SWELECT ENERGY SYSTEMS LIMITED FORMERLY SWELECT SOLAR ENERGY PRIVATE LIMITED,CHENNAI vs. INCOME TAX OFFICER CORP WARD 6 (4), CHENNAI

This appeal at the instance of the assessee is directed against the order of Addl/JCIT(A)-3, Delhi dated 18.12.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2014-15.

Brief facts of the case are as follows: The assessee is a private limited company carrying on the business in Solar Energy Space. For the assessment year 2014-15, the return of income was filed on 25.09.2014 declaring loss of Rs.8,26,765/-. The assessment was completed u/s.143(3) of the Act vide order dated 10.11.2016. In the said assessment order, the AO made disallowance u/s.14A of the Act amounting to Rs.17,97,827/-.

Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The contentions raised before the FAA against the disallowance u/s.14A r.w.s. 8D of the Income Tax Rules, 1962 are multifarious. One of the contentions was assessee did not earn any exempt income during the relevant assessment year. Consequently, no disallowance u/s.14A of the Act could be made. The FAA however rejected the above contention by stating that Explanation inserted to Section 14A by the Finance Act, 2022, is retrospective, whereby disallowance could be made u/s.14A of the Act even if assessee is not in receipt of exempt income during the relevant assessment year.

The Ld.DR supported the orders of the AO and the FAA.

We have heard rival submissions and perused the material on record. Admittedly, assessee for the relevant assessment year had not received any exempt income. Prior to the insertion of Explanation to Section 14A of the Act by the Finance Act, 2022, the Hon’ble Jurisdictional High Court in the case of Marg Ltd., vs. CIT reported in (2020) 16 ITR-OL 217 had categorically held by referring to other judicial precedents that disallowance u/s.14A of the Act should be limited to the exempt income earned / accrued to the assessee during the relevant assessment year. Subsequent to the amendment / insertion of Explanation to Section 14A of the Act, it is clear irrespective whether assessee is in receipt of exempt income or not, disallowance can be made by invoking the provisions of section 14A of the Act.

We are concerned with assessment year 2014-15. The question is whether insertion of Explanation to Section 14A of the Act vide Finance Act, 2022 has got retrospective operation or not. The First Appellate Authority had dismissed the contention of the assessee by observing the said insertion/amendment to Section 14A vide Finance Act, 2022 has retrospective operation. The Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd., (supra) held that amendment/insertion of Explanation to Section 14A of the Act has prospective application. The relevant finding of the Hon’ble Delhi High Court reads as follows:- “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.”

A similar view has been taken by the Hon’ble Gauhati High Court in the case of Williamson Financial Services Ltd., supra. The relevant finding of the Hon’ble Gauhati high Court read as follows:-

In light of the aforesaid judgments of the Hon’ble Delhi High Court and Hon’ble Gauhati High Court, cited supra, we hold that insertion of Explanation to Section 14A by the Finance Act, 2022 is applicable prospectively and not retrospectively. Since we are concerned with the assessment year 2014-15, we hold that disallowance u/s.14A of the Act had to be limited to the exempt income earned by the assessee for the relevant assessment year.

Admittedly in the instant case, for the relevant assessment year since the assessee was not in receipt of any exempt income, the AO cannot make any disallowance u/s.14A of the Act. Accordingly, we delete the disallowance u/s.14A of the Act made by the AO, which was confirmed by the CIT(A). It is ordered accordingly.

In the result, the appeal filed by the assessee is allowed.