DCIT, CIRCLE- 2(1), NEW DELHI vs. AIR LIQUIDE INDIA HOLDING PVT. LTD., NEW DELHI

This appeal is filed by the Revenue against the order of the ld. Commissioner of Income Tax (Appeals)-1, New Delhi [hereinafter referred to CIT (Appeals)] dated 28.05.2019 for assessment year 2016-17, in deleting disallowance made under Section 14A read with Rule 8D of the Income Tax Rules, 1962.

Briefly stated the facts are that the Assessing Officer while completing the assessment under Section 143(3) of the Act noticed that the assessee has made investments in shares and the dividend income from such investments will not form part of taxable income of the assessee. The Assessing Officer also noticed that the assessee did not disallow expenses attributable for earning dividend income under Section 14A read with Rule 8D. Thus the Assessing Officer invoking provisions of Rule 8D read with Section 14A of the Act computed the disallowance at Rs.1,50,54,968/-.

On appeal the ld. CIT (Appeals) following the decision of Hon’ble Delhi High Court in the case of Cheminvest Limited Vs. CIT in ITA. 749/2014 dated 2.09.2015 and the decision of the Hon’ble Punjab & Haryana High Court in the case of PCIT Vs. State Bank of Patiala (2018) 99 taxmann.com 285 (P & H) deleted the disallowance made under Section 14A read with Rule 8D as the assessee did not receive any exempt income during the assessment year under consideration.

The ld. DR strongly supporting the order of the Assessing Officer submits that even though there is no exempt income received by the assessee during the assessment year under consideration still the provisions of Section 14A read with Rule 8D are applicable and, therefore, the Assessing Officer has rightly made the disallowance under Section 14A of the Act and the ld. CIT (Appeals) is not justified in deleting the same.

The ld. Counsel for the assessee strongly placed reliance on the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited Vs. CIT (supra) and submits that during the year under consideration the assessee did not receive any exempt income and, therefore, applying the ratio of the decision of the Hon’ble Delhi High Court, no disallowance is called for. The ld. CIT (Appeals) has rightly deleted the disallowance.

Heard rival submissions perused the orders of the authorities below. The ld. CIT (Appeals) deleted the disallowance made under Section 14A read with Rule 8D following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited Vs. CIT (supra) as the assessee did not receive any exempt income during the year under consideration. The ratio of the decision of the Hon’ble Delhi High Court squarely applies to the facts of the assessee’s case. We are also aware of the amendment brought in by the Finance Act, 2022 to Section 14A of the Act wherein explanation was inserted with effect from 1.04.2022 clarifying that the provisions of Section 14A shall apply and shall deem to have always apply in a case where the assessee has not received any exempt income during the previous year relevant to the assessment year. The question as to whether this amendment made to Section 14A by way of insertion of explanation is prospective or retrospective came up for consideration before the Hon’ble Delhi High Court in the case of PCIT Vs. Eros Infrastructure (India) Ltd. In ITA. 204/Del/2022 dated 20.07.2022 and the Hon’ble Delhi High Court following the decision of apex court in the case of Sedco Forex International Drill. Inc Vs. CIT (2005) 12 SCC 717 and the decision of the Hon’ble Supreme Court in the case of M.M. Aqua Technologies Ltd. Vs. CIT in Civil Appeal Nos. 4742 and 4743 of 2021 (dated 11.08.2021) held that the Amendment to section 14A of the Act w/o for removal of 3 doubts cannot be presumed to be retrospective. Thus, we do not see any infirmity in the order passed by the ld. CIT (Appeals) in deleting the disallowance made under section 14A read with Rule 8D. Ground raised by the Revenue is rejected.

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