ACIT-6(1)(1), MUMBAI, MUMBAI V. ESSEL UTILITIES DISTRIBUTION COMPANY LTD., MUMBAI

ITA 2725/MUM/2025

AI Insights

The case involves the Income Tax Department (Revenue) appealing against the order of the CIT(A) which had deleted the disallowance made by the Assessing Officer under Section 14A read with Rule 8D. The disallowance was initially made because the assessee, Essel Utilities Distribution Company Ltd., had made significant investments but declared no exempt income during the assessment year 2015-16. The CIT(A) relied on a previous decision by the Tribunal in the assessee's own case, which had set a precedent that disallowance under Section 14A is not applicable if no exempt income was earned. The Revenue challenged this decision, leading to the current appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 706161 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2015-2016
• Other Referred Cases: Cheminvest Ltd. v. CIT, Pr. CIT v. Ballarpur Industries Ltd.
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: VIJAY VAIDYA
• Keywords: Set aside; Question of law; Earning of tax free income; Rule 8D
• Section: 11; 12; 10; 14A; 115JB

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI SANDEEP GOSAIN (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2725/MUM/2025 Assessment Year: 2015-16 ACIT-6(1)(1), Room No. 504, Aayakar Bhawan, M.K. Road, Mumbai-400020. Vs. Essel Utilities Distribution Company Ltd., 513/A, 5th floor, Kohinoor City Kirol Road, Off LBS Marg Kurla (West), Mumbai-400070. PAN NO. AADCE 1449 D Appellant Respondent Assessee by : Mr. Vijay Vaidya Revenue by : Mr. Hemanshu Joshi, Sr. DR Date of Hearing : 25/06/2025 Date of pronouncement : 30/06/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the Revenue is directed against order dated 18/02/2025 passed by the Ld. Commissioner of Income- tax(Appeals)-National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2015-16, raising following grounds: i. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in 8D of the Income Tax Rules, 1962 can be applied even when no exempt income has been earned during the year on the investments made in as much as making investments requires systematic planning and management that cannot be performed without incurring any expenses and therefore to cover such expenses, Rule 8D of Income Tax Rules, 1962 is attracted even when no exempt income is earned? ii. \"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justifi disallowance made by the AO u/s 14A r.w.r. 8D without appreciating that CBDT vide circular No 5/2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year ha not earned any exempt income and explanation to Section 14A has further clarified this position?\" iii. \" Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made to book profit on account of holding that section 14A is not applicable in the case of MAT provision u/s 115JB of the Act, when clause (1) of Explanation to Sec 115JB clearly mention that the amount relatable to any income to which section 10 (except clause 38) or section 12 has to be added to the book profit which is applicable from A.Y. 2007 Tribunal pertain prior to the introduction of the said clause?\" iv. The Appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the Assessing Officer 2. Briefly stated, the relevant facts of the case are that during the assessment year in question, the assessee company was engaged in the business of providing support services to entities the domain of power distribution and transmission. The assessee filed its return of income on 30.09.2015, declaring Nil income. The return was selected for scrutiny assessment, and statutory notices under the Income-tax Act, 1961 (hereinafter were duly issued and complied with. Essel Utilities Distribution Company Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating that Rule 8D of the Income Tax Rules, 1962 can be applied even when no exempt income has been earned during the year on the investments made in as much as making investments requires systematic planning and management that cannot be rmed without incurring any expenses and therefore to cover such expenses, Rule 8D of Income Tax Rules, 1962 is attracted even when no exempt income is earned? \"Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deletion of disallowance made by the AO u/s 14A r.w.r. 8D without appreciating that CBDT vide circular No 5/2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year ha not earned any exempt income and explanation to Section 14A has further clarified this position?\" \" Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made to book profit on account of disallowance u/s 14A holding that section 14A is not applicable in the case of MAT provision u/s 115JB of the Act, when clause (1) of Explanation to Sec 115JB clearly mention that the amount relatable to any income to which section 10 (except clause 38) or section 12 has to be added to the book profit which is applicable from A.Y. 2007-08 and decisions quoted by the Tribunal pertain prior to the introduction of the said clause?