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Issues: Whether disallowance under section 14A read with rule 8D could be made where the assessee earned no exempt income during the year, and whether the Explanation inserted to section 14A by the Finance Act, 2022 operated retrospectively.
Analysis: The assessee had earned no exempt income during the year under consideration. The binding view relied on held that where no exempt income is earned, no disallowance can be made under section 14A. The later Explanation to section 14A, inserted with effect from 01.04.2022, was held to be prospective and not applicable to earlier assessment years.
Conclusion: Disallowance under section 14A read with rule 8D was not sustainable in the absence of exempt income, and the Explanation to section 14A could not be applied retrospectively. The issue was decided in favour of the assessee.
Ratio Decidendi: A disallowance under section 14A cannot be made for a year in which no exempt income is earned, and the Explanation inserted to section 14A operates only prospectively.
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