Disallowance u/s 14A of Income Tax can be triggered where no exempt Income has been earned: Delhi HC upholds  Deletion of Disallowance [Read Order]

The Delhi High Court held that disallowance under section 14A of Income Tax Act, 1961 Can be triggered where no exempt income has been earned and upheld the deletion of disallowance.

The appellant/revenue challenged the order passed by the Income Tax Appellate Tribunal [“Tribunal”] in favour of respondent assessee, Techno Trexim (India) Pvt Ltd. Mr Puneet Rai, senior standing counsel, who appears on behalf of the appellant/revenue, stated that the only issue which arises for consideration is whether the Tribunal erred in deleting the disallowance under Section 14A of the Income Tax Act, 1961 [ “1961 Act”] read with Rule 8D of the Income Tax Rules, 1962 [“1962 Rules”]?

The record shows that the deletion of disallowance of deductions sustained via the impugned order amounted to Rs.3,81,71,231/-. The stand taken by the appellant/revenue is that since huge investments had been made, amounting to nearly Rs.45.80 crores, expenses would have been incurred in managing such investments. 

The respondent/assessee had not earned any exempt income. It was argued that the applicability of Rule 8D of 1962 Rules, is clarified by Finance Act, 2022. 

Mr Abhishek Maratha, senior standing counsel, who appeared on behalf of the appellant/revenue, submitted that the issue that arises for consideration is whether the Tribunal was right in sustaining the deletion of disallowance under Section 14A of the Income Tax Act, 1961 [“Act”] because no income exempt from tax had been earned during the relevant period.

 A division bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “the other issue, i.e., whether the Finance Act, 2022 could have retrospective effect, the said aspect also stands covered by the judgment rendered by a coordinate bench of this court in Principal Commissioner of Income Tax (Central)-2 v. M/s Era Infrastructure (India) Ltd.

The Court dismissed the appeal as there was no substantial question of law arose for consideration. 

To Read the full text of the Order CLICK HERE

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