INCOME TAX OFFICER, WARD-16(1), HYDERABAD V. NSL NAGAPATNAM POWER VENTURES PRIVATE LIMITED, HYDERABAD

ITA 28/HYD/2025

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The case involves NSL Nagapatnam Power Ventures Private Limited, which filed an appeal against the order of the Income Tax Officer (A.O.) who had made a disallowance under Section 14A of the Income Tax Act, 1961. The disallowance was based on the company's investments in equity shares, which the A.O. deemed required a portion of the expenses to be disallowed as they pertained to earning exempt income. The CIT(A) reversed this decision, leading to the Revenue's appeal to the Income Tax Appellate Tribunal. The Tribunal upheld the CIT(A)'s decision, referencing the Supreme Court's stance that disallowances under Section 14A are not applicable if no exempt income was earned during the year in question.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 126254 (ITAT-HYDERABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-B
• Assessment Year: 2018-2019
• Other Referred Cases: CIT Vs. Chettinad Logistics (P) Ltd, Principal Commissioner of Income Tax Vs. Oil Industry Development Board
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Retrospective amendment; Earning of tax free income; Rule 8D
• Section: 143(3); 143(2); 250; 13; 14A; 101

Judgement Text

"आयकर अपीलीय न्यायाधिकरण में, हैदराबाद ‘बी’ बेंच, हैदराबाद IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ B ‘ Bench, Hyderabad श्री रवीश सूद, माननीय न्याययक सदस्य एवं श्री मिुसूदन सावडिया, माननीय लेखा सदस्य SHRI RAVISH SOOD, HON’BLE JUDICIAL MEMBER AND SHRI MADHUSUDAN SAWDIA, ACCOUNTANT MEMBER आयकरअपीलसं./I.T.A.No.27/Hyd/2025 (निर्धारण वर्ा/ Assessment Year:2017-18) Income Tax Officer, Ward – 16(1), Hyderabad. NSL Nagapatnam Power Ventures Private Limited, Hyderabad. PAN : AADCP9603L (अपीलार्थी/ Appellant) (प्रत्यर्थी/ Respondent) करदाता का प्रतततितित्व/ Assessee Represented by : Shri A.V. Raghuram, Advocate. राजस्व का प्रतततितित्व/ Department Represented by : Dr.Sachin Kumar, Sr.DR सुिवाई समाप्त होिे की ततति/ Date of Conclusion of Hearing : 17.04.2025 घोर्णध की तधरीख/Date of Pronouncement : 23.04.2025 O R D E R प्रनत रवीश सूद, जे.एम./PER RAVISH SOOD, J.M. The present appeal filed by the Revenue is directed against the order passed by the Addl/JCIT(A)-8, Delhi dated 21.11.2024, which in turn arises from the order passed by the Assessing 2 ITA No.27/Hyd/2025 Officer (for short “A.O.”) u/s 143(3) of the Income Tax Act, 1961 (for short “the Act”) dated 12.12.2019 for A.Y. 2017-18. The Revenue has assailed the impugned order on the following grounds of appeal before us : “1. The learned CIT(A) erred both in law and facts of the case. 2. The learned CIT(A) erred in deleting the addition of Rs.3.60 Cr made by the AO u/s 14A when the AO can make disallowance based on facts and which is permissible as per CBDT Circular No.05/2014 dt. 11.02.2014. 3. The learned CIT(A) ought to have sensed there is an income in the nature of dividend earned from strategic investments made in the subsidiary companies.” 2. Succinctly stated, the assessee company had filed its return of income for A.Y. 2017-18 on 27.10.2017 declaring a loss of Rs.1,28,69,984/-. Subsequently, the case of the assessee company was selected for scrutiny assessment through CASS and a notice u/s 143(2) of the Act was issued by the A.O. 3. During the course of assessment proceedings, it was observed by the A.O. that the assessee company during the subject year had invested Rs.369,69,63,500/- towards equity of 3 different companies. On a perusal of the Profit and Loss account, the A.O. observed that the assessee company had claimed a deduction of interest payment along with certain other expenses. As the 3 ITA No.27/Hyd/2025 assessee company had not attributed and therein disallowed any part of the expenditure towards earning of the exempt income on its aforesaid investment in equity