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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SMT. BEENA PILLAI
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
This appeal by assessee is directed against order of NFAC passed u/s 250 of the Income-tax Act,1961 ['the Act' for short] for the AY 2011-12 dated 10.3.2023.
The first ground in this appeal is with regard to entertaining the claim made by assessee in the course of assessment before the ld. AO. The assessee made following claims during the assessment proceedings before the ld. AO: Sl.No. Particulars Nature Amount (Rs.) 1. Closed project Disallowed in earlier 40,00,000 expenses year but reversed in the current year 2. Warranty Already taxed in 1,99,44,846 provision reversed earlier years 3. Profit on sale of Considered 11,73,220 investments separately 4. Bonus disallowed Allowed on payment 7,26,152 in earlier year basis
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Page 2 of 9 5. Cess payable u/s Amount credited to 47,80,070 441A of Profit & Loss Company’s Act disallowed earlier year 2.1 This claim has been disallowed by both the lower authorities on the reason that the claim made by the assessee not limited to the correction of wrong computation of income but also includes fresh claim, which cannot be entertained without the revised return filed by the assessee. Against this assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. The submission of the ld. A.R. is that these claims are not claimed by assessee inadvertently in the return of income filed by the assessee and all the details relating to these claims are available on records before the ld. AO, which could be easily verified at his end, so as to entertain the assessee’s claim. For this proposition, he relied on the following judgements: a) Pruthvi Brokers (23 taxmann.com 23) by Hon’ble Bombay High Court b) Kanpur Coal Syndicate (53 ITR 225) by Hon’ble Supreme Court c) National Thermal Power (229 ITR 383) by Hon’ble Supreme Court d) Motor Industries Company (229 ITR 137) by Hon’ble Karnataka High Court. 3.1 Further, he relied on the judgement of Hon’ble Supreme Court in the case of Jute Corporation of India (187 ITR 688) and also judgement of Hon’ble Supreme Court in the case of Goetze (India) Ltd. Vs. CIT (284 ITR 323) (SC). The ld. A.R. also brought on record details of availability of these facts on record before the ld. AO as below:
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Page 3 of 9 Sl.N Particu-lars Total Prior AYs Amount (in Rs.) ITR (PB Vol.2) ITR-V Computation o. amount (PB (PB Vol.2) Vol.2) 1 Closed project 40,00,000 AY 40,00,000 38 58 59 expenses 2010-11 (Forming part of Rs.1,24,74,666) AY 35,00,000 73 98 99 2009-10 (Forming part of Rs.1,74,69,923) AY 21,00,000 108,112 129 130 (Forming part of 2008-09 Rs.1,57,84,876) AY 56,19,695 138,143 159 160 (Forming part of 2007-08 Rs.1,48,65,138) 2 Warranty 1,99,44,846 AY 2010- 84,66,400 38 58 59 provision 11 (Forming part of reversed Rs.1,24,74,666) AY 78,72,119 73 98 99 2009-10 (Forming part of Rs.1,74,69,923) AY 92,41,969 108, 112 129 130 2008-09 (Forming part of Rs.1,57,84,876) AY 88,94,749 138, 143 159 160 2007-08 (Forming part of Rs.1,48,65,138) 3 Profit on sale 11,73,220 AY 11,73,220 4 27 28 of investments 2011-12 4 Bonus 7,26,152 AY 7,26,152 disallowed in 2010-11 earlier year 5 Cess payable 47,80,070 AY 8,58,321 38 58 59 under section 2010-11 (Forming part of 441A of the Rs.55,54,315) Companies AY 7,98,190 73 98 99 Act, 1956 2009-10 (Forming part of Rs.1,74,69,923) AY 9,48,017 108, 112 129 130 2008-09 (Forming part of Rs.1,57,84,876) AY 9,07,207 138, 139, 143 159 160 2007-08 (Forming part of Rs.14,76,994) AY 12,68,335 2006-07 3.2 In our opinion, as held by Hon’ble Supreme Court in the case of Goetze (India) Ltd., the ld. AO cannot entertain the fresh claim or deduction without revised return filed by the assessee. However, this restriction won’t apply to the power of the Appellate Tribunal u/s 254 of the Act. As such, the Tribunal could entertain the above claim, though the assessee has not filed the revised return, when all the facts relating to the issue available on record before ld. AO. In our opinion, these claims are required to be examined in the light of available material before ld. AO. Accordingly, he should entertain the claim of the assessee with all the details that are available on record M/s. Wevin Private Limited, Bangalore Page 4 of 9 and there is no necessity of investigation of any fresh facts otherwise on record. Accordingly, the issue is remitted to the file of AO for fresh consideration. This ground of the assessee is partly allowed.
The next ground in this appeal is with regard to addition of Rs.1,32,866/- u/s 14A of the Act, though there being no exempted income during the assessment year under consideration.
5. After hearing both the parties, we are of the opinion that the Tribunal continuously and consistently holding that if there is no exempted income, there cannot be any disallowance u/s 14A of the Act for the assessment year under consideration. This view is fortified by the order of the Tribunal in case of Schneider Electric IT Business India Pvt. Ltd. in IT(TP)A No.185/Bang/2022 for the AY 2017-18 dated 1.9.2022, wherein held as under:
“13.3 We have heard the rival submissions and perused the materials available on record. In our opinion, if there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules. Accordingly, we remit this issue to th file of ld. DRP to examine the file of financials of the assessee and if there is no exempted income, there cannot be any disallowance u/s 14A read with Rule 8D of the I.T. Rules or if there is no exempted income, there cannot be any disallowance.”
5.1 Further, the Tribunal in the case of Toyota Tsusho India Pvt. Ltd. in IT(TP)A No.175/Bang/2022 dated 9.9.2022 wherein held that amendment to section 14A as per Finance Act, 2022 is in prospective nature, by observing as under:
“20. We heard the rival submissions and perused the material on record. The assessee is contending the disallowance made u/s.14A on the following grounds (i) The assessee has not earned any exempt income (ii) The investments are out of own funds (iii) The assessee has not incurred any specific expenditure towards investments
21. We notice that the AO has made the disallowance on the basis that the investment could potentially earn income which substantiates the contention of the assessee that in the year under consideration the assessee has not earned any exempt
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Page 5 of 9 income. The Hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd (supra) has considered the issue of disallowance u/s.14A when there is no exempt income and held that no disallowance under section 14A of the Act could be made if no exempt income was earned by the assessee. The relevant part of the judgment is as under:-
“9. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed v. State of Kerala (2000] 113 Taxman 470/245 ITR 360 and Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [1992] 3 SCC 1, the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in IL & FS Energy Development Co. Ltd. (supra) and Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 (Delhi).
Accordingly, the appeal and application are dismissed. However, it is clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of IL & FS Energy Development Co. Ltd. (supra)".
The Hon’ble Delhi Court in the above has also considered the amendment to section 14A and has held that the explanation inserted to section 14A vide Finance Act 2022 is prospective in nature. The relevant observations are reproduced here under –
“5. However a perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022- 23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill, 2022 are reproduced hereinbelow:
"4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify 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 exempt income 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 exempt income.
This amendment will take effect from 1st April, 2022.
It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in this Act.
M/s. Wevin Private Limited, Bangalore Page 6 of 9 7. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years." (emphasis supplied)
6. Furthermore, the Supreme Court in Sedco Forex International Drill. Inc. v. CIT [2005] 149 Taxman 352/279 ITR 310 has held that a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. The relevant extract of the said judgment is reproduced hereinbelow: 9. The High Court did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CIT v. S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] was followed in 1989 by a Division Bench of the Gauhati High Court in CIT v. Goslino Mario [(2000) 241 ITR 314 (Gau.)]. It found that the 1983 Explanation had been given effect from 1-4- 1979 whereas the year in question in that case was 1976-77 and said: (ITR p. 318) "[I]t is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained pending on 1-41979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand. " 11. The reasoning of the Gauhati High Court was expressly affirmed by this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] . These decisions are thus authorities for the proposition that the 1983 Explanation expressly introduced with effect from a particular date would not effect the earlier assessment years. 12. In this state of the law, on 27-2-1999 the Finance Bill, 1999 substituted the Explanation to Section 9(1)(ii) (or what has been referred to by us as the 1999 Explanation). Section 5 of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: "Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for— (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India. The Finance Act,
M/s. Wevin Private Limited, Bangalore Page 7 of 9 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change.
The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker.)] while following the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] to hold that the Explanation was not declaratory but widened the scope of Section 9(1)(ii). It was further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was in Section 9(1)(ii) of the Act, it did not operate in respect of periods which were prior to 1-4-1979. It was held that since the Explanation came into force from 1-4- 1979, it could not be relied on for any purpose for an anterior period.
In the appeal preferred from the decision by the Revenue before this Court, the Revenue did not question this reading of the Explanation by the Kerala High Court, but restricted itself to a question of fact viz. whether the Tribunal had correctly found that the salary of the assessee was paid by a foreign company. This Court dismissed the appeal holding that it was a question of fact. (CIT v. SR Patton [(1998) 8 SCC 608] .)
Given this legislative history of Section 9(1)(ii), we can only assume that it was deliberately introduced with effect from 1-4-2000 and therefore intended to apply prospectively [See CIT v. Patel Bros. & Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165]. It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3.
"5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1-4-2000, and will accordingly, apply in relation to Assessment Year 2000- 2001 and subsequent years".
The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under section 119 of the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it.
As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless
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Page 8 of 9 otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P.) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts".' (emphasis supplied)
The aforesaid proposition of law has been reiterated by the Supreme Court in M.M. Aqua Technologies Ltd. v. CIT [2021] 129 taxmann.com 145/282 Taxman 281/436 ITR 582. The relevant portion of the said judgment is reproduced hereinbelow:— "22. Second, a retrospective provision in a tax act which is "for the removal of doubts
cannot be presumed to be retrospective, even where such language is used, if it alters or changes the law as it earlier stood. This was stated in Sedco Forex International Drill Inc. v. CIT, (2005) 12 SCC 717 as follows : 17. As was affirmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352; CIT v. Podar Cement (P.) Ltd., (1997) 5 SCC 482]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared" or "for the removal of doubts".
There was and is no ambiguity in the main provision of section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word "earned" had been judicially defined in SG. Pgnatale [(1980) 124 ITR 391 (Guj.)] by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India".
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Page 9 of 9 19. When the Explanation seeks to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date, there is no principle of interpretation which would justify reading the Explanation as operating retrospectively." (emphasis supplied)
Consequently, this Court is of the view that the amendment of section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.
Considering the fact that the assessee has not earned any exempt income during the year under consideration and respectfully following the decision of the Hon’ble Delhi High Court in the case of Era Infrastructure India Ltd. (supra) we hold that no disallowance is warranted u/s.14A and delete the disallowance made in this regard.”
5.2 Being so, in our opinion, if there is no exempted income, there cannot be any disallowance u/s 14A of the Act. Accordingly, this issue is remitted to the file of AO to see whether there is any exempted income earned in the assessment year under consideration or not and decide accordingly. 6. In the result, appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 2nd Aug, 2023