MANIKANT NUTRITIONS FOODS PRIVATE LIMITED,NEW DELHI V. ITO WARD 5(2)(2), NOIDA

ITA 281/DEL/2023

AI Insights

The case involves Manikant Nutritions Foods Private Limited, which appealed against the orders of the CIT(A) confirming additions made under section 14A read with Rule 8D for the assessment years 2015-16 and 2016-17. The additions were initially made by the Assessing Officer (AO) on the grounds that the assessee had incurred interest expenses on unsecured loans and had made net current investments, but had not shown any income from these investments. The AO and CIT(A) both applied section 14A, arguing that the provisions apply even if no exempt income was claimed, citing a CBDT Circular. However, the Tribunal, referencing a Delhi High Court decision, found that disallowances under section 14A are not applicable when no exempt income is earned, and that the relevant explanation in the Finance Act is applicable prospectively, not retrospectively.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 31615 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2015-2016
• Other Referred Cases: PCIT vs. Sahara India Financial Corporation Ltd. [2024] 168 taxmann.com 165 (Delhi)
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY TRIPATHI
• Assessee Lawyers: PRATAP GUPTA
• Keywords: Set aside; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA NOS. 281 & 282/Del/2023 A.YRS. : 2015-16 & 2016-17 MANIKANT NUTRITIONS FOODS PRIVATE LIMITED, 38, 2ND FLOOR, AAMPRAPALI APARTMENTS, PATPARGANJ, NEW DELHI – 92 (PAN: AAICM0372L) VS. ITO, WARD 5(2)(2), NOIDA, UTTAR PRADESH (APPELLANT) (RESPONDENT) Appellant by : Sh. Pratap Gupta, CA Respondent by : Shri Sanjay Tripathi, Sr. DR. Date of hearing : 01.01.2025 Date of pronouncement : 8.01.2025 ORDER PER SHAMIM YAHYA, AM : These appeals by the assessee are against the separate orders of the Ld. CIT(A)/NFAC, New Delhi both dated 09.12.2022 pertaining to assessment years 2015-16 & 2016-17 respectively. 2. The solitary ground raised in AY 2015-16 reads as under:- “That Ld. CIT(A)(NFAC) without appreciating the correct facts of the case is not justified in law and facts and circumstances of the case in 2 | P a g e confirming the addition / disallowance of Rs. 10,64,414/- under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.” 3. The solitary ground raised in AY 2015-16 reads as under:- “That Ld. CIT(A)/NFAC without appreciating the correct facts of the case is not justified in law and facts and circumstances of the case in confirming the addition / disallowance of Rs. 12,67,646/- under section 14A of the Act read with rule 8D of the Income Tax Rules, 1962 under the circumstances when no exempt income is earned by assessee company.” 4. Since common/identical grounds have been raised in both the aforesaid appeals of the assessee, hence, for the sake of convenience, we are only dealing with the facts of AY 2015-16, as the lead case. 5. Brief facts of the case are that the assessee has claimed interest expenses of Rs. 10,64,414/- on the unsecured loans of Rs. 142,00,000/-. From the perusal of the balance sheet, it was seen that the assessee has made net current investment of Rs. 3,77,25,000/- with M/s Indica Food Pvt. Ltd., but no income was shown by the assessee. Therefore, show cause was issued by the AO and the AO made the addition of Rs. 10,64,414/- u/s. 14A read with Rule 8D of the Act. The assessee claimed before the AO that it has not claimed my exempt income, hence, the provisions of section 14A are not applicable. The AO held that the section 14A is also applicable, where the assessee has incurred expenditure by way of interest, which is not directly attributable to any particular income or receipt. The AO relied upon the Circular No. 5 of 2014, issued by CBDT. 3 | P a g e 6. Against the above action of the AO, assessee appealed before the Ld. CIT(A) and made the submissions that since no exempt income has been earned, hence, no addition u/s. 14A could be done. Ld. CIT(A) referred the explanation which has been brought in Finance Act w.e.f. 1.4.2022 for the proposition that if exempt income is not earned, disallowance is to be done under section 14A read with Rule 8 and confirmed the addition made by the AO by dismissing the appeal of the assessee. 7. Aggrieved with the above, assessee appealed before the Ld. CIT(A). 8. We have heard both the parties and perused the records. We note that in this case assessee has not earned any exempt income and it is a well settled proposition that when any exempt income has not been earned, disallowance cannot be made. As regards the explanation, which the Ld. CIT(A) has held to be retrospective, we note that Hon’ble Delhi High Court in the case of PCIT vs. Sahara India Financial Corporation Ltd. [2024] 168 taxmann.com 165 (Delhi) has held that no disallowance of any expenditure u/s. 14A could be done, when the assessee has not earned any exempt income, and that this explanation is applicable prospectively. Hence, this explanation is not applicable to the present assessment years 2015-16 & 2016-17. Thus, respectfully following the precedent, as aforesaid, we set aside the order of the Ld. CIT(A) and decide the issue in favour of the assessee. Resultantly, the appeal relating to assessment year 2015-16 stands allowed in the aforesaid manner. 4 | P a g e 9. As regards assessment year 2016-17 is concerned, since the facts of the case are similar and identical to assessment year 2015-16 as aforesaid, hence, our aforesaid decision given for the assessment year 2015-16 shall apply mutatis mutandis to the assessment year 2016-17 as well. We hold and direct accordingly. As a result, the assessee’s appeals for AYs 2016-17 also stand allowed. Order pronounced on 08.01/2025. SD/- (ANUBHAV SHARMA) SD/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar "