Shankara Building Products Limited Vs DCIT (ITAT Bangalore)
No Exempt Income, No Section 14A Disallowance: Bangalore ITAT Deletes ₹43.42 Lakh Addition
The Bangalore ITAT deleted a disallowance of ₹43.42 lakh made under section 14A read with Rule 8D, holding that where an assessee has not earned any exempt income during the relevant year, no disallowance can be made under section 14A.
The assessee, engaged in the retail business of home improvement and building products, had investments of about ₹48.37 crore in the unquoted equity shares of its subsidiary companies and had incurred finance costs of about ₹31.69 crore. During assessment proceedings, the Assessing Officer invoked section 14A and computed a disallowance of ₹43.42 lakh under Rule 8D despite the assessee’s contention that it had not earned any exempt income during the year. The CIT(A) confirmed the disallowance.
The Tribunal noted that it was undisputed that the assessee had not received any exempt income and had not claimed any exemption under section 10(34). Relying on the decisions of the Delhi High Court in Cheminvest Ltd. v. CIT and the Bombay High Court in PCIT v. Kohinoor Project Pvt. Ltd., the Tribunal reiterated that section 14A cannot be invoked in a year in which no exempt income is earned or receivable.
The Tribunal also examined the amendment made by the Finance Act, 2022, which inserted an Explanation to section 14A providing that the provision would apply even if no exempt income accrued or arose during the year. Following the Delhi High Court decision in PCIT v. Era Infrastructure (India) Ltd., the Tribunal held that the amendment is prospective and applies only from AY 2022-23 onwards. Since the year under appeal was AY 2020-21, the amendment had no application.
Accordingly, the Tribunal held that the disallowance under section 14A read with Rule 8D was wholly unsustainable and directed its deletion.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
1. The assessee has filed the present appeal against the impugned order dated 10.11.2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [“learned CIT(A)”], for the assessment year 2020-21.
