Section 14A disallowance limited to investments yielding exempt income; Finance Act 2022 explanation not retrospective.

For disallowance under section 14A read with Rule 8D, only investments that actually yielded exempt income during the relevant previous year are to be considered. The Tribunal held that the Explanation inserted by the Finance Act, 2022 does not apply retrospectively to the assessment years in question, so it cannot govern those years. On that basis, the view that Rule 8D computation is limited to such income-yielding investments was affirmed, and the Revenue's contrary position was rejected.

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Issues: Whether, for the purpose of disallowance under section 14A read with Rule 8D, only investments yielding exempt income during the relevant previous year are to be considered, and whether the Explanation inserted by the Finance Act, 2022 applies retrospectively to the assessment years in question.

Analysis: The disallowance under section 14A is to be computed with reference to investments that actually yielded exempt income during the relevant previous year. The Tribunal also held that the Explanation inserted by the Finance Act, 2022 does not operate retrospectively so as to govern the assessment years under appeal. On that basis, the CIT(A)'s view that only such investments as yielded exempt income could be taken into account under Rule 8D was affirmed.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

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