No Exempt Income, No Disallowance: ITAT Ahmedabad Upholds Deletion of Section 14A Disallowance in Adani Total Gas Limited Case

Overview of the Ruling

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, has delivered a significant ruling in the matter of DCIT Vs Adani Total Gas Limited, dismissing the Revenue's appeal and affirming the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to delete a disallowance of ₹2,38,25,000 made under Section 14A read with Rule 8D of the Income-tax Rules, 1962, for Assessment Year 2020-21. The Tribunal firmly applied the well-established principle — "No exempt income, no disallowance" — to settle the dispute.

Background and Facts of the Case

Nature of Business and Return Filing

The assessee company, Adani Total Gas Limited, is engaged in the business of trading and transportation of natural gas, as well as the manufacturing of compressed natural gas. For Assessment Year 2020-21, the assessee filed its Return of Income on 21.09.2018, declaring:

• Total income of ₹483,44,35,000/- under the normal provisions of the Income Tax Act, 1961
• Book profit at ₹Nil under Section 115JB of the Act

The return was initially processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS, and a notice under Section 143(2) was issued on 29.06.2021.

Assessment Proceedings

The assessee duly complied with all notices and submissions during the course of assessment proceedings. Ultimately, an Assessment Order under Section 143(3) read with Section 144B of the Act was passed by the Assessing Officer on 20.09.2022, whereby:

• The total assessed income was determined at ₹490,76,54,030/-
• A tax demand of ₹31,33,00,220/- was raised
• Among various adjustments, a disallowance of ₹2,38,25,000/- was computed under Section 14A read with Rule 8D of the Income-tax Rules, 1962

Grounds of Appeal Raised by the Revenue

Before the ITAT, the Revenue challenged the CIT(A)'s order on two primary grounds:

1. Whether the CIT(A) was justified in deleting the addition of ₹2,38,25,000/- made on account of disallowance under Section 14A read with Rule 8D, without properly appreciating the facts of the case.

2. Whether the CIT(A) was justified in failing to appreciate that the Assessing Officer had, after due satisfaction and detailed reasoning, correctly computed the disallowance under Section 14A read with Rule 8D in strict conformity with the applicable statutory provisions and judicial precedents at the relevant time.

Submissions on Behalf of the Assessee

Challenge to the Assessing Officer's Reliance on Cheminvest Ltd.

The learned Counsel for the assessee pointed out that the Assessing Officer had based his computation of disallowance under Section 14A read with Rule 8D on the ITAT Delhi Bench's decision in Cheminvest Ltd. However, this very ITAT decision had since been reversed by the Delhi High Court, as reported in 61 com 118 (Delhi). The Delhi High Court had categorically held that: