IN THE INCOME TAX APPELLATE TRIBUNAL, ‘E’ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER &

SHRI ARUN KHODPIA, ACCOUNTANT MEMBER (Assessment Year :2017-18 ACIT-6(1)(1), Mumbai Vs. M/s. Essar Power Ltd., 11^th Floor, Essar House

11, K K Marg Mahalaxmi Mumbai-

400 034 PAN/GIR No.AAACE0895J (Appellant) .. (Respondent Assessee by Shri Tarang Mehta Revenue by Shri Ritesh Misra, CIT DR Date of Hearing 18/02/2026 Date of Pronouncement 19/02/2026 / O R D E R आदेश PER AMIT SHUKLA (J.M):

The present appeal has been preferred by the Revenue against the order dated 29.09.2025 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, arising out of the assessment framed under section 143(3) of the Income-tax Act, 1961, for the assessment year 2017–18, whereby the learned CIT(A) has deleted the disallowance of Rs.95,44,19,290/- made by the Assessing Officer under section 14A read with Rule 8D of the Income-tax Rules, 1962, and also deleted the consequential addition made while computing the book profit under section

115JB of the Act.

2. The Revenue has raised multiple grounds challenging the action of the learned CIT(A), inter alia, contending that the learned CIT(A) erred in deleting the disallowance made under section 14A read with Rule 8D without appreciating that the assessee was holding substantial investments capable of yielding exempt income and, therefore, the proportional disallowance of expenditure incurred in relation thereto was warranted. The Revenue has further contended that the learned CIT(A) erred in holding that no disallowance under section 14A was warranted merely because the assessee had not earned any exempt income during the year, ignoring the CBDT Circular No.5/2014 dated 11.02.2014 and the Explanation inserted by the Finance Act, 2022, which according to the Revenue clarifies that disallowance under section 14A applies irrespective of whether exempt income has accrued or arisen. The Revenue has also challenged the deletion of the corresponding addition made to book profit under section 115JB on the premise that once expenditure relatable to exempt income is disallowed under the normal provisions, the same is required to be added back while computing book profit.

3. The brief facts emerging from the record are that the assessee company is engaged in the business of owning and operating imported coal-based power plants and during the relevant previous year had reflected investments in its balance sheet, primarily in equity shares and preference shares of subsidiary companies. It is an undisputed and admitted factual position borne out from the record that during the relevant previous year, the assessee had not earned any exempt income whatsoever, either by way of dividend or otherwise. During the course of assessment proceedings, the assessee specifically brought this factual aspect to the notice of the Assessing Officer and submitted that in the absence of any exempt income, the provisions of section 14A could not be invoked. In support of this contention, the assessee placed reliance upon binding judicial precedents including the judgment of the Hon’ble Jurisdictional Bombay High Court in the case of Pr. CIT vs. Ballarpur Industries Limited (ITA No. 51 of 2016, Bombay High Court), wherein it was held that the expression “does not form part of the total income” in section 14A envisages actual receipt of income which is not includible in total income during the relevant previous year and in the absence thereof, no disallowance under section 14A can be made.

4. The assessee further placed reliance upon the decision of the Hon’ble Jurisdictional Bombay High Court in the case of CIT vs. Delite Enterprises [ITA No.110 of 2009 (Bombay High Court)], wherein the Hon’ble High Court categorically held that where there is no profit from partnership firm during the relevant assessment year, there is no question of disallowance of interest expenditure under section 14A of the Act. The ass