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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 03.08.2022 for the AY 2014-15.
Issue raised by the assessee in ground nos. 1 to 4 is against the confirmation of addition of Rs. 4,96,79,429/- as made by the AO u/s 14A read with Rule 8D.
Facts in brief are that the assessee filed return of income on 27.11.2014by showing total loss of Rs. 32,41,845/-. The case of the assessee was selected for 2 I.T.A. No. Assessment Year: Assessment Year: 2014-15 Til Ltd. scrutiny under CASS and statutory notices were duly issued and served upon the scrutiny under CASS and statutory notices were duly issued and served upon the scrutiny under CASS and statutory notices were duly issued and served upon the assessee. The assessee is engaged in the business of manufacturing and trading of a ee is engaged in the business of manufacturing and trading of a ee is engaged in the business of manufacturing and trading of a comprehensive range of material handling, lifting, port and road construction and comprehensive range of material handling, lifting, port and road construction and comprehensive range of material handling, lifting, port and road construction and sales service etc. The AO during the course of assessment proceedings observed from service etc. The AO during the course of assessment proceedings observed from service etc. The AO during the course of assessment proceedings observed from the balance sheet that the assessee has assessee has some investments in equity shares in equity shares/securities. The assessee has also earned dividend income of Rs. 87,862/ The assessee has also earned dividend income of Rs. 87,862/- on the shares on the shares as per details below:
Pertinent to note that during the year, the assessee has not made any investment Pertinent to note that during the year, the assessee has not made any investment Pertinent to note that during the year, the assessee has not made any investments in the equity shares. The assessee calculated the disallowance u/s 14A shares. The assessee calculated the disallowance u/s 14A of the Act of the Act at Rs. 4,000/- by taking average value of investment by taking average value of investments in shares which yielded dividend in shares which yielded dividend during the year. No disallowance was made by the assessee under Rule 8D(2)( during the year. No disallowance was made by the assessee under Rule 8D(2)( during the year. No disallowance was made by the assessee under Rule 8D(2)(ii) on the grounds that the assessee’s own funds were sufficient to cover the investment e assessee’s own funds were sufficient to cover the investment e assessee’s own funds were sufficient to cover the investments in shares which yielded dividend during the year. The AO invoked the provision shares which yielded dividend during the year. The AO invoked the provision shares which yielded dividend during the year. The AO invoked the provisions of Section 14A read with Rule 8D by obser Section 14A read with Rule 8D by observing that the assessee has failed to prove that ving that the assessee has failed to prove that expenditure debited in its profit and loss account its profit and loss account did not include expenditure incurred expenditure incurred for earning of exempt income for earning of exempt income and therefore disallowance is called for u/s 14A and therefore disallowance is called for u/s 14A of the Act and calculated the disal and calculated the disallowance at Rs. 40,56,70,290/- (the correct figure is Rs. the correct figure is Rs. 4,48,83,429/-) comprising of Rs. 4,08,74,290/ sing of Rs. 4,08,74,290/- (correct figure is Rs. 40,08,74,290/ (correct figure is Rs. 40,08,74,290/-) under rule 8D(2)(ii) towards proportionate interest expenses and Rs. 47,96,000/ under rule 8D(2)(ii) towards proportionate interest expenses and Rs. 47,96,000/ under rule 8D(2)(ii) towards proportionate interest expenses and Rs. 47,96,000/- under Rule 8D(2)(iii) and added the same to the income of the assessee in the assessment Rule 8D(2)(iii) and added the same to the income of the assessee in the assessment Rule 8D(2)(iii) and added the same to the income of the assessee in the assessment framed dated 26.12.2016 u/s 143(3) of the Act besides making other additions. 16 u/s 143(3) of the Act besides making other additions. 16 u/s 143(3) of the Act besides making other additions.
3 Assessment Year: 2014-15 Til Ltd.
In the appellate proceedings, the assessee submitted before the Ld. CIT(A) that the assessee has made investments in the shares out of its own surplus funds and no part of loan funds used for the purpose of making investments in shares of Rs. 7.00 Lacs whereas the assessee’s own funds were Rs. 272.44 Lacs as against the investments which yielded dividend of Rs.87,862/-. The assessee also submitted that no expenditure was incurred for earning of exempt income as the entire dividend was credited in the bank account of assessee directly but despite that the assessee suo- moto disallowed a sum of Rs. 4,000/- u/s 14A read with Rule 8D.However the Ld. CIT(A) by relying on the amendment to Section 14A of the Act vide Finance Act, 2022 and the judgment of Hon’ble Gauhati Bench in the case of Williamson Financial Services Ltd. reported in [2022] 140 Taxman.com 164 (Gau) held that the said amendment is retrospective in nature and thereby affirmed the order of AO.
