ORDER

PER AMITABH SHUKLA, AM,

This appeal filed by the Revenue is against order dated 10.10.2025 of the Learned Commissioner of Income Tax-(Appeals)/National Faceless Appeal Centre, New Delhi, [hereinafter referred to as ‘ld. CIT(A)] arising out of assessment order dated 06.06.2021 passed u/s 143(3) of the Income Tax Act, 1961 pertaining to Assessment Year 2018-19. The word ‘Act’ herein this order would mean Income Tax Act, 1961.

The only issue seminal to the present appeal of the Revenue is regarding the addition of Rs.7,63,61,817/- made by the ld. AO under section 14A of the Act and its deletion by the ld. CIT(A). As per brief factual matrix of the case that the assessee, is a company, had filed return of income on 30/03/2019 declaring total loss of Rs. 2,68,88,631/-. The assessee company was noted to have made investment in shares of Rs. 384,46,38,000/- as on 31.3.2018, the income from which is exempt from tax. After considering the submissions of the appellant, the ld. AO concluded that the assessee was required to have identified expenses qua exempt income. Hence, based on the facts of the case, the AO applied provisions of section 14A r.w.r. 8D. Accordingly, Ld. AO disallowed amount Rs. 5,50,17,000/- u/s. 14A [Rule 8D (2)(i)] of the I.T. Act, 1961. Disallowance u/s.14A [Rule 8D (2)(ii)] of the I.T. Act, 1961 is 1% of average value of investment arrived at Rs. 2,13,44,817/-. Thus, total of [Rs. 5,50,17,000/- + Rs. 2,13,44,817/-] i.e Rs. 7,63,61,817/- was added to the total income of the assessee.

Before the ld. CIT(A) appellant argued that there is no exempt income earned during the year under consideration, therefore, the AO can not make disallowance u/s 14A of the Act. Further, it was stated by the appellant that for the A.Y. 2014-15, on the issue of disallowance u/s 14A of the Act, the CIT(A) had allowed the appeal of the appellant and the same was upheld by the ITAT, New Delhi through order dated 06.06.2021. The ld. CIT(A) following decision as per past history of the case, on identical facts, for the A.Y. 2014-15 that the appellant has not earned any exempt income deleted the disallowance of Rs. 7,63,61,817/- u/s 14A of the Act.

The assessee was called absent.

The ld. DR, Shri Manish Gupta, took us through the above factual matrix and vehemently argued in favour of the order of the ld. Assessing Officer. Reliance was also placed upon the Explanation to section 14A as well as the decisions of Hon’ble Delhi High Court in the case of HT Media Limited. 145 taxman.com 290 and of Hon’ble Apex Court in the case of Mahesh K. Mehta 166 taxmann.com 176.

We have noted that the case laws relied upon by the ld. DR are purely on distinguished on facts. We are of the considered view that no disallowance u/s 14A is permissible in this case, considering the fact that there was not exempt income disclosed by the assessee. We have also noted that it is settled law now that the explanation to section 14A which can be invoked even in cases where there is no exempt income is prospective and not retrospective in nature. We have further noted the decision of this tribunal in the case of M/s HCL Training & Staffing Services Private Limited, in ITA No.7383/Del/2025 AY 2017-18 holding as under :-

“……4. The ld. Counsel for the assessee argued that the invocation of section-14A in its case is totally wrong. It was submitted that the appellant has not earned any exempt income so as to attract invocation of section 14A r.w.r. 8D in its case. The Ld. Counsel vehemently argued that the explanation to section 14A referred by ld. CIT(A) is prospective and not retrospective in nature and hence no case for any addition was made out in this case. In support of its contentions, the ld. Counsel invited our attention to decision of Hon’ble Delhi High Court in the case of Era Infrastructure India Ltd. 448 ITR 674 and Sahara India Financial Corporation Ltd. 168 taxmann.com 165.

5. Per Contra, the ld. DR placed