JCIT(OSD)CORPORATE CIRCLE-1(1), CHENNAI vs. M/S ANNA INVESTMENTS PRIVATE LIMITED, CHENNAI

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ITA 595/CHNY/2023Status: DisposedITAT Chennai20 October 2023AY 2017-184 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A cannot be made if there is no exempt income. If the disallowance exceeds exempt income, it should be restricted to the exempt income. The amendment by Finance Act, 2022 is prospective.

What were the facts?

The Revenue appealed against the CIT(A)'s order which partly allowed the assessee's appeal. The CIT(A) had restricted the disallowance under Section 14A to the extent of exempt income earned by the assessee.

What were the issues?

Whether the disallowance under Section 14A can exceed exempt income, and the retrospective applicability of the Finance Act, 2022 amendment to Section 14A.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI

Before: SHRI V. DURGA RAO, HON’BLE & SHRI MANJUNATHA. G, HON’BLE

Hearing: 16.10.2023

आदेश / O R D E R PER MANJUNATHA.G, AM:

1.

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals), Income Tax Department, National Faceless Appeal Centre (NFAC), Delhi, dated 28.02.2023, and pertains to assessment year 2017-18.

M/s.Anna Investments (P) Ltd. :: 2 ::

2.

The Revenue has raised the following grounds of appeal:

1. The order of the CIT(A) is contrary to law, facts and circumstances of the case.

2. Whether the Ld. CIT(A) had committed an error in partly allowing the appeal of the assessee by holding that the disallowance u/s 14A could not exceed exempt income earned by the assessee ignoring the amendment brought in by Finance Act, 2022 in section 14A by way of insertion of an explanation? 3. Whether, the amendment made to section 14A by Finance Act, 2022 by way of insertion of explanation is applicable retrospectively as it is only clarificatory in nature? 3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.

3. The brief facts of the case are that the assessee filed its return of income for AY 2017-18 on 30.10.2017 admitting loss of Rs.10,04,63,000/- . The assessment has been completed u/s.143(3) of the Income Tax Act, 1961 (in short “the Act") on 14.12.2019 and determined taxable income at Rs.7,12,97,910/- by making additions towards disallowance of expenses u/s.14A r.w.r.8D of the Income Tax Rules, 1962 (in short “the Rules"). The assessee carried the matter in appeal before the First Appellate Authority.

The Ld.CIT(A) vide their order dated 28.02.2023 partly allowed the appeal filed by the assessee, where, the Ld.CIT(A) restricted the disallowance to the extent of exempt income earned for the impugned assessment year by following the decision of the Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd. v. CIT reported in [2015] 372 ITR 694 (Delhi HC).

Aggrieved by the order of the Ld.CIT(A), the Revenue is in appeal before us.

M/s.Anna Investments (P) Ltd. :: 3 ::

4.

None appeared for the assessee. We have heard the Ld.DR and perused the materials available on record and gone through orders of the authorities below. The Ld.DR, Shri AR.V.Sreenivasan, submitted that although, the Ld.CIT(A) has restricted the disallowance u/s.14A r.w.r.8D of the Rules, 1962, to the extent of exempt income earned for the impugned assessment year by following certain judicial precedents, but as per the amendment made to sec.14A by the Finance Act, 2022 by way of insertion of explanation, where, it is clear that even in absence of exempt income, disallowance contemplated u/s.14A, needs to be computed as per the provisions of Sec.14A r.w.r.8D of the Rules. We find that the issue is no longer res integra. The Hon’ble Madras High Court in the case of Redington (India) Ltd. v. ACIT reported in [2017] 392 ITR 633 (Madras) held that where there is no exempt income in relevant assessment year, there cannot be disallowance of expenditure u/s.14A in relation to any assumed income. A similar view has been taken by the Hon’ble Delhi High Court in the case of Joint Investments (P) Ltd. v. CIT (supra). In so far as arguments of the Ld.DR in light of newly inserted explanation by the Finance Act, 2022, we find that the Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure (India) Ltd., in of 2022 dated 20.07.2022 held that amendment brought in by the Finance Act, 2022 in Sec.14A is applicable prospectively w.e.f. AY 2022-23 onwards. From the above, it is clear that if no exempt income for any assessment year, then, no disallowance can be made u/s.14A of the Act. In case, the disallowance

M/s.Anna Investments (P) Ltd. :: 4 :: computed u/s.14A of the Act, exceeds exempt income, then, such disallowance should be restricted to the extent of exempt income earned for relevant assessment year. In the present case, since the Ld.CIT(A) has restricted disallowance of expenses u/s.14A of the Act, to the extent of exempt income earned for the impugned assessment year, in our considered view, there is no error in the reasons given by the Ld.CIT(A) to restrict disallowance u/s.14A of the Act, to the extent of exempt income.

Thus, we are inclined to uphold the findings of the Ld.CIT(A) and dismiss the appeal filed by the Revenue.

5.

In the result, appeal filed by the Revenue is dismissed.

Order pronounced on the 20th day of October, 2023, in Chennai.

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