The Ld. A.R. at the outset pointed out that the factual mistake in the calculation of disallowance u/s 14A which were rectified on 11.01.2017 in respect of Rule 8D(2)(ii) and also double disallowance under rule 8D(2)(iii) which was rectified on 27.07.2017. The Ld. A.R. also pointed out that in the grounds of appeal the assessee has wrongly taken the figure of Rs. 4,96,79,429/- in respect of Rs. 4,48,83,429/-. The Ld. A.R submitted before the Bench that the addition made by the AO by rejecting suo-moto disallowance made by the assessee of Rs. 4,000/- is contrary to law and facts on record as the AO has not recorded any satisfaction in the assessment order as to how the calculation of disallowance u/s 14A made by the assessee of Rs. 4,000/- is wrong having regard to the books of account maintained by the assessee and therefore in absence of any satisfaction the addition made u/s 14A is required to be deleted.
The Ld. A.R also submitted that the assessee has not made any investments into the shares and securities during the year and whatever investments are there are carried over/ brought forwards from the preceding years. Therefore the Ld. A.R submitted that the assessee has not incurred any expenditure in earning exempt income. The Ld. A.R also referred to the investments in three securities namely: i) Bank of India Ltd.,
4 Assessment Year: 2014-15 Til Ltd. ii) McLeaod Russel India Ltd. and iii) Eveready Industries India Ltd. on which the total dividend of Rs. 87,862/- was received during the year and the assessee also computed suo-moto disallowance of Rs. 4,000/- u/s 14A by taking these investments as opening and closing balance and after applying 0.5% to the average investments, Rs.3,500/- was computed under Rule 8D(2)(iii) and was rounded up to Rs. 4,000/-. The Ld. A.R submitted that the disallowance u/s 14A read with Rule 8D can only be made by referring to the investments which yielded exempt income during the year and not the entire investments. In defense of his argument, the Ld. A.R. relied on the decision of Hon’ble Calcutta High Court in the case of REI Agro Ltd. in GA No. 3581 of 2013 and Hon’ble Delhi High Court in the case of ACB India Ltd. vs. ACIT (2015) 374 ITR 0108 and prayed that the addition made by the AO may kindly be deleted.
The Ld. A.R. submitted before the Bench that undisputedly the investments made in the earlier years in shares/securities were out of own interest free funds and therefore no disallowance u/s 14A read with Rule 8D(2)(ii) could be made as has been held by the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. The Ld. A.R while controverting the findings given by the Ld. CIT(A) that the amendment made in section 14A of the Finance Act, 2022 is retrospective, submitted that the memorandum of Finance Bill, 2022 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 years. The Ld. A.R submitted that non- obstante clause inserted in Section 14A(1) of the Act and explanation to Section 14A of the Act are not clarificatory as it has made fundamental change by referring the decision of Hon’ble Delhi High Court in the case of PCIT(Central) vs. Era Infrastructure (India) Ltd. in (2022) 141 taxmann.com 289(Del) wherein the Hon’ble High Court has held that the amendment made by Finance Act, 2022 to Section 14A by inserting a non-obstante clause and Explanation will take effect from 1st April,2022 and cannot be presumed to have retrospective in nature, if it alters or changes the law as it stood earlier. Therefore, the Ld. Counsel for the assessee submitted that the reliance by the First Appellate Authority on the decision of Co-ordinate Bench of 5 Assessment Year: 2014-15 Til Ltd. Gauhati in the case of Williamson Financial Services Ltd. (supra) is wrong wherein the Co-ordinate Bench has held that amendment made to Section 14A by inserting therein non-obstante clause and explanation in Section 14A is retrospective in nature.
The Ld. D.R on the other hand relied heavily and prayed before the Bench that the appeal of the assessee may kindly be dismissed by affirming the order of Ld. CIT(A).
After hearing the rival contention and perusing the material on record including the orders passed by both the authorities below, the undisputed facts are that during the year the assessee has not made any investments in shares and securities. The exempt income received during the year was Rs. 87,862/- on three securities as per the table appended in para 3 supra. Besides we note that the assessee’s own funds were sufficient to cover the investments made in shares and securities. In this background, the various pleas made before the Bench by the Ld. A.R., is being adjudicated. After perusal of the order of assessment we find that the AO has not recorded any satisfaction by referring to books of account as to how the disallowance made by the assessee of Rs. 4,000/- u/s 14A of the Act read with Rule 8D(2)(iii) is wrong and simply invoked the provisions of Section 14A read with Rule 8D to make the disallowance which is not correct as the recording of satisfaction is pre-requisite for invoking provisions of Section 14A of the Act which is in consonance with the ratio laid down by the Hon’ble Supreme Court in the case Maxopp Investment reported in (2018) 402 ITR 640 (SC). On this score alone the order of ld CIT(A) cannot be sustained. On the issue of retrospective application amendment brought by Finance Act, 2022 to Section 14A of the Act by inserting non-obstante clause and explanation to Section 14A of the Act, we find that the issue has been decided by the Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd. (supra) by holding that the said amendment is prospective in nature. We have also examined and perused the memorandum of Finance Bill, 2022 which is explicitly provides that amendment made to Section 14A would take effect from 1.04.2022 and would accordingly apply to AY 2022-23 onwards. The relevant finding is extractred below:
7.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 281/436ITR 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 Shy am Sunder v. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC352; 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(l)(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".
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) 8. 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.
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 Kunhayammedv. State of Kerala [2000] 113 Taxman 470/245 ITR 360 and Shree Chamundi Mopeds Ltd. v. Church of South 7 Assessment Year: 2014-15 Til Ltd. 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).
10. 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 coordinate bench of Kolkatta tribunal in ITA No 318/Kol/2022 Babul fiscal Services Pvt Ltd. Vs. ACIT has followed the decision of Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd. (supra) and held that explanation to section 14 A of the Act is prospective. Therefore we find merit in the submission of the Ld. Counsel that the decision of the Co-ordinate Bench holding the amendment to be retrospective in nature is wrong and cannot be applied. On this score alone, the order of Ld. CIT(A) cannot be sustained. Further we note that the assessee’s own funds were far more than investment made in shares and securities in the preceding financial years and presumption has been drawn that the investments were made out of own interest free funds. The case of assessee finds support from the decision of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) where the ratio has been laid that no disallowance can be made u/s 14A of the Act read with Rule 8D(2)(ii) of the Act where the assessee’s own funds were far more than the value of investments which yielded the exempt income. In the present case, we note that the assessee has invested in equity shares were Rs. 1,86,82,00,000/-. Therefore on this count, we find merit in the contentions of the Ld. A.R that no disallowance can be made under Rule 8D(2)(ii). In view of the above facts and circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance. Accordingly ground nos. 1to 4 are allowed.
Issue raised in ground no. 5 is consequential in nature and is accordingly allowed.
8 Assessment Year: 2014-15 Til Ltd. 9. Issue raised in ground no.6 is against the confirmation of club expenses of Rs. 1,58,263/- which has been confirmed by the Ld. CIT(A) by disregarding the fact that the same was incurred for business purposes.
Facts in brief are that during the year, the assessee has incurred expenses of Rs. 1,58,263/- as club expenses. The AO disallowed the same on the ground that the said expenses were incurred on personal refreshment and not for the purpose of business of the assessee.
In the appellate proceedings, the Ld. CIT(A) has passed cryptic order by simply dismissing the appeal of the assessee on the ground that the assessee has failed to substantiate the fact that this expense is wholly and exclusively spent for the business purpose.
After hearing the rival contentions and perusing the material on record, we observe that the assessee reported revenue from operations of Rs. 28,751 Lacs whereas the expenses were only Rs. 1,58,263/-. We find merit in the contentions of assessee that these expenses were incurred primarily for the business purpose and for promoting the interest of the company and therefore allowable u/s 37 of the Act. The case of assessee finds support from the decision of Hon’ble Supreme Court in the case of CIT vs. United Glass Mfg. Co. Ltd. reported in [2012] 28 taxmann.com 429 (SC) wherein it was held that such expenses are purely business expenses. The Hon’ble Apex Court further notes that various High Courts in series of decisions have held that club membership fee incurred by the assessee is business expense u/s 37 of the Act and none of the decisions have been challenged in this Court. Similarly in the case of OTIS Elevator Co. (India) Ltd. vs. CIT in [1992] 195 ITR 682 (Bom) and CIT vs. Samtel Color Ltd. in [2010) 326 ITR 0425 (Delhi) similar issue has been decided in favour of the assessee by holding that the club expenses/admission fee paid towards business expense is wholly and exclusively incurred for the purpose of business. Considering this fact and ratio laid down in above decisions we are inclined to set aside the order of Ld. CIT(A) by directing the AO to delete the addition.
After hearing both the parties and perusing the material on record, we find that the issue is required to be examined at the level of AO. Accordingly we direct the AO to examine this issue and allow the same after such examination. The assessee is also directed to produce the necessary evidences in this regard before the AO. Accordingly ground no. 7 is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order is pronounced in the open court on 23rd December, 2022
Sd/- Sd/- (Sonjoy Sarma /संजय शमा�) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 23rd December, 2022 SB, Sr. PS Copy of the order forwarded to: 1. Appellant- TIL Ltd., 1, Taratalla Road, Garden Reach, SO Kolkata-700024 2. Respondent – DCIT, Circle-1(2), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)