shares; therefore, the A.O. called upon it to put forth an explanation as to why the disallowance u/s 14A of the Act may not be worked out in its case. In reply, the assessee company claimed that no disallowance u/s 14A was called for in its case for two-fold reasons, viz., (i) that the investment in the equity shares of its subsidiary companies which were engaged in the business of power generation was made as a part of its business development and furtherance of its objects; and (ii) that as the assessee company had during the subject year not derived any exempt income from its aforesaid exempt income yielding investments, therefore, no disallowance was called for u/s 14A of the Act. However, the aforesaid explanation of the assessee company did not find favour with the A.O. The A.O. drawing support from the CBDT Circular No.5 of 2014 dated 11.02.2014, held a conviction that for invoking disallowance u/s 14A of the Act, it was not material that the assessee should have earned any exempt income during the subject year. Accordingly, the A.O. backed by his aforesaid deliberations worked out the disallowance u/s 14A read with Rule 8D(ii) of the Income Tax Rules, 1962 at an 4 ITA No.27/Hyd/2025 amount of Rs.3,60,86,885/-. Resultantly, the A.O. after making the aforesaid disallowance u/s 14A of the Act, determined the income of the assessee company vide his order passed u/s 143(3) dated 12.12.2019 at Rs.2,32,16,901/- 4. Aggrieved, the assessee company carried the matter in appeal before the CIT(A). The CIT(A) finding favour with the claim of the assessee company that as it had not earned any exempt income during the subject year, therefore, no disallowance u/s 14A was called for in its case, vacated the disallowance of Rs.3.60 crores (approx.) made by the A.O. u/s 14A read with Rule 8D. For the sake of clarity, the observations of the CIT(A) are culled out as under : 5 ITA No.27/Hyd/2025 6 ITA No.27/Hyd/2025 7 ITA No.27/Hyd/2025 8 ITA No.27/Hyd/2025 5. The Revenue, being aggrieved with the order of CIT(A) has carried out the matter in appeal before us. 6. We have heard the learned Authorized Representatives of both parties, perused the orders of lower authorities and the material available on record as well as considered the judicial pronouncements that have been pressed into service by the learned authorized representatives of both the parties to drive home their respective contentions. 7. Shri A.V. Raghuram, Advocate, the learned Authorized Representative (for short the “Ld. AR”) for the assessee company, at the threshold of hearing of the appeal, submitted that as the assessee company during the subject year had not earned any exempt income, therefore, as per the pre-amended Section 14A of the Act no disallowance u/s 14A of the Act was called for in its case. The Ld. AR to buttress his aforesaid claim, has relied upon the decision of Hon'ble Apex Court in the case of CIT Vs. Chettinad Logistics (P) Ltd (2018) 95 Taxmann.com 250 (SC). It was the ld. AR’s claim that as the assessee company had admittedly not received any exempt income during the subject 9 ITA No.27/Hyd/2025 year, therefore, no infirmity arises from the order of CIT(A), who by drawing support from a host of judicial pronouncements had rightly observed that in absence of any exempt income no disallowance u/s 14A of the Act was called for in its case. 8. Per contra, Dr. Sachin Kumar, the learned Departmental Representative (for short ‘ld. DR”) relied on the orders of the lower authorities. 9. We have given our thoughtful consideration to the aforesaid issue, and find substance in the claim of the Ld. AR. As stated by the Ld. AR, and rightly so, as per the pre-amended Section 14A of the Act i.e., as was available on the statute prior to its amendment vide the Finance Act, 2022 w.e.f 01.04.2022, in the absence of any exempt income no disallowance u/s.14A of the Act could have been made in the hands of the assessee company. Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Madras in the case of Commissioner of Income Tax Vs. Chettinad Logistics Pvt. Ltd. (2017) 248 TAXMAN 55 (Mad.). The Special Leave Petition (SLP) (Civil) No.16194 of 2018 filed by the department before the Hon'ble Apex Court against the aforesaid order of the Hon'ble High Court of Madras in the case of 10 ITA No.27/Hyd/2025 Chettinad Logistics Pvt. Ltd. (supra), had thereafter been dismissed by the Hon'ble Apex Court in CIT Vs. Chettinad Logistics (P) Ltd. (2018) 95 taxmann.com 250 (SC). Rather, we find that even the review petition filed by the revenue had also been dismissed by the Hon'ble Apex Court vide its order passed in Commissioner of Income Tax (Central) Vs. M/s. Chettinad Logistics Pvt. Ltd. (2019) 105 CCH 226 (SC). Also, we find that the Hon'ble Apex Court had taken same view in the case of Principal Commissioner of Income Tax Vs. Oil Industry Development Board (2019) 262 Taxman 102 (SC), wherein the order of the Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax Vs. Oil Industries Development Board (2018) 101 CCH 452 (Del. HC) was approved. 10. Considering the fact that the issue involved in the present appeal is no more res-integra pursuant to the aforesaid judgments of the Hon'ble Supreme Court, the claim of the Ld. AR that the CIT(A) had rightly observed that no disallowance u/s.14A of the Act in the absence of any exempt income could have been made in the case of the assessee company, merits acceptance. 11 ITA No.27/Hyd/2025 11. Before parting, we may herein observe, that though the legislature vide its amendment made available on the statute by the Finance Act, 2022 had inserted an “Explanation” to Section 14A of the Act, as per which, notwithstanding anything to the contrary contained in the Act, the provisions of Section 14A shall apply in a case where the income, not forming part of the total income under the Act, has not accrued or arisen or has not been received during the subject year and the expenditure has been incurred during the said previous year in relation to such exempt income, but the same is effective from April 1, 2022 and cannot be presumed to have retrospective effect. Our aforesaid view is fortified by the judgment of Hon'ble High Court of Delhi in the case of Pr. CIT Vs. Era Infrastructure (India) Ltd. (2022) 114 CCH 219 (Delhi) and the Hon’ble High Court of Madhya Pradesh in Pr. CIT Vs. Keti Constructions (2024) 162 taxmann.com278 (MP), wherein the Hon'ble High Courts have held that the amendment made available on the statute vide the Finance Act, 2022 in Section 14A is effective from 01.04.2022 and cannot be permitted with retrospective effect. Accordingly, we are of the view that as the assessee company before us, had during the subject 12 ITA No.27/Hyd/2025 year i.e. A.Y. 2017-18 not received any exempt income, therefore, no infirmity arises from the view taken by the CIT(A), wherein the disallowance made by the A.O. u/s 14A of the Act had rightly been vacated by him. 12. In the result, the appeal filed by the Revenue being devoid of any substance is dismissed. Order pronounced in the Open Court on 23rd April, 2025. Sd/- (श्री मिुसूदन सावडिया) (MADHUSUDAN SAWDIA) लेखा सदस्य/ACCOUNTANT MEMBER Sd/- (श्री रवीश सूद) (RAVISH SOOD) न्यायिक सदस्य/JUDICIAL MEMBER Sd/- Hyderabad, dated 23.04.2025. *TYNM/sps 13 ITA No.27/Hyd/2025 आदेशकी प्रनतनलनप अग्रेनर्त/ Copy of the order forwarded to:- 1. निर्धाररती/The Assessee : NSL Nagapatnam Power Ventures Private Limited, 8-2-684/2/A, 4th Floor, NSL Icon Road No.12, Khairatabad, Banjara Hills, S.O., Hyderabad – 500034, Telangana. 2. रधजस्व/ The Revenue : The Income Tax Officer, Ward – 16(1), Hyderabad. 3. The Principal Commissioner of Income Tax, Hyderabad. 4. नवभधगीयप्रनतनिनर्, आयकर अपीलीय अनर्करण, हैदरधबधद / DR, ITAT, Hyderabad 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER Sr. Private Secretary ITAT, Hyderabad "