DCIT, CIRCLE- 11(1), NEW DELHI vs. HERO SOLAR ENERGY (P) LTD., NEW DELHI

The appeal by the Revenue is directed against the order dated 02.05.2019 of the Ld. Commissioner of Income Tax Appeals-4, New Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2016-17.

The Revenue has taken the following grounds of appeal:

Brief facts are that the assessee company is engaged in the business of generation of solar energy through its various subsidiaries (SPVs) specifically incorporated for the purpose. It filed its return for AY 2016-17 on 13.10.2016 declaring income of Rs. 3,09,76,320/-. The case was selected for scrutiny through CASS. During assessment proceedings, the Ld. Assessing Officer (“AO”) noticed that the assessee has made investments during the year amounting to Rs. 12,00,00,000/- in M/s. Clear Solar Power Pvt. Ltd. and earned exempt income of Rs. 5,84,093/-. It was submitted by the assessee that direct cost attributable to earning exempt income incurred by way of interest has been disallowed under section 14A of the Income Tax Act, 1961 (the “Act”). The contentions raised by the assessee were not acceptable to the Ld. AO who computed the disallowance of Rs. 1,78,96,862/- under section 14A r.w. Rule 8D as under:-

Aggrieved, the assessee filed appeal before the Ld. CIT(A). The contention of the assessee before the Ld. CIT(A) was that the assesee suo moto disallowed an amount of Rs. 2,46,465/- under section 14A r.w. Rule 8D(2)(i) as expenditure directly attributable to earning the exempt income of Rs. 5,84,093/- and argued relying on the decision of Hon’ble Delhi High Court in the case of Joint Investment Pvt. Ltd. vs. CIT in ITA 117/2015 that the disallowance cannot exceed the amount of exempt income earned by the assessee. Therefore, at best another amount of Rs. 3,37,628/- (Rs. 5,84,093 – 2,46,465) only could have been disallowed.

The submission of the assessee was acceptable to t he Ld. CIT(A) who restricted the disallowance to Rs. 3,37,628/- giving relief of Rs. 1,75,59,234/- to the assessee. The Revenue is aggrieved and has come up in appeal before the Tribunal. In all the four grounds of appeal, the decision of the Ld. CIT(A) has been challenged.

The Ld. DR supported the order of the Ld. AO and contended that the disallowance made by the Ld. AO is in accordance with law.

The Ld. AR submitted before us copy of an order dated 20.10.2022 of the Delhi Bench of the Tribunal in DCIT vs. M/s. Hero Future Energies Pvt. Ltd. (ITA No. 1986/Del/2021) and order dated 19.10.2022 in M/s. Hero Wind Energy Pvt. Ltd. (ITA No. 1983/Del/2021) and also decision of Hon’ble Delhi High Court in Pr. CIT (Central) vs. Era Infrastructure (India) Ltd. (2022) 141 taxmann.com 289 (Delhi) and contended that the issue is covered in favour of the assessee by the aforesaid decisions (supra).

We have gone through the recent amendment and the decision of the Delhi High Court in Era Infrastructure (India) Ltd. (supra) and orders of the Delhi Bench of the Tribunal in M/s. Hero Future Energies Pvt. Ltd. (supra) 4 and M/s. Hero Wind Energy Pvt. Ltd. (supra). It is noticed that the decisions (supra) hold that Explanation to section 14A brought on the statute w.e.f. 1.4.2022 cannot be presumed to have retrospective effect. The Explanation seeks to bring those cases in the ambit of disallowance under section 14A where the assessee has not earned any exempt income. In the case before us, the AY involved is 2016-17 i.e. prior to the date on which the said Explanation to section 14A becomes effective as held in the decisions (supra). Respectfully following the decisions (supra) we uphold the order of the Ld. CIT(A) and reject the appeal of the Revenue.

In the result, the appeal of the Revenue is dismissed.