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Jaipur ITAT: Section 14A Disallowance Rejected; Socio-Economic Expenses Allowed U/s 37(1)

Case Law Details

TaxGuru Citation
2026 taxguru.in 11046
Case Name
Road Infrastructure Development Company of Rajasthan Limited Vs ACIT (ITAT Jaipur)
Date of Judgement/Order
Only available for paid members
Related Assessment Year
2014-15
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Road Infrastructure Development Company of Rajasthan Limited Vs ACIT (ITAT Jaipur)

Jaipur ITAT: No Section 14A Disallowance Without Exempt Income; 2022 Explanation Is Prospective – Contractually Mandated Socio-Economic Expenses Also Allowable u/s 37(1)

The assessee, a 50:50 joint venture between the Government of Rajasthan and IL&FS, was engaged in development and maintenance of the Mega Highway Project in Rajasthan. Three disallowances remained in dispute before the ITAT: ₹15.72 lakh under Section 35D, ₹1 lakh under Section 14A and ₹25.29 lakh of socio-economic expenditure under Section 37(1).

Section 35D – share capital expenditure: The assessee had incurred ₹78.62 lakh for increase in authorised share capital and claimed one-fifth thereof by way of amortisation. The identical claim for the first year had already been allowed by the ITAT in the assessee’s own case. Relying on Shasun Chemicals & Drugs Ltd. v. CIT, the Tribunal held that once Section 35D amortisation has been allowed in the initial year, it cannot be denied in subsequent years of the same amortisation period. The ₹15.72 lakh disallowance was therefore deleted.

Section 14A – no exempt income: It was undisputed that the assessee had earned no exempt income during AY 2014-15. Following Cheminvest Ltd., the ITAT held that no Section 14A disallowance can be made where there is no exempt income.

Importantly, the Tribunal rejected CIT(A)’s reliance upon CBDT Circular No. 5/2014 and the Explanation to Section 14A inserted by Finance Act, 2022. Following Era Infrastructure India Ltd. and Williamson Financial Services Ltd., it held that the 2022 Explanation operates prospectively and cannot apply to AY 2014-15. It further observed that a CBDT Circular cannot override the statute or binding judicial precedent. The ₹1 lakh disallowance was deleted.

Section 37(1) – socio-economic expenditure: The assessee had incurred ₹25.29 lakh on an HIV/AIDS awareness and prevention programme pursuant to its contractual obligations under the Concession/Partnership and Development Agreement with the Rajasthan Government. The ITAT held that this was not a voluntary donation, but expenditure directly connected with the highway business and incurred out of commercial expediency, making it deductible under Section 37(1).

The Tribunal further held that Explanation 2 to Section 37(1), which disallows CSR expenditure covered by Section 135 of the Companies Act, was inserted with effect from 1 April 2015 and applies only from AY 2015-16 onwards. Being a disabling provision, it could not be retrospectively applied to AY 2014-15. The entire ₹25.29 lakh disallowance was therefore deleted.

The assessee’s appeal was consequently partly allowed, with all three substantive disallowances challenged before the Tribunal being deleted; the ground concerning initiation of penalty proceedings was dismissed as premature.

Cases Discussed:

FULL TEXT OF THE ORDER OF ITAT JAIPUR

1. This appeal by the assessee is directed against the order of the learned Additional/Joint Commissioner of Income Tax (Appeals), Agra [hereinafter referred to as “the Addl./JCIT(A)”] dated 14.08.2025 for the Assessment Year 2014-15, arising out of the assessment order dated 27.12.2016 passed by the Assistant Commissioner of Income Tax, Circle-06, Jaipur [hereinafter referred to as “the AO”] under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). ITA No:1425/JPR/2025 Assessment Year: 2014-15

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Author Info

CA Vijayakumar Shetty
Qualification: CA in Practice
Company: Shetty & Co, Chartered Accountants, Mangalore
Location: Mangalore, Karnataka
Articles Published: 6,844

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