\" The Appellant prays that the order of the CIT(A) on the above unds be set aside and that of the Assessing Officer be restored. Briefly stated, the relevant facts of the case are that during the assessment year in question, the assessee company was engaged in the business of providing support services to entities the domain of power distribution and transmission. The assessee filed its return of income on 30.09.2015, declaring Nil income. The return was selected for scrutiny assessment, and statutory notices tax Act, 1961 (hereinafter referred to as “the Act”) were duly issued and complied with. Essel Utilities Distribution Company Ltd 2 ITA No. 2725/MUM/2025 Whether on the facts and in the circumstances of the case and not appreciating that Rule 8D of the Income Tax Rules, 1962 can be applied even when no exempt income has been earned during the year on the investments made in as much as making investments requires systematic planning and management that cannot be rmed without incurring any expenses and therefore to cover such expenses, Rule 8D of Income Tax Rules, 1962 is attracted even when no exempt income is earned? \"Whether on the facts and in the circumstances of the case ed in deletion of disallowance made by the AO u/s 14A r.w.r. 8D without appreciating that CBDT vide circular No 5/2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income and explanation to Section 14A \" Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition disallowance u/s 14A holding that section 14A is not applicable in the case of MAT provision u/s 115JB of the Act, when clause (1) of Explanation to Sec 115JB clearly mention that the amount relatable to any income to which section 10 (except clause 38) or section 11 or section 12 has to be added to the book profit which is 08 and decisions quoted by the Tribunal pertain prior to the introduction of the said clause?\" The Appellant prays that the order of the CIT(A) on the above unds be set aside and that of the Assessing Briefly stated, the relevant facts of the case are that during the assessment year in question, the assessee company was engaged in the business of providing support services to entities operating in the domain of power distribution and transmission. The assessee filed its return of income on 30.09.2015, declaring Nil income. The return was selected for scrutiny assessment, and statutory notices referred to as “the Act”) 2.1 During the course of the assessment proceedings, the Assessing Officer observed that the assessee had made investments to the tune of ₹82.80 crores in shares of related entities. However, no disallowance under Section 14A of the Act was offered the assessee. In response, the assessee submitted that no exempt income had been earned during the relevant previous year and, therefore, no disallowance under Section 14A was warranted. 2.2 The Assessing Officer, not being satisfied with the explanation tendered, proceeded to disallow expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The said disallowance was made not only for the purpose of computati income under the regular provisions of the Act, but also for the computation of book profit under Section 115JB thereof. 2.3 Aggrieved, the assessee preferred an appeal before the CIT(A), who, relying upon the decision of the Income Tax Appellate Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for the preceding assessment year, deleted the disallowance so made. 2.4 The Revenue, in turn, being dissatisfied with the appellate order, preferred the present appeal before the Tribunal. question arising for consideration is whether any disallowance under Section 14A of the Act is permissible in a case where the assessee has not earned any exempt income during the relevant assessment year. Essel Utilities Distribution Company During the course of the assessment proceedings, the Assessing Officer observed that the assessee had made investments to the 82.80 crores in shares of related entities. However, no disallowance under Section 14A of the Act was offered the assessee. In response, the assessee submitted that no exempt income had been earned during the relevant previous year and, therefore, no disallowance under Section 14A was warranted. The Assessing Officer, not being satisfied with the explanation tendered, proceeded to disallow expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The said disallowance was made not only for the purpose of computati income under the regular provisions of the Act, but also for the computation of book profit under Section 115JB thereof. Aggrieved, the assessee preferred an appeal before the , who, relying upon the decision of the Income Tax Appellate Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for the preceding assessment year, deleted the disallowance so made. The Revenue, in turn, being