Blacksoil Capital Private Limited Vs DCIT (ITAT Hyderabad)
No Exempt Income, No Section 14A Disallowance for AY 2017–18: Finance Act, 2022 Explanation Is Not Retrospective
The legal principle
The Hyderabad Tribunal held that no disallowance under section 14A could be sustained for AY 2017–18 where the assessee had earned no exempt income.
It rejected the first appellate authority’s view that the Explanation inserted by the Finance Act, 2022 applied retrospectively. Following the Delhi High Court’s decision in PCIT v. Era Infrastructure (India) Ltd. and its own coordinate Bench precedent, the Tribunal directed deletion of the ₹61,03,186 disallowance.
The decision concerns a year preceding the 2022 amendment. Its conclusion must therefore be read with that temporal qualification.
Background of the assessment
The assessee filed its return for Assessment Year 2017–18 on 25 October 2017, declaring total income of ₹5,29,13,930.
The return was selected for scrutiny under CASS. During the assessment proceedings, the assessee stated that it had not earned any exempt income during the year.
Nevertheless, the Assessing Officer made a disallowance of ₹61,03,186 under section 14A and completed the assessment on 28 December 2019, determining total income at ₹5,90,17,116.
The first appellate authority sustained the disallowance. The assessee consequently approached the Tribunal, challenging both the application of section 14A in the absence of exempt income and the retrospective application of the subsequent amendment.
Merger and communication to former email explained the delay
The Tribunal appeal was filed with a delay of 63 days.
The assessee explained that the company had undergone a merger and was occupied with extensive post-merger compliances. Further, the appellate order had been sent to the company’s former email address, resulting in delayed awareness of the decision.
A condonation petition supported by an affidavit was filed. The Revenue opposed condonation, contending that sufficient cause had not been established.
The Tribunal accepted that the merger-related circumstances and communication to the former email address reasonably explained the delay. However, it imposed costs of ₹5,000, payable to the Prime Minister’s National Relief Fund within 30 days of receipt of the order.
Condonation and admission of the appeal were expressly made subject to payment within that period.
Absence of exempt income was undisputed
On merits, the Tribunal identified a clear factual starting point: the assessee had earned no exempt income.
The Assessing Officer had recorded the assessee’s assertion in the assessment order but had not controverted it while making the disallowance. The Tribunal likewise found no dispute on this fact from the material before it.
The controversy therefore required determination of a legal question: whether section 14A permitted the disputed disallowance for AY 2017–18 despite the absence of exempt income.
The Tribunal did not need to resolve competing factual accounts concerning the amount of exempt income or its source.
Retrospective application of the Explanation rejected
The first appellate authority had sustained the disallowance by treating the Finance Act, 2022 Explanation to section 14A as retrospective. It had also relied on CBDT Circular No. 5/2014 dated 11 February 2014.
The Tribunal rejected the retrospective interpretation.
Referring to PCIT v. Era Infrastructure (India) Ltd., it held that the Explanation could not be presumed to operate retrospectively merely because it used language concerning the removal of doubts.
Thus, describing an amendment as clarificatory did not, by itself, permit its application to the earlier assessment year involved in this appeal.
Coordinate Bench precedent governed the outcome
The Tribunal also followed ITO v. NSL Nagapatnam Power Ventures Private Limited, ITA No. 27/Hyd/2025, decided on 23 April 2025.
That decision concerned the same assessment year and had rejected retrospective application of the 2022 Explanation. It had also applied the pre-amendment position that no section 14A disallowance could be made where no exempt income was earned.
The present Tribunal adopted that reasoning. Since the factual absence of exempt income was established and AY 2017–18 preceded the amendment, it held that the disallowance could not survive.
The first appellate order was set aside on this issue, and the Assessing Officer was directed to delete ₹61,03,186. The appeal was allowed.
Author’s comments
The date of an amendment matters as much as its wording. A later provision cannot automatically be applied to an earlier year merely because it is framed as an explanation or says that it removes doubts.
The other decisive feature was the undisputed factual record. The Assessing Officer had noted the absence of exempt income without contradicting it. Once that fact was accepted, the issue became one of applying the law governing the relevant year.
The judgment should be cited accurately as supporting the pre-amendment position for AY 2017–18, rather than an unqualified proposition covering every subsequent year.
The delay discussion also offers a practical reminder: merger-related disruptions and obsolete email details may explain delayed filing, but relief can carry conditions. Here, the ₹5,000 payment requirement formed part of the Tribunal’s condonation order.
Cases Discussed
- Biophore India Pharmaceuticals Pvt. Ltd. v. DCIT, ITA No. 729/Hyd/2025, ITAT Hyderabad, 26 September 2025 — Cited by the assessee.
