TaxTMI 
TaxTMI 
2025 (3) TMI 1862
X X X X Extracts X X X X
X X X X Extracts X X X X
....erred to as "CIT(A)"] pertaining to assessment order passed u/s. 143(3) of the Income-tax Act, 1961 [hereinafter referred to as "Act"] dated 24.07.2021 for the Assessment Year [A.Y.] 2018-19. 2. The grounds of appeal are as under:- 1. Whether on the facts and in the circumstances of the case and in law, the ld.CIT(A) has erred in deleting the addition u/s. 14A of the Act by ignoring that as per explanation inserted by Finance Act 2022, the provisions of section 14A shall apply and shall be deemed to have always applied in a case where the income, not forming the part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....,90,86,000/- as on 31.03.2017. The assessee had made a voluntary disallowance of only Rs. 83,33,333/- u/s 14A of the Act which was rejected by him. Accordingly, he computed the disallowance u/s.14A r.w.r 8D at Rs. 27,53,07,768/-. 4. Before the ld.CIT(A),the assessee pleaded that the investments that did not earn any exempt income during the year could not be included for computing average investment u/r 8D. The ld.CIT(A) observed that it is now settled that disallowance u/s 14A can be made only when the assessee has actually incurred an expenditure in relation to earning of exempt income. This is as per the ratio of the decisions laid out by the Hon'ble Courts in the cases of Maxopp Investment (15 Taxmann.com 390) (Delhi HC), Cheminvest ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re is no question of invoking Rule 8D and computing the disallowance. It was held by the Hon'ble High Court that the provisions of sec. 14A cannot be invoked if no exempt income has been earned for the relevant year. The Hon'ble Bombay High Court in the case of M/s. Nirved Traders Pvt. Ltd. (ITA No. 149 of 2017) in their decision dated 23.04.2019 approved the claim that the disallowance under section 14A was to be restricted to the tax-exempt income earned during the year. Accordingly, the ld.CIT(A) held that the disallowance made by the AO u/s 14A has to in any case be restricted to the extent of the exempt income earned. He further held that the Explanation introduced in the section was not applicable during the year. He also directed the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pective and did not apply to the year under consideration. In 2022, the Parliament enacted a significant amendment to s.14A of the Act, incorporating a non-obstante clause and an explanatory provision to state that the section applies even if the exempt income is absent during the relevant year. This amendment became effective on 01.04.2022 and does not apply retrospectively. Regarding the applicability of explanation introduced in section 14A vide the Finance Act, 2022 w.e.f 01.04.2022, the Hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd. (2022) 141 taxman.com 289 (Delhi) held that explanation introduced in sec. 14A is prospective in nature, therefore, no disallowance could be made u/s 14A if there is no exempt i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ards raising share capital and was, therefore, capital in nature. Accordingly, the entire claim was added to the total income of the assessee. 8. The Ld. CIT(A), following the orders of his predecessors as well as of the co-ordinate Mumbai ITAT bench in assessee's own case, held the ESOP expenses to be allowable expenses u/s 37(1) of the Act and allowed the appeal of the assessee with the following observations: "5.5 Respectfully following the earlier orders of the CIT(A) and the Hon'ble Mumbai ITAT in the assessee's own case, the ESOP expenses are held to be allowable expenses u/s 37(1) of the Act. However, as also directed by the Hon'ble ITAT in AY 2012-13, the AO is directed to carry out the arithmetic calculation....