ACIT Vs Reliance Retail Ltd (ITAT Mumbai)
No Section 14A Disallowance Allowed Because No Exempt Income Was Earned: ITAT Mumbai; Marketing Expenses for E-Commerce Platform Treated as Revenue Because They Promote Existing Business; Section 14A Addition Invalid Without Exempt Income, Finance Act 2022 Amendment Not Retrospective; Section 14A Disallowance Cannot Be Added to Book Profit Under Section 115JB Without Exempt Income.
The appeal by the Revenue and the cross objection by the assessee arose from the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), dated 28 June 2024, for Assessment Year 2018–19. The assessment was originally completed under section 143(3) read with section 144B of the Income-tax Act, 1961.
Disallowance under Section 14A
The assessee filed its return declaring total income as nil and book profit under section 115JB at ₹1,879.11 crore. The Assessing Officer noted that the assessee had investments of ₹534.41 crore in equity and preference shares of subsidiaries and joint ventures. The assessee had not made any disallowance under section 14A read with Rule 8D, stating that it had not earned any exempt income during the relevant year.
Although this fact was noted in the assessment order and remained uncontroverted, the Assessing Officer applied Rule 8D and computed disallowance at 1% of the average value of investments amounting to ₹508.97 crore. This resulted in a disallowance of ₹5.08 crore, which was added to the total income and also considered while computing book profits under section 115JB.
