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Facts
For AY 2014-15, the AO made an initial disallowance of Rs.69,69,630/- under Section 14A read with Rule 8D, as the assessee had declared exempt income. The CIT(A) deleted this disallowance because no exempt income was actually earned. Subsequently, the AO rectified the order under Section 154, recomputing the disallowance to Rs.3,81,69,675/-, which the CIT(A) again deleted on the same principle.
Held
The Tribunal upheld the CIT(A)'s decision, confirming that disallowance under Section 14A is not warranted when no exempt income is earned. It further ruled that the explanation inserted in Section 14A by the Finance Act, 2022 is prospective and does not apply to AY 2014-15.
Key Issues
The primary legal issues were the applicability of Section 14A disallowance when no exempt income is earned during the assessment year and whether the explanation to Section 14A inserted by the Finance Act, 2022, is retrospective or prospective.
Sections Cited
14A, 143(3), 154, Rule 8D
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Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & SHRI S.R.RAGHUNATHA
आदेश / O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)”), Delhi, dated 19.12.2023 for the Assessment Year (hereinafter in short "AY”) 2014-15.
At the outset, it is noted that there is a delay of ‘139’ days in filing of the appeal. And the AO/ACIT has filed an affidavit explaining the cause for delay and after going through the contents of the affidavit, we are satisfied that there is reasonable cause for the delay in filing of the appeal. Therefore, we condone the delay and proceed to hear the appeal.
None appeared for the assessee. However, the main grievance of the Revenue is against the action of the Ld.CIT(A) deleting the addition made by the AO u/s.14A of the Income Tax Act, 1961 (hereinafter in short "the Act”) to the tune of Rs.69,69,630/-.
The brief facts are that the assessee has filed its original return electronically on 30.11.2014 declaring income of Rs.9,23,94,570/-, which was subsequently selected for scrutiny and the AO noted that the assessee has shown Rs.55,00,000/- as exempt income yielding investments [sic]. Therefore, he asked the assessee ‘as to why’ provisions of Sec.14A of the Act should not be applied for disallowing the expenditure incurred for the purpose of earning the exempt income. In response, assessee furnished certain explanations which was not accepted by the AO who applied Rule 8D of the Income Tax Rules, 1962 (hereinafter in short ‘the Rules’) and made disallowance of Rs.69,69,630/- under the normal computation as well as under MAT and passed the Assessment Order dated 23.12.2016 u/s.143(3) of the Act.
Aggrieved, the assessee preferred an appeal before the Ld.CIT(A)
1. who was pleased to delete the same on the ground that the assessee didn’t earn any exempt income during the relevant year and relied on the decision of the Hon’ble Supreme Court in the case of CIT v. Chettinad Logistics (P) Ltd., reported in [2017] Taxmann.com 221 (SC). Pursuant to it, the department preferred an appeal before the Tribunal challenging the action of Ld CIT(A) deleting the addition (in for AY 2014-15 which was decided by the Tribunal dated 19.07.2019), and the Tribunal confirmed the action of the Ld.CIT(A) and dismissed the appeal of the Revenue.
In the meanwhile, the AO took note of the fact that in the Original Assessment Order passed on 23.12.2016, he has inadvertently taken note of the interest expenditure of Rs.5,47,10,000/- instead of the correct figures of Rs.45,31,72,192/-. According to the AO, since the mistake was apparent on record, he passed a rectification order u/s.154 of the Act dated 28.06.2017 and recomputed u/s.14A disallowance at Rs.3,81,69,675/-. Assessee being aggrieved by the order of the AO passed u/s.154 dated 28.06.2017 preferred an appeal before the Ld.CIT(A) who has again deleted the addition made u/s.14A r.w.r.8D by relying on the decision of the Hon’ble Supreme Court in the case of Chettinad Logistics (P) Ltd., (supra) on the ground that the assessee didn’t earn any exempt income during the relevant year. Before us, the Revenue couldn’t contradict the finding of fact by the Ld.CIT(A) that assessee didn’t earn any exempt income in this relevant assessment [AY (AY 2014-15) M/s. Hyundai Steel India Pvt. Ltd. 2014-15]. Therefore, we taking note that the issue raised by Revenue being no longer res integra and finding that the assessee didn’t earn any exempt income, disallowance u/s.14A was not warranted; and hence, the Ld.CIT(A) has rightly deleted the additions made by the AO and therefore, we confirm the impugned action of the Ld.CIT(A); and find no merit in the contention of the Ld.DR that the explanation inserted by the Finance Act, 2022 in section 14A of the Act is explanatory in nature and even if assessee didn’t earn any exempt income, disallowance needs to be resorted to, which plea, we can’t accept because, according to us, the said explanation would be prospective in nature and wont apply for AY 2014-15 and hence, we dismiss the Revenue appeal.