DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2 1 1 AHMEDABAD, AHMEDABAD V. HDB FINANCIAL SERVICES LIMITED, AHMEDABAD

ITA 1507/AHD/2025

AI Insights

The case involves the Deputy Commissioner of Income Tax, Circle 2, Ahmedabad as the appellant and HDB Financial Services Limited as the respondent. The dispute arose from the assessment year 2020-21, where the Assessing Officer made certain additions to the income declared by HDB Financial Services Limited. The CIT(A) partly allowed the appeal of the assessee, which led the Revenue to file an appeal with the Income Tax Appellate Tribunal. The main issues in the appeal were the disallowance under Section 14A of the Act concerning administrative expenses related to investments and the deduction under Section 80G for CSR expenditures. The Tribunal's decision favored the assessee on both counts, leading to the dismissal of the Revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 778832 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2020-2021
• Appeal Filed On: 30-07-2025
• Other Referred Cases: PCIT vs. Adani Wilmar Limited, Williamson Financial Services Limited vs. CIT, Gujarat State Financial Services Limited vs. DCIT, JMS Mining Pvt. Ltd. vs. DCIT, Gabriel India Limited vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ALPESH PARMAR
• Assessee Lawyers: BIREN SHAH
• Keywords: Set aside; Business income; Retrospective amendment; Business expenditure; Capital Gains; Earning of tax free income; Charitable institution; Rule 8D; CHAPTER IV
• Section: 143(3); 37; 14A; 37(1); 80G

