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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI V. DURGA RAO & SHRI G. MANJUNATHA
आदेश /O R D E R
PER G. MANJUNATHA, ACCOUNTANT MEMBER:
This appeal filed by the Revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-13, Chennai, dated 23.06.2017 and pertains to assessment year 2011-12.
:-2-: ITA. No:2048/Chny/2017
The Revenue has raised the following grounds of appeal: “1. The order of the learned CIT(A) is contrary to law and facts and circumstances of the case. 2.1 The ld.CIT(A) erred in directing the Assessing Officer to restrict the disallowance uls 14A to the extent of dividend income declared relying on the decision of t© Hon'ble Madras High Court in the case of Mis. Redington India Limited Vs. Addi.CIT reported in 392 ITR 633 though the facts of the case in hand is different frorn the decision in the case of the Hon'ble Madras High Court. In the relied on the decision, the assessee has not declared any exempt income whereas the assessee has declared exempt income of Rs.13,754/- in the case in hand. 2.2 The learned CIT(A) ought to have considered the fact that in the relied on decision, M/s. Redington India Limited has reserve surplus for making investments whereas in the case in hand, the assesses has borrowed funds for which the assesses has paid an interest of Rs.23.71 Crores during the FY 2010-11. 2.3 The learned CIT(A) ought to have seen that the assessee company should have incurred administrative expenditures for administering the investment of Rs. 155.24 Crores and also assessee has made fresh investment of Rs.31,69,12,330/- during the financial year 2011-12. 2.4 The ld.CIT(A) ought to have followed the decision of Hon'ble Karnataka High Court in United Breweries Limited Vs. ACIT (Kar) 229 Taxman 113 and Hon'ble Bombay High Court in the case Godrej & Boyce Manufacturing Co. Ltd (Bom.) 328 ITR 81 wherein it was ruled that the Assessing Officer is duty bound to calculate the disallowance u/s 14A applying Rule 8D if the Assessing Officer is not satisfied with the assessee's claim that no expenditure is incurred for earning exempt income from AY 2008-09. 2.5 The learned CIT(A) ought to have dismissed the assessee's claim as there is no provision in section 14A to restrict the disallowance to the exempt income declared by the assessee.
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 be restored.”
:-3-: ITA. No:2048/Chny/2017
The brief facts of the case are that, the assessee company is engaged in the business of software analysis, design and development, filed its return of income for the assessment year 2011-12 on 30.09.2011, admitting total income of Rs. 150,46,75,014/-. During the course of assessment proceedings, the AO noticed that the assessee has made huge investment in shares and securities and also earned dividend income of Rs. 13,754/- and same has been claimed as exemption u/s. 10(34) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). However, does not made suomoto disallowance of expenditure relatable to exempt income. Therefore, invoked provisions of Rule 8D of Income Tax Rules, 1962 (hereinafter referred to as “the IT Rules, 1962”) and computed disallowance of Rs. 4,33,97,965/-. The assessee carried the matter in appeal before the ld. CIT(A) and the Ld. CIT(A) for the reasons stated in their appellant order dated 23.06.2017 and also by following the decision of Hon’ble Madras High Court in the case of M/s. Redington India Ltd vs ACIT, [2017] 77 Taxmann.com 257 (Mad), restricted disallowance computed u/s. 14A of the Act, to the extent of exempt income of Rs.
:-4-: ITA. No:2048/Chny/2017 13,745/-. Aggrieved by the ld. CIT(A), the Revenue is in appeal before us.
The ld. DR, referring to explanation to section 14A inserted by the Finance Act, 2022 submitted that said explanation is clarificatory in nature which is applicable retrospectively from the date of provision of section of 14A of the Act. Therefore, submitted that the Ld. CIT(A) has erred in restricting disallowance to the extent of exempt income.
The Ld. Counsel for the assessee submitted that explanation to section 14A inserted by the Finance Act, 2022, held to be perspective in nature and cannot be applied to the impugned assessment year. Further, before amendment, the law is very clear in as much as Hon’ble Jurisdictional High Court of Madras in the case of M/s. Redington India Ltd vs ACIT, (supra) has held that disallowance contemplated u/s. 14A of the Act cannot exceed exempt income.
We have heard both the parties, perused materials available on record and gone through orders of the authorities
:-5-: ITA. No:2048/Chny/2017 below. The law is well settled by the decisions of various courts including the Hon’ble High Court of Madras in the case of M/s. Redington India Ltd vs ACIT, (supra), where it has been held that in absence of exempt income for relevant assessment year, no disallowance could be made u/s. 14A of the Act towards expenditure relatable to exempt income. The Hon’ble Supreme Court had also considered an identical issue in the case of CIT vs M/s. Chettinad Logistics Pvt. Ltd. [2018] 95 Taxmann.com 250 (SC), and held that if no exempt income for relevant assessment year, then no disallowance could be made u/s. 14A of the Act. In other words, disallowance contemplated u/s. 14A of the Act cannot exceed exempt income earned in the relevant assessment year, and this ratio is supported by the decision of the Delhi High Court in the case of PCIT vs Era Infrastructure (India) Ltd in & CM Appl. 31445/2022, order dated 20.07.2022, where it has been held that disallowance contemplated u/s. 14A of the Act cannot exceed exempt income earned in the relevant assessment year. Therefore, we are of the considered view that 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 :-6-: ITA. No:2048/Chny/2017 exempt income earned in the year, and to this extent, we cannot find fault with order passed by the Ld. CIT(A).
As regards arguments of the ld. Sr. DR for the Revenue, in light of explanation to section 14A inserted by the Finance Act, 2022 and its applicability with retrospective effect, we find that Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd., (Supra), considered the amendment and also taking into account various case laws, held that explanation to section 14A inserted by the Finance Act, 2022 is perspective in nature, and it cannot be applied prior to 01.04.2022. Therefore, we reject argument of the Ld. DR present for the Revenue.
In this view of the matter and by respectfully following the decision of Hon’ble Madras High Court in the case of M/s. Redington India Ltd vs ACIT (supra), we are of the considered view that disallowance of expenditure u/s. 14A of the Act cannot exceed exempt income and thus, we are inclined to uphold the findings of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.
:-7-: ITA. No:2048/Chny/2017
In the result, appeal filed by the Revenue is dismissed.