- ITO v. NSL Nagapatnam Power Ventures Private Limited, ITA No. 27/Hyd/2025, ITAT Hyderabad, 23 April 2025 — Followed by the Tribunal.
- PCIT v. Era Infrastructure (India) Ltd., 114 CCH 219; 288 Taxman 384, Delhi High Court, 20 July 2022 — Followed on prospective operation of the 2022 amendment.
- PCIT v. Keti Construction Ltd., Madras High Court; further citation not specified in the supplied order — Mentioned as a precedent applied in the coordinate Bench reasoning.
- PCIT v. Oil Industries Development Board, (2019) 262 Taxman 102 (SC) — Referenced for the absence-of-exempt-income position.
- CIT v. Chettinad Logistics (P.) Ltd., (2017) 248 Taxman 55 (Madras High Court); (2018) 95 taxmann.com 250 (SC) — Referenced in the reproduced precedent on section 14A.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal is filed by Blacksoil Capital Private Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Addl/JCIT(A)-5, Kolkata (“Ld. First Appellate Authority”) dated 17.02.2026 for the A.Y. 2017-18.
2. At the outset, we note that the appeal has been filed with a delay of 63 days. The assessee has filed a petition supported by an affidavit seeking condonation of the delay. The Learned Authorized Representative (“Ld. AR”) submitted that, during the relevant period, the company had undergone a merger and was occupied with extensive post-merger compliances. Further, the order of the Ld. First Appellate Authority was also sent to the company’s former email address. Consequently, the assessee did not become aware of the order in time to file the appeal within the prescribed period. The Ld. AR prayed that the delay be condoned and the appeal be admitted for adjudication on merits.
3. Per contra, the Learned Departmental Representative (“Ld. DR”) opposed the prayer, submitting that the assessee had not shown sufficient cause for the delay.
4. We have heard the rival submissions and perused the material available on record, including the condonation petition and affidavit. The explanation concerning the merger and the communication of the order to the former email address reasonably accounts for the assessee’s failure to become aware of the order in time. We are therefore satisfied that sufficient cause has been shown for the delay. Having regard to the delay of 63 days, however, we consider it appropriate to impose a cost of Rs. 5,000/-. Accordingly, we condone the delay, subject to the assessee depositing Rs. 5,000/- with the Prime Minister’s National Relief Fund, within 30 days from the date of receipt of this order. Subject to payment of the cost within the stipulated period, the appeal is admitted for adjudication on merits.
5. The assessee has raised the following grounds of appeal:
“1. That the impugned order passed by the Ld. Addl./JCIT(A) is bad in law and on facts being perverse, contrary to the material available on record, and liable to be set aside.
2. That the Ld. Add./JCIT(A) has erred in law and on facts in upholding the disallowance made by the Ld. Assessing Officer (‘Ld. AO) under section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962, without appreciating the facts and circumstances of the case.
3. That the Ld. Addl./ JCIT(A) has failed to appreciate that this Hon’ble Tribunal on identical facts and issues in the assessee’s own case for AY 2013-16, has granted relief in favour of the assessee.
4. That the Ld. Addl./JCIT(A) has erred in not adjudicating the submissions of the assessee in a reasoned and judicious manner, thereby violating the principles of natural justice, and in mechanically confirming the disallowance under section 14A without considering that the issue is squarely covered in favour of the Appellant by the order of this Hon’ble Tribunal for AY 2015-116 in the assessee’s own case.
5. That the disallowance u/s 14A made by the Ld. AO and sustained by the Ld.Addl./JCIT(A) is arbitrary, excessive and not in accordance with the provisions of the Act.
6. That the Ld. Addl./JCIT(A) has erred by assuming that the explanation inserted to section 14A of the Act vide Finance Act, 2022 has retrospective application without appreciating the decisions of appellate authorities and Hon’ble High Courts.
7. The Ld. Add!. JCTT(A) erred in law and fact by invoking the provisions of section 14A of the Act in the absence of any exempt income earned by the Company during the year under question.
8. The Ld. Addl/JC1T(A) erred in law by not following the judicial discipline by not appreciating the decisions of the Hon’ble Supreme Court and the jurisdictional Income tax Appellate Tribunal which have held that in absence of exempt income the disallowance u’s 14A of the Act is not warranted.
9. That the Appellant craves leave to add, alter, amend, vary, omit, substitute, modify or withdraw any of the grounds of appeal at or before the time of hearing of the appeal.”
6. The brief facts of the case are that the assessee is a company, filed its return of income for assessment year 2017-18 on 25.10.2017, declaring total income of Rs. 5,29,13,930/-. The case of the assessee was selected for scrutiny under CASS and notice under section 143(2) of the Income-tax Act, 1961 (“the Act”) dated 14.08.2018 was issued. The Assessing Officer made a disallowance of Rs. 61,03,186/- under section 14A of the Act and, by order dated 28.12.2019 passed under section 143(3) of the Act, assessed the total income of the assessee at Rs. 5,90,17,116/-.
7. Aggrieved with the order of the Assessing Officer, the assessee preferred an appeal before the Ld. First Appellate Authority. The Ld. First Appellate Authority sustained the disallowance made by the Assessing Officer.
8. Aggrieved by the order of the Ld. First Appellate Authority, the assessee is in appeal before us. At the outset, the Ld. AR submitted that the solitary issue in this appeal concerns the disallowance of Rs. 61,03,186/- under section 14A of the Act. Referring to para nos. 1.3 to 1.5 of the assessment order, he submitted that the assessee had stated before the Assessing Officer that it had earned no exempt income during the year. Although the Assessing Officer recorded this submission in para no. 1.3, he did not dispute the factual position in his findings at para nos. 1.4 and 1.5. The Ld. AR further submitted that, in para nos. 5.1 and 5.2 of the impugned order, the Ld. First Appellate Authority sustained the disallowance by applying the Explanation inserted in section 14A by the Finance Act, 2022 and by relying on CBDT Circular No. 5/2014 dated 11.02.2014. According to the Ld. AR, the Explanation does not apply to assessment year 2017-18. He relied on the decisions of the Hyderabad Bench in the cases of Biophore India Pharmaceuticals Pvt. Ltd. Vs. DCIT, ITA No. 729/Hyd/2025, dated 26.09.2025, and ITO Vs. NSL Nagapatnam Power Ventures Private Limited, ITA No. 27/Hyd/2025, dated 23.04.2025. He accordingly prayed that the disallowance be deleted.
9. Per contra, the Ld. DR relied on the orders of the lower authorities.
10. We have heard the rival submissions and perused the material available on record including the case laws relied upon. There is no dispute on the material placed before us that the assessee earned no exempt income during the year under consideration. In this regard, we observed that the Assessing Officer has recorded the assessee’s assertion to that effect in para no. 1.3 of the assessment order and did not controvert it while making the disallowance. The question, therefore, is whether a disallowance under section 14A of the Act could be made for assessment year 2017-18 despite the absence of exempt income. We have examined para nos. 5.1 and 5.2 of the order of the Ld. First Appellate Authority, which is to the following effect:
5.1 I have carefully gone through the assessment order u/s 143(3). the grounds of appeal and submission made by the appellant in this regard. Briefly stating facts of the case is that the appellant filed return of income which was taken up for scrutiny and assessment was completed u/s 143(3) of the Act making addition of Rs.61,03,186/-. Addition/disallowance on only one issue was made and that being disallowance of expenses attributable to exempt income as per section 14A of the Act.
5.2 Grounds of appeal no. 1 and 2 are against disallowance of expenses u/s 14A of the I.T. Act, Facts involved in the issue and as apparent from assessment order is that the appellant had investment in equity shares, income from which are exempt from tax. Expenses attributable to earning of such income is not allowable as deduction u/s 14A. However, the appellant had not disallowed such expenses on their own motion. Hence, the assessing officer disallowed a portion of expenses claimed as deduction in the profit & loss account to the extent of Rs.61,03,186/- uls 14A after determining the same by applying the provisions of Rule 80 of the I.T.
Rules, 1962. On the other hand, during appellate proceedings, the appellant did not dispute the quantum of disallowance as determined by AO. But they argued that since they did not earn any income which was exempt from tax during the relevant Year, no disallowance u/s 14A was warranted. In this regard, the provisions contained in Explanation below section 14A is quoted as under:-
“For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.”
If is therefore clear from the said explanation that even if an assessee does not actually earn any exempt income but has investment, the income from which would be exempt from tax, then expenses attributable to such income are to be disallowed u/s 14A. The said Explanation though introduced in the I.T. Act with effect from 31.04.2022 mentions that it is applicable for all earlier years thereby giving legitimacy to CBDT’s Circular no. 5/2014 dated 11.02.2014 which has clarified the matter on the same direction. In view of the said legal position, AO’s action of invoking Rule 8D and disallowing expenses to the extent of Rs.61,03,186/- u/s 14A is confirmed and these grounds of appeal dismissed.