dissatisfied with the appellate order, preferred the present appeal before the Tribunal. question arising for consideration is whether any disallowance under Section 14A of the Act is permissible in a case where the assessee has not earned any exempt income during the relevant Essel Utilities Distribution Company Ltd 3 ITA No. 2725/MUM/2025 During the course of the assessment proceedings, the Assessing Officer observed that the assessee had made investments to the 82.80 crores in shares of related entities. However, no disallowance under Section 14A of the Act was offered suo-motu by the assessee. In response, the assessee submitted that no exempt income had been earned during the relevant previous year and, therefore, no disallowance under Section 14A was warranted. The Assessing Officer, not being satisfied with the explanation tendered, proceeded to disallow expenditure under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The said disallowance was made not only for the purpose of computation of income under the regular provisions of the Act, but also for the computation of book profit under Section 115JB thereof. Aggrieved, the assessee preferred an appeal before the ld , who, relying upon the decision of the Income Tax Appellate Tribunal (hereinafter “the Tribunal”) in the assessee’s own case for the preceding assessment year, deleted the disallowance so made. The Revenue, in turn, being dissatisfied with the appellate order, preferred the present appeal before the Tribunal. The short question arising for consideration is whether any disallowance under Section 14A of the Act is permissible in a case where the assessee has not earned any exempt income during the relevant 3. We have heard rival submission of the parties and perused the relevant material on record. The issue in dispute in the grounds raised is whether any disallowance under section 14A can be made when no exempted income is earned in the year under consideration. submitted that those investments were mainly made from the available share capital as on 31.03.2015 and argued that there was no utilization of borrowed funds for the purpose of making those investments. The assessee is reproduced Particulars SND Limited (8,17,64,250 equity shares of Rs.10 each) Utilities Grid Solution Limited (formerly as ‘Essel Adi Smart Grid Solutions Ltd’) (9,89,994 equity shares of Rs.10 each) Last Mile VAS Management Ltd (50,000 equity shares of Rs.10 each) Total Non-Current Investments 3.1 The Learned CIT(A), in adjudicating the issue, has relied upon the Tribunal’s decision Year 2014–15 (ITA No. 4707/Mum/2018), wherein it was held that in the absence of actual exempt income earned or received during the relevant previous year, disallowance under Section 14A cannot be sustained. Essel Utilities Distribution Company have heard rival submission of the parties and perused the relevant material on record. The issue in dispute in the grounds raised is whether any disallowance under section 14A can be made when no exempted income is earned in the year under consideration. Before the ld CIT(A) the assessee submitted that those investments were mainly made from the available share capital as on 31.03.2015 and argued that there was no utilization of borrowed funds for the purpose of making The detail of investments provided by the reproduced as under:- As at 31/03/2015 SND Limited (8,17,64,250 equity shares of 81,76,42,500 Utilities Grid Solution Limited (formerly as ‘Essel Adi Smart Grid Solutions Ltd’) (9,89,994 equity shares of Rs.10 each) 98,99,940 Last Mile VAS Management Ltd (50,000 equity shares of Rs.10 each) 5,00,000 Current Investments 82,80,42,440 The Learned CIT(A), in adjudicating the issue, has relied upon the Tribunal’s decision in the assessee’s own case for Assessment 15 (ITA No. 4707/Mum/2018), wherein it was held that in the absence of actual exempt income earned or received during the relevant previous year, disallowance under Section 14A cannot Essel Utilities Distribution Company Ltd 4 ITA No. 2725/MUM/2025 have heard rival submission of the parties and perused the relevant material on record. The issue in dispute in the grounds raised is whether any disallowance under section 14A can be made when no exempted income is earned in the year Before the ld CIT(A) the assessee submitted that those investments were mainly made from the available share capital as on 31.03.2015 and argued that there was no utilization of borrowed funds for the purpose of making estments provided by the As at 31/03/2015 82,80,42,440 The Learned CIT(A), in adjudicating the issue, has relied upon in the assessee’s own case for Assessment 15 (ITA No. 4707/Mum/2018), wherein it was held that in the absence of actual exempt income earned or received during the relevant previous year, disallowance under Section 14A cannot 3.2. The Tribunal had, in turn, followed the pronouncement of the Hon’ble Delhi High Court in 33 (Del)], wherein it was held that the expression \"income which does not form part of the total income\" in Section 14A of the A envisages that there must be actual receipt of income, not includible in the total income, for the provision to be attracted. Accordingly, in the absence of any such income, disallowance under Section 14A does not arise. 