Section 14A disallowance capped at exempt income, while the Finance Act 2022 amendment applies prospectively.

Disallowance under section 14A read with rule 8D cannot exceed the exempt income earned in the relevant year, so the excess amount was deleted and relief granted to the assessee. The Tribunal also held that the Finance Act, 2022 amendment to section 14A applies prospectively, not retrospectively, so it did not justify enlarging the disallowance for the year under review.

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Issues: Whether the disallowance of expenditure under section 14A read with rule 8D could exceed the exempt dividend income earned during the year, and whether the amendment to section 14A by the Finance Act, 2022 applied retrospectively.

Analysis: The assessee's exempt income during the year was only Rs. 8,669, and the Revenue did not controvert this factual position. The Tribunal relied on the principle that disallowance under section 14A cannot be more than the exempt income earned in the relevant year. It also noted that the amendment made by the Finance Act, 2022 to section 14A operates prospectively.

Conclusion: The disallowance was restricted to the amount of exempt income earned during the year, and the excess disallowance was deleted. The issue was decided in favour of the assessee.

Final Conclusion: The addition made under section 14A was substantially reduced to the extent of exempt income actually earned, resulting in relief to the assessee.

Ratio Decidendi: Disallowance under section 14A cannot exceed the exempt income earned in the relevant year, and the 2022 amendment to section 14A applies prospectively.

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