11. On perusal of the above, we find that the disallowance has been sustained by the Ld. First Appellate Authority on the footing that the Explanation inserted in section 14A by the Finance Act, 2022 applies retrospectively. That view cannot be accepted. We find that the Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd., 114 CCH 219, held that the insertion of Explanation to Section 14A of the Act by the Finance Act, 2022 cannot be presumed to operate retrospectively merely because the Explanation uses language concerning removal of doubts. In this regard, we have also gone through para nos. 9 to 11 of the coordinate Bench’s order in ITO Vs. NSL Nagapatnam Power Ventures Private Limited (supra), which concerns the same assessment year, the same are reproduced as under:
9. We have given our thoughtful consideration to the aforesaid issue, and find substance in the claim of the Ld. AR. As stated by the Ld. AR, and rightly so, as per the pre-amended Section 14A of the Act i.e., as was available on the statute prior to its amendment vide the Finance Act, 2022 w.e.f 01.04.2022, in the absence of any exempt income no disallowance u/s.14A of the Act could have been made in the hands of the assessee company. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Madras in the case of Commissioner of Income Tax Vs. Chettinad Logistics Pvt. Ltd. (2017) 248 TAXMAN 55 (Mad.), The Special Leave Petition (SLP) (Civil) No.16194 of 2018 filed by the department before the Hon’ble Apex Court against the aforesaid order of the Hon’ble High Court of Madras in the case of Chettinad Logistics Pvt, Ltd. (supra), had thereafter been dismissed by the Hon’ble Apex Court in CIT Vs. Chettinad Logistics (P) Ltd. (2018) 95 taxmann.com 250 (SC), Rather, we find that even the review petition filed by the revenue had also been dismissed by the Hon’ble Apex Court vide its order passed in Commissioner of Income Tax (Central) Vs. WI Chettinad Logistics Pvt. Ltd. (2019)105 CCH 226 (SC). Also, we find that the Hon’ble Apex Court had taken same view in the case of Principal Commissioner of Income Tax Vs. Oil Industry Development Board (2019) 262 Taxman 102 (SC), wherein the order of the Hon’ble High Court of Delhi in the case of Principal Commissioner of Income Tax Vs. Oil Industries Development Board (2018)101 CCH 452 (Del. HC) was approved.
10. Considering the fact that the issue involved in the present appeal is no more res-integra pursuant to the aforesaid judgments of the Hon’ble Supreme Court, the claim of the Ld. AR that the CIT(A) had rightly observed that no disallowance u/s.1.4A of the Act in the absence of any exempt income could have been made in the case of the assessee company, merits acceptance.
11. Before parting, we may herein observe, that though the legislature vide its amendment made available on the statute by the Finance Act, 2022 had inserted an “Explanation” to Section 14A of the Act, as per which, notwithstanding anything to the contrary contained in the Act, the provisions of Section 14A shall apply in a case where the income, not forming part of the total income under the Act, has not accrued or arisen or has not been received during the subject year and the expenditure has been incurred during the said previous year in relation to such exempt income, but the same is effective from April 1, 2022 and cannot be presumed to have retrospective effect. Our aforesaid view is fortified by the judgment of Hon’ble High Court of Delhi in the case of Pr. CIT Vs. Era Infrastructure (India) Ltd. (2022) 114 CCH 219 (Delhi) and the Hon’ble High Court of Madhya Pradesh in Pr. CIT Vs. Keti Constructions (2024) 162 taxmann.com278 (MP), wherein the
Hon’ble High Courts have held that the amendment made available on the statute vide the Finance Act, 2022 in Section 14A is effective from 01.04.2022 and cannot be permitted with retrospective effect. Accordingly, we are of the view that as the assessee company before us, had during the subject year i.e. A.Y. 2017-18 not received any exempt income, therefore, no infirmity arises from the view taken by the CIT(A), wherein the disallowance made by the A.O. (Vs 14A of the Act had rightly been vacated by him.
12. On perusal of the above, we find that this Tribunal relying on the decision of Hon’ble Delhi High Court in the case of PCIT Vs. Era Infrastructure (India) Ltd.(Supra) and Hon’ble Madras High court in the case of PCIT Vs. Keti Construction Ltd.(Supra), has held that the insertion of Explanation to Section 14A of the Act by the Finance Act, 2022 cannot be presumed to operate retrospectively. The Tribunal also relying on the orders of the Hon’ble Supreme Court in the case of PCIT Vs. Oil Industries Development Board (Supra), Hon’ble Madras High Court in the case of CIT Vs. Chettinad Logistics (P.) Ltd. (Supra), has held that, no disallowance could be made where the assessee had earned no exempt income under section 14A of the Act. In the present case, the assessee has earned no exempt income during the year under consideration and the relevant A.Y. falls prior to insertion of Explanation to Section 14A by the Finance Act, 2022. Therefore, respectfully following the decision of this Tribunal in the case of ITO Vs. NSL Nagapatnam Power Ventures Private Limited (Supra), we hold that the disallowance of Rs. 61,03,186/- under section 14A of the Act cannot be sustained. Accordingly, we set aside the order of the Ld. First Appellate Authority on this issue and direct the Assessing Officer to delete the disallowance.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 9th October, 2026.
