The Assessee was carrying on business of residuary non-banking company registered with the RBI in the impugned Assessment year. And in pursuance of RBI guidelines, ‘Directed Investments’ (includes requirements to invest in certain priority sectors) are required to be made which are ‘business investments. The income accruing from these investments are offered under the head ‘profits and Gains of Business and Profession’.

The 14A issue is whether the Assessing Officer was justified in disallowing a part of the appellant’s expenditure under section 14A of the Act, as he noticed that there was huge investment under the head “Non-current Investment”. The appellant claimed that no such expenditure was incurred, as it had not earned any exempt income during the relevant assessment year. The Assessing Officer, however, applied rule 8D and determined the disallowance. The appellant challenged the disallowance before the CIT(A) and the Tribunal, relying on the decision of the Hon’ble High Court  in CIT v. Corrtech Energy P. Ltd  (2015)  322 ITR 97 (Guj)(HC)  which held that section 14A and rule 8D are not applicable in the absence of any exempt income. The appellant also contended that the amendment to section 14A by the Finance Act, 2022, which clarified that the disallowance is mandatory irrespective of whether any exempt income is earned or not, is prospective and not retrospective, and therefore, cannot apply to the assessment year in question, as held by the Hon’ble High Court of Delhi in PCIT v. Era Infrastructure [India] Ltd (2022) 448 ITR 674 (Delh)(HC)  (AY. 2016-17)