AASAN CORPORATE SOLUTIONS PRIVATE LIMITED,MUMBAI vs. DCIT(6)(1)(1), MUMBAI

In ground no. I, it is stated that the ld.CIT(A) erred in passing the impugned order without considering the written submission and without providing an opportunity of personal hearing through video conferencing to the appellant, despite specific request made in this regard. However, during hearing, the ld.AR did not press this ground which is accordingly, dismissed.

In ground no. II, it is contented that the ld.CIT(A) erred in upholding the disallowance made by the AO u/s 14A of the Act amounting to Rs.76,42,29,322/- in absence of any exempt income earned during the year. In related ground no. III, the assessee has stated that the ld.CIT(A) erred in not considering the plea of the appellant regarding double disallowance of interest expense amounting to Rs.12,29,52,630/- u/s 14A of the Act. The ld.CIT(A) failed to appreciate and ought to have held that the assessee had already disallowed interest amounting to Rs.54,37,74,584/- u/s 36(1)(iii) which also included the aforesaid interest amounting to Rs.12,29,52,630/-, thereby leading to double disallowance of the same expense.

Both the above grounds are related to the issue of disallowance u/s 14A of the Act. According to the assessment order, the assessee was found to have made investments in various investments in equity shares and mutual funds but did not make any suo motu disallowance u/s 14A of the Act on the ground that it did not earn any exempt income during the year. The AO worked out disallowance by referring to CBDT Circular no. 5 of 2024 providing for disallowance irrespective of exempt income. Accordingly, he disallowed Rs.76,42,29,322/-.The ld.CIT(A) in the subsequent appeal upheld the addition mainly on the basis of amendment made by the Finance Act 2022 holding it to be retrospective in application.

It can be observed from the assessment order that the AO has made the disallowance u/s 14A even when there is no exempt income. The issue whether provisions of section 14A can be invoked in absence of any exempt has reached a finality in view of Hon'ble Supreme Court dismissing SLPs filed by the Department against the orders of Hon'ble Madras High Court and Hon'ble Delhi High Court. Both the SLPs have been dismissed on merits. Earlier hon'ble Madras High Court in the case of Commissioner Of Income Tax vs M/s. Chettinad Logistics Pvt. Ltd inter alia held that provision of section 14A is clearly relatable to the earning of actual income and not notional or anticipated income. Hon'ble Delhi Court in the case Cheminvest Ltd. v/s CIT, [215] 378 ITR 33 (Del.) has held Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Again, SLP filed by the Department against the above judgement of Hon'ble Delhi Court was dismissed on merits by Hon'ble Supreme Court in April 2019.

1 As regards, invoking of Explanation by the ld.CIT(A), it may be stated that there are plethora of decisions of various high courts and tribunals which have held that the Explanation inserted in Section 14A by the Finance Act 2022 is applicable prospectively i.e. the hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd. [2022] 448 ITR 674 and the hon'ble High Court of Calcutta in the case of Avantha Realty and Williamson Ltd. [2024] 164 taxmann.com 376 Financial services Ltd 166 Taxman.com.607(Gauhati). The hon'ble Courts have held that the Explanation to section 14A of the Act is inserted vide Finance Act, 2022. The Ministry of Finance, Union of India, issued a Memorandum Explaining the provisions in the Finance Bill 2022. 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 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. Furthermore, the hon'ble Supreme Court in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717 has held that a retrospective provision in a tax act that 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. Therefore, the Explanation to Section 14A of the Income Tax Act, 1961, inserted vide Finance Act 2022, is applicable prospectively.

2 Thus, in view of the discussions made above and respectfully placing reliance on the case laws cited supra, we hold that no disallowance could be made u/s 14A in absence of any exempt income upheld. The AO is directed to delete the addition. Rest are the grounds are consequential and do not need any separate adjudication.

In ground no. IV, It is submitted that the ld. CIT(A) erred in not adjudicating ground raised by the assessee in quashing the observation made by the AO for disallowing interest expenses amounting to Rs.66,70,04,187/-. The assessee prays that interest is allowable u/s 36(1)(iii) or alternatively allowable u/s 57(iii) of the Act. Hence, the AO's observation of disallowing additional interest amounting to Rs.66,70,04,187/- be struck down as bad in law and void ab initio.

Before us, the ld.AR has submitted that the assessee itself has made suo motu disallowance of interest u/s 36(1)(iii) in the computation of income as per pages-70/76 of the Paper Book filed during hearing. Therefore, no further disallowance is warranted.

We find that the issue was not adjudicated by the ld.CIT(A). However, the matter basically concerns factual verification of the contention of the assessee from the records at his end, the matter is remanded to the AO for necessary verification and act as per law. Accordingly, the ground stands allowed for statistical purposes.

In ground no.V, it is contented that the ld. CIT(A) erred in restoring the ground to the AO to verify the facts and take action accordingly, without adjudicating the matter and alternatively CIT(A) erred in not directing AO to delete denial of depreciation as no depreciation was claimed on the portion of the building let out.

