Section 14A disallowance cannot stand without exempt income, and the Finance Act 2022 amendment applies prospectively.

Disallowance under section 14A cannot be sustained where the assessee has not earned any exempt income during the year, and the Finance Act, 2022 amendment to that provision applies prospectively. On that basis, the tribunal's order was upheld and the revenue's challenge failed; the substantial questions of law were answered against the revenue.

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Issues: Whether disallowance under section 14A of the Income-tax Act, 1961 can be sustained when the assessee has not earned any exempt income, and whether the tribunal was justified in dismissing the revenue's appeal.

Analysis: The issue was treated as no longer res integra. It was noted that the amendment to section 14A made by the Finance Act, 2022 operates prospectively. It was also observed that disallowance under section 14A should not exceed the exempt income earned by the assessee during the year, and reliance was placed on the cited decisions supporting that view.

Conclusion: Disallowance under section 14A was not warranted in the absence of exempt income, and the tribunal's order was upheld. The substantial questions of law were answered against the revenue.

Final Conclusion: The revenue's challenge failed and the tribunal's dismissal of the departmental appeal was maintained.

Ratio Decidendi: Disallowance under section 14A cannot be made where no exempt income is earned, and the provision as amended by the Finance Act, 2022 applies prospectively.

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