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Income Tax Appellate Tribunal, DELHI BENCH : C : NEW DELHI
Before: SHRI C.M. GARG & SHRI PRADIP KUMAR KEDIA
BEFORE SHRI C.M. GARG, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER Assessment Year: 2015-16 DCIT, Vs. Hero Wind Energy (P) Ltd., Circle-11(1), 51, Okhla Industrial Estate, New Delhi. Phase-3, New Delhi -110 020. PAN: AADCH1677G (Appellant) (Respondent) Assessee by : Shri Somil Agarwal, Advocate Revenue by : Shri Anuj Garg, Sr. DR Date of Hearing : 19.01.2023 Date of Pronouncement : 17.03.2023 ORDER
PER C.M. GARG, JM:
This appeal filed by the Revenue is directed against the order of the CIT(A)-4, New Delhi, dated 28.11.2018, for Assessment Year 2015-16.
The Revenue has raised the following grounds of appeal:-
1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was correct on facts and in law in deleting the disallowance of Rs. 2,45,12,835/- made by AO on account of section 14A of the Income Tax Act, 1961 ("the Act”) read with Rule 8D of the Income Tax Rules, 1962 (‘the Rules'). 1.a) Whether the Ld CIT(A), while rightly rejecting the contention of the assessee that section 14A of the Act is not applicable where investment is made to gain control of the investee company, has erred in restricting the disallowance to Rs. 25,26,712/- made by the assessee (as against Rs. 2,70,39,547/- computed by the AO in terms of Rule 8D), not appreciating the fact once the whole quantum of the investment is held to be qualifying as a factor for computing disallowance u/s 14A read with Rule 8D, there was no basis for restricting the computation of disallowance to Rs. 25,26,715/-. 1.b) Whether the LD CIT[A] has erred in deleting the disallowance made by the AO u/s 14A on the ground that the disallowance u/s 14A cannot exceed the exempt income, without appreciating the judgment of Hon'ble Supreme Court in CIT v. Rajendra Prasad moody [1978] 115 ITR 519 [SC] which held that the allowability [or otherwise] of an expenditure would not depend upon whether it has in fact resulted in an income or the quantum of income, and therefore, the ratio of this judgment can be applied to say, by the same analogy, that the expenditure incurred to earn an exempt income is subject to its admissibility under the provisions of the Income Tax Act, 1961 including those of section 14A irrespective of whether there is a receipt of exempt income during the year under consideration? 1.c) Whether the LD C1T[A] was correct on facts and in law in deleting the disallowance made by AO on account of section 14A rw rule 8D without appreciating that CBDT issued the circular 05/2014, after explaining the rationale of the provision of the section 14A [in the light of Circular 14 of 2001], clarifying that where an expenditure was incurred in relation to earning of exempt income, such expenditure is liable to be disallowed u/s 14A read with Rule 8D, regardless of whether any exempt income has been earned during the year, or the quantum of such exempt income.
The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal.”
3. The ld. Sr. DR submitted that the ld.CIT(A) has erred in deleting the disallowance made by the AO u/s 14A of the Income-tax Act, 1961 r.w.r 8D of the Income-tax Rules, 1962 without any justified reason and basis and restricting the same to Rs.25,26,712/- without appreciating the judgement of the Hon’ble Supreme Court in the case of CIT vs. Rajendra Prasad Moody (supra) wherein it was held that the allowability of an expenditure would not depend upon whether it has, in fact, resulted into an income or the quantum of income. Therefore, the addition made by the AO should be upheld irrespective of whether there was receipt of an exempt 2 income during the year under consideration or not. The ld. Sr. DR submitted that the ld. First appellate authority has granted relief to the assessee without any basis, therefore, the impugned first appellate order may kindly be set aside and the order of the AO may be restored.
Replying to the above, the ld. Counsel of the assessee-Respondent submitted that the issue is squarely covered in favour of the assessee by the recent order of the coordinate Bench of Delhi dated 19.10.2022 by which the appeal of the Revenue was dismissed by the Tribunal upholding the first appellate order deleting the identical addition made by the AO u/s 14A of the Act r.w.r. 8D of the Rules. The ld. Counsel, drawing our attention to para 6.1 of the said Tribunal order for AY 2017-18, submitted that the Tribunal, by following the judgement of the Hon’ble jurisdictional High Court of Delhi in the case of PCIT vs. Era Infrastructure (India) Ltd., 448 ITR 674 (Del), held that the amendment made by Finance Act, 2022 to section 14A by inserting a non obstante clause and explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effect. The ld. Counsel also submitted that the Hon’ble High Court also held that no disallowance could be made u/s 14A of the Act if no exempt income was earned by the assessee. Therefore, the ld. Counsel finally submitted that the ld.CIT(A) was right in restricting the disallowance to the amount of suo motu disallowance made by the AO by following the judgement of the Hon’ble jurisdictional High Court of Delhi in the case of Joint Investment Pvt. Ltd. vs. CIT, 372 ITR 694 (Del) wherein it was held that the disallowance u/s 14A of the Act cannot exceed exempt income and the amount of Rs.25,26,712/- is in excess of total exempt income earned by the assessee during the relevant period amounting to Rs.15,46,196/-. 3
On careful consideration of the above rival submissions, first of all, we respectfully note that the Hon’ble jurisdictional High Court of Delhi in the recent judgement in the case of PCIT vs. Era Infrastructure (India) Ltd. (supra) held that the amendment made by Finance Act 2022 to section 14A of the Act by inserting a non obstante clause and Explanation will take effect from 01.04.2022 cannot be presumed to have retrospective effect. Their Lordships in the said judgement in para 9, referring to its earlier judgement of the Hon’ble High Court in the case of Cheminvest Ltd. vs. CIT reiterated the proposition that no disallowance could be made u/s 14A if no exempt income was earned by the assessee. In the present case, undisputable, rather, admittedly, the assessee has earned exempt income amounting to Rs.15,46,169/- and, simultaneously, has made suo motu disallowance of Rs.25,26,712/- which is higher than the exempt income earned by the assessee during the relevant financial period. Therefore, in view of the foregoing discussion, judgement of the Hon’ble jurisdictional High Court in the case of PCIT vs. Era Infrastructure (India) Ltd. (supra) and order of the coordinate Bench of the ITAT, Delhi dated 19.10.2022 for AY 2017-18 pertaining to the assessee’s own case, we hold that we are unable to see any ambiguity, perversity or any other valid reason to interfere with the findings of the ld. CIT(A) and, therefore, we uphold the same. Consequently, the grounds of the Revenue being devoid of merits are dismissed.