The AO noticed that the assessee was disclosing rental income from Piramal Tower and claiming standard deduction at rate of 30% thereof. This particular building was received by the assessee pursuant to scheme of merger from Piramal Estate P.Ltd and was transferred on WDV value in books of Piramal Estate as on 19.06.2015.The assessee was found to be claiming depreciation on this building of Rs 4.86 cr. which was disallowed as the assessee was not using the said assets for business purposes in terms of section 32 of the Act. Before the CIT(A) it was contented that no depreciation was being claimed as alleged by the AO. The ld. CIT(A) has restored the issue to the file of the AO for verifying the claim of the assessee and decide the matter as per law. We do find any infirmity in the directions given by the ld.CIT(A) for due verification by the AO. The ground is allowed on statistical purposes.

In ground no.VI: it is stated that the ld.CIT(A) erred in restoring the ground to the AO to verify the facts that BKC flats are not habitable and take action as per law, without giving a clear direction to the AO that since the BKC flats were under construction and not habitable, addition of notional rent ought to be deleted. The assessee thus, prays that the addition made of notional rent at the ad hoc rate of 8% of the value of the investment in flats be deleted.

According to the assessment order, it was noticed that the balance sheet revealed Flats worth Rs 39.87 cr. In the absence of break up this item which was requisitioned by the AO, he proceeded to work out notional rent at the rate of 8% of the entire investment, thus making addition of Rs 3.19 cr. The ld.CIT(A) has set aside the issue to the file of the AO with a direction as per para 5.2 of his order to verify certain facts and decide the issue afresh as per law. We do find any infirmity in the directions given by the ld.CIT(A) for due verification by the AO. The ground is allowed on statistical purposes.

In ground no.VII, it is submitted that the ld. CIT(A) erred in restoring the ground to the AO to verify the facts take action as per law, without giving a clear direction to the AO that since tax has been deducted at source on the expenses, the disallowance u/s 40(a)(ia) ought to be deleted.

The AO asked the assessee to submit details of TDS deducted on various expenses debited to the profit and loss account which was however, not complied. Consequently,30% of the expenses amounting to Rs 1.30 cr which comes to Rs 39,25,290/- was disallowed in terms of section 40(a)(ia) of the Act. The ld.CIT(A) remanded the issue back to the AO with a direction to examine the details submitted before him and take action as per law. We do find any infirmity in the directions given by the ld.CIT(A) for due verification by the AO. The ground is allowed on statistical purposes.

It may be stated here that there is no ground no. VIII as admitted by the ld.AR of the assessee. In ground no. IX, it is contented that the ld. CIT(A) erred in confirming the addition made by the AO amounting to Rs.76,42,29,322/-, being disallowance u/s 14A of the Act for the purpose of computing book profit u/s 115JB of the Act.

The ld.CIT(A) upheld the addition by stating that in view of the provisions of section 115JB(2). The ld.AR has admitted that the ground is consequential in nature as it is directly linked to earlier grounds pertaining to section 14A disallowance. Since the ground relating to application of section 14A has already been adjudicated in preceding paras in favour of the assessee w.r.t. ground no. II and III, the issue being consequential now, we do not find any reason to adjudicate on the issue any more.

In ground no. X, it is stated that the ld.CIT(A) erred in directing the AO to verify the claim of the appellant and take action as per law, without giving a clear direction to the AO that since income corresponding to TDS credit claimed has already been offered to tax by the Appellant, the TDS credit ought to be granted. The Appellant prays that the AO be directed to grant full TDS credit of Rs.16,11,99,553/- corresponding to the income rightly offered to tax by the Appellant, including the additional claim raised by the Appellant during the course of assessment proceedings.

The ld.CIT(A) has remanded the matter to the AO to examine the claim of the assessee and act as per law. We do find any infirmity in the directions given by the ld.CIT(A) for due verification by the AO. The ground is allowed on statistical purposes.

In ground no. XI, it is stated that the ld. CIT(A) erred in confirming the levy of interest u/s 234B of the Act. The Appellant prays that in consequence to the aforesaid grounds, the AO be directed to delete or appropriately reduce the disallowance u/s 234B of the Act.

The ld.CIT(A) dismissed the ground holding that interest u/s 234B being mandatory and automatic the AO was justified in levying the same. The ld.AR has admitted that the ground is consequential in nature. Accordingly, we do not find any reason to adjudicate on the issue separately.

In the result, the appeal is partly allowed. Order pronounced in the open court on 21.05.2025. SANDEEP GOSAIN (न्यायिक सदस्य /JUDICIAL MEMBER) Place: मुंबई/Mumbai दिनांक / Date 21.05.2025 Lubhna Shaikh / Steno PRABHASH SHANKAR (लेखाकार सदस्य/ACCOUNTANT MEMBER) A.Y. 2016-17 M/s. Aasan Corporate Solutions Private Limited (Formerly known as Aasan Developers & Constructions Pvt. Ltd.) आदेश की प्रतिलिपि अग्रेषित/