project Technical Service Ltd. (SLP dismissed by Supreme Court) 106 Taxmann.corn 181 and others have consistently taken a view that once assessee has not earned exempt income, disallowance u./s.14A cannot be made. The courts have held that if the assessee has earned exempt income, disallowance u/s. 14A can be restricted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of net income. The Hon'ble Supreme Court thus way back in the year 2010 has, by saying so, held that the expenditure in relation to earning of exempt income has to be disallowed and exemption is only of net income. The Hon'ble Supreme Court in the case of CITvs. Rajendra Prasad Moody (2002-TIOL-751- S 115 ITR 519 (SC) has held that even if there was no income, the expenditure is allowable. It is now well settled that income includes loss also as held by the Hon'ble Supreme Court in the case of CIT vs. Harprasad Co. P Ltd. 99 ITR 118 (SC). As held by the Hon'ble Supreme Court in the case of Walfort (supra) that only the net of the income is taxable i.e. gross income minus expenditure and as discussed above the net income may be a loss also. Since the earning of positive net income is not a condition precedent for claiming deduction of expenditure, on the same analogy, the earning of exempt income is also not a condition precedent for attracting disallowance of expenditure incurred to earn exempt income. This position, only, has been reiterated and clarified by the aforesaid explanation to section 14A so as to remove the doubts and to make clear the intention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced reliance on the observations made by the Ld. CIT(A) and the assessing officer, in their respective orders. 7. We have heard the rival contentions and perused the material on record. We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt. The Hon'ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon'ble Supreme Court in the case of Chettinad Logistics (P.) Ltd.[2018] 95 taxmann.com 250 (SC) dismissed SLP against High Court ruling that section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah [2022] 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee-individual earned profits from partnership firm and made investments in shares of a company, sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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