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “A” BENCH, AHMEDABAD BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER ITA No.1507/Ahd/2025 Assessment Year: 2020-21 Deputy Commissioner of Income Tax, Circle 2 1 1, 4th Floor, Aaykar Bhavan, Vejalpur, Anandnagar Road, Ahmedabad – 380 015. (Gujarat). Vs. HDB Financial Services Limited, 2nd Floor, Radhika, Law Gardena Road, Navrangpura, Ahmedabad – 380 009 (Gujarat). [PAN – AABCH 8761 M] (Appellant) (Respondent) Assessee by Shri Biren Shah, AR Revenue by Shri Alpesh Parmar, CIT-DR Date of Hearing 18.09.2025 Date of Pronouncement 16.10.2025 O R D E R PER NARENDRA PRASAD SINHA, ACCOUNTANT MEMBER: This appeal is filed by the Revenue against the order of the National Faceless Appeal Centre (NFAC), Delhi (in short “the CIT(A)”) dated 04.06.2025 for the Assessment Year (A.Y.) 2020-21 in the proceeding under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 2. The brief facts of the case are that the assessee had filed its return of income for the A.Y. 2020-21 on 30.03.2021 declaring total income of Rs.18,13,37,26,260/-. The case was selected for scrutiny through CASS. Printed from counselvise.com ITA No.1507/Ahd/2025 (Assessment Year: 2020-21) DCIT vs. HDB Financial Services Limited Page 2 of 6 In the course of assessment, the Assessing Officer had made certain additions and the assessment was completed under Section 143(3) of the Act on 29.09.2022 at a total income of Rs.18,79,08,00,110/-. 3. Aggrieved with the order of the Assessing Officer, the assessee had filed an appeal before the First Appellate Authority which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was partly allowed. 4. Now, the Revenue is in appeal before us. The following grounds have been taken in this appeal: - “1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting disallowance of Rs.44,94,000/- u/s.14A of the Act without appreciating the fact that the AO was justified in applying Rule 8D(2)(ii) according to the facts of the case? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in allowing deduction of Rs.14,01,31,001/- u/s. 80G of the Act for amounts compulsorily spent under CSR which would result in an indirect tax benefit, defeating the purpose of Explanation 2 to Section 37(1) of the Act? 3. The appellant craves leave to amend OR alter any ground OR add a new ground, which may be necessary. 4. It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored.” 5. The first ground pertains to disallowance of Rs.44,94,000/- under Section 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules. Shri Alpesh Parmar, Ld. CIT-DR submitted that the assessee had income from investments which did not form part of total income but no disallowance under Section 14A read with Rule 8D was made by the Printed from counselvise.com ITA No.1507/Ahd/2025 (Assessment Year: 2020-21) DCIT vs. HDB Financial Services Limited Page 3 of 6 assessee. In the course of assessment, the Assessing Officer had made addition of Rs.44,94,000/- being 1% of annual average of investments, towards administrative expenses in accordance with the provisions of Rule 8D of Income Tax Rules. He submitted that the Ld. CIT(A) was not correct in deleting the addition as made by the AO. 6. Per contra, Shri Biren Shah, Ld. AR of the assessee submitted that the disallowance under Section 14A of the Act read with Rule 8D can be made only when the assessee had earned any exempt income during the year. He explained that during the year no exempt income was earned by the assessee at all. Further, that assessee’s surplus funds far exceeded the investments made and, therefore, no disallowance on account of interest was called for. He further submitted that the provisions of the Act were amended w.e.f. A.Y. 2022-23 and the disallowance under Section 14A read with a Rule 8D can be made, even if no exempt income was earned or accrued, only from that year. The Ld. AR submitted that this amendment was prospective in nature and cannot be applied to the current year with retrospective effect. He, therefore, strongly supported the order of the Ld. CIT(A) on this issue. 7. We have considered the rival submissions. There is no dispute to the fact that no exempt income was earned by the assessee during the current year. The Ld. CIT(A) has given a finding that the income earned by the assessee from the investments was offered to tax as capital gains and this fact has not been controverted by the Revenue. The issue, as to whether any disallowance under Section 14A of the Act can be made in the absence of any exempt income, is no longer res integra. The Hon’ble Gujarat High Court had held in the case of PCIT vs. Adani Wilmar Limited, Printed from counselvise.com ITA No.1507/Ahd/2025 (Assessment Year: 2020-21) DCIT vs. HDB Financial Services Limited Page 4 of 6 133 taxmann.com 443 (Guj.) that no disallowance under Section 14A of the Act can be made if the assessee did not earn any exempt income during the year. The provision of Section 14A of the Act was amended and an Explanation was inserted w.e.f. 01.04.2022, as per which the disallowance under Section 14A of the Act can be made, even if no exempt income is earned during the year. The Hon’ble Guwahati High Court in the case of Williamson Financial Services Limited vs. CIT, 166 taxmann.com 607 (Gauhati) has held that the Explanation inserted to Section 14A of the Act vide Finance Act, 2022 w.e.f 01.04.2022 is prospective in nature and cannot be presumed to have retrospective effect and applied to assessment years prior to 01.04.2022. Respectively following the judgement of Hon’ble Guwahati High Court, we are of the considered opinion that the Ld. CIT(A) had rightly deleted the addition made under Section 14A of the Act, as the assessee did not earn any exempt income during the year. Accordingly, the order of the Ld. CIT(A) on this issue is upheld. The ground taken by the Revenue is dismissed 8. The second ground pertains to disallowance of Rs.14,01,31,001/- under Section 80G of the Act in respect of the amounts expended under CSR activity. The assessee had incurred expenditure of Rs.28,27,74,569/- towards CSR activity which was added u/s 37(1) of the Act. However, the assessee had claimed deduction under Section 80G of the Act in respect of CSR expenses donated to eligible Trusts, which was disallowed by the Assessing Officer. 9. We have heard the Ld. CIT-DR and the Ld. AR on this issue. The Co-ordinate Bench of this Tribunal in the case of Gujarat State Financial Services Limited vs. DCIT, 174 taxmann.com 461 has held that under Printed from counselvise.com ITA No.1507/Ahd/2025 (Assessment Year: 2020-21) DCIT vs. HDB Financial Services Limited Page 5 of 6 Section 80G of the Act, the CSR expenses and the business expenses under Section 37 operate under different arena and that there was no bar in claiming deduction under Section 80G of the Act in respect of CSR contribution, if the fund to which donations were made, was eligible for such deduction. The provisions of Section 80G of the Act restricts on deductibility of donation made pursuant to CSR obligation, as expressly provided under Section 80G(2)(a)(iiihk)/(iiihl) of the Act, in respect of donation made to Swachh Bharat Kosh and Clean Ganga Fund set up by the Central Government. Apart from the donation to these two funds, there is no restriction in respect of donation made to any other fund. In the present case, none of the donations were made to Swachh Bharat Kosh and Clean Ganga Fund. Therefore, there was no bar on the assessee to claim the deduction under Section 80G of the Act. The Co- ordinate Bench of Kolkata Tribunal in the case of JMS Mining Pvt. Ltd. vs. DCIT, 130 taxmann.com 118 has held that Explanation 2 to section 37(1) of the Act which denies deduction for CSR expenses by way of business expenditure is applicable only to the extent of computing 'Business Income' under Chapter IV-D of the Act. The said Explanation cannot be extended or imported to CSR contributions which is otherwise eligible for deduction under any other provision or Chapter, to say donations made to charitable trusts registered u/s 80G of the Act. The Co-ordinate Bench of Mumbai Tribunal also held in the case of Gabriel India Limited, 173 taxmann.com 219 that the assessee’s claim for deduction under Section 80G of the Act in respect of CSR expenses was eligible for deduction. Considering the consistent view of the different Benches of the Tribunal on this issue, the Ld. CIT(A) had rightly allowed the relief to the assessee and accordingly the order of the Ld. CIT(A) is upheld. The ground taken by the Revenue is dismissed. Printed from counselvise.com ITA No.1507/Ahd/2025 (Assessment Year: 2020-21) DCIT vs. HDB Financial Services Limited Page 6 of 6 10. The other grounds taken by the Revenue are general in nature and are dismissed. 11. In the result, the appeal of the Revenue is dismissed. Order pronounced in the open Court on this 16th October, 2025. Sd/- Sd/- (SANJAY GARG) (NARENDRA PRASAD SINHA) Judicial Member Accountant Member Ahmedabad, the 16th October, 2025 PBN/* Copies to: (1) The appellant (2) The respondent (3) The PCIT (4) The CIT(A) (5) Departmental Representative (6) Guard File By order TRUE COPYE COPY Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad Printed from counselvise.com "