3.3 This legal position has also Bombay High Court in 51 of 2016, dated 13.10.2016], wherein it absence of any exempt income, the question of invoking Section 14A does not arise. The Hon’ble Hi finding that no exempt income had been earned by the assessee and held that the provisions of Section 14A would not apply in such a scenario. It was further observed that no substantial question of law arose from the findings of 3.4 In the present case, it is an undisputed fact that the assessee has not earned or received any exempt income during the relevant previous year. In view of the binding precedent of the Hon’ble jurisdictional High Court and the set disallowance under Section 14A of the Act can be sustained. Essel Utilities Distribution Company The Tribunal had, in turn, followed the pronouncement of the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT 33 (Del)], wherein it was held that the expression \"income which does not form part of the total income\" in Section 14A of the A envisages that there must be actual receipt of income, not includible in the total income, for the provision to be attracted. Accordingly, in the absence of any such income, disallowance under Section 14A does not arise. This legal position has also been affirmed by the Hon’ble Bombay High Court in Pr. CIT v. Ballarpur Industries Ltd. 51 of 2016, dated 13.10.2016], wherein it is held that in the absence of any exempt income, the question of invoking Section 14A does not arise. The Hon’ble High Court noted the factual finding that no exempt income had been earned by the assessee and held that the provisions of Section 14A would not apply in such a scenario. It was further observed that no substantial question of law arose from the findings of the lower authorities. In the present case, it is an undisputed fact that the assessee has not earned or received any exempt income during the relevant previous year. In view of the binding precedent of the Hon’ble jurisdictional High Court and the settled legal position, no disallowance under Section 14A of the Act can be sustained. Essel Utilities Distribution Company Ltd 5 ITA No. 2725/MUM/2025 The Tribunal had, in turn, followed the pronouncement of the [(2015) 378 ITR 33 (Del)], wherein it was held that the expression \"income which does not form part of the total income\" in Section 14A of the Act envisages that there must be actual receipt of income, not includible in the total income, for the provision to be attracted. Accordingly, in the absence of any such income, disallowance under been affirmed by the Hon’ble Pr. CIT v. Ballarpur Industries Ltd. [ITA No. held that in the absence of any exempt income, the question of invoking Section gh Court noted the factual finding that no exempt income had been earned by the assessee and held that the provisions of Section 14A would not apply in such a scenario. It was further observed that no substantial question of In the present case, it is an undisputed fact that the assessee has not earned or received any exempt income during the relevant previous year. In view of the binding precedent of the Hon’ble tled legal position, no disallowance under Section 14A of the Act can be sustained. 3.5 We, therefore, find no infirmity in the order passed by the Learned CIT(A), which is in consonance with the judgment of the Hon’ble Bombay High Court in the decision of the Tribunal in the assessee’s own case. Accordingly, the grounds raised by the Revenue deserve to fail. 4. The appeal filed by the Revenue is, accordingly, dismissed. Order pronounced in the open Court on Sd/ (SANDEEP GOSAIN JUDICIAL MEMBER Mumbai; Dated: 30/06/2025 Dragon Legal/Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// Essel Utilities Distribution Company We, therefore, find no infirmity in the order passed by the Learned CIT(A), which is in consonance with the judgment of the Hon’ble Bombay High Court in Ballarpur Industries Ltd. the decision of the Tribunal in the assessee’s own case. Accordingly, the grounds raised by the Revenue deserve to fail. The appeal filed by the Revenue is, accordingly, dismissed. nounced in the open Court on 30/06/2025 Sd/- Sd/ SANDEEP GOSAIN) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Essel Utilities Distribution Company Ltd 6 ITA No. 2725/MUM/2025 We, therefore, find no infirmity in the order passed by the Learned CIT(A), which is in consonance with the judgment of the tries Ltd. (supra) and the decision of the Tribunal in the assessee’s own case. Accordingly, The appeal filed by the Revenue is, accordingly, dismissed. /06/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai "