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Facts
The assessee filed returns for AY 2017-18 and 2018-19 showing losses. The Assessing Officer disallowed Rs. 8,12,90,897/- under Section 14A r.w.r. 8D, stating the assessee did not furnish working as per amended provisions and made additions. The CIT(A) deleted this disallowance.
Held
The Tribunal held that the amendment to Section 14A by the Finance Act, 2022, which introduced an explanation, is clarificatory and retrospective. However, the CIT(A) had rightly held that this amendment, effective from April 1, 2022, could not be applied retrospectively to the assessment years under consideration. The Tribunal found that the assessee had no exempt income in the relevant assessment years, and therefore, Section 14A would not apply. Consequently, the appeals filed by the Revenue were dismissed.
Key Issues
Whether the amendment to Section 14A via the Finance Act, 2022, is retrospective and applicable to Assessment Years 2017-18 and 2018-19 when no exempt income was earned by the assessee.
Sections Cited
14A, 8D, 143(2), 115JB, 119
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Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Ms. Suchitra Kamble & Narendra Prasad Sinha
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
These two appeals filed are against the order dated 10- 02-2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2017-18 & 2018-19.
The grounds of appeal are as under:-
A.Y. 2017-18 “1." Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in deleting the disallowance of Rs. 8,12,90,897/- under section 14A r.w.r. 8D of the Act, without appreciating the facts of the case?" 2." Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in deleting the addition of disallowance of Rs. 8,12,90,897/- under section 14A r.w.r. 8D of 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 the Act, while computing book profit under section 115JB of the Act, without appreciating the facts of the case?" 3." The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." 4." It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored?"
A.Y. 2018-19 “1." Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in deleting the disallowance of Rs. 11,24,74,819/- under section 14A r.w.r. 8D of the Act, without appreciating the facts of the case?" 2." The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary." 3." It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored?"”
The assessee filed its return of income on 01-11-2017 for assessment year 2017-18 declaring total loss of Rs. (-) 2,09,14,530/-. The assessee’s case was selected for scrutiny and notice u/s. 143(2) of the Act was issued to the assessee. In response to the notices issued, the assessee filed reply. The Assessing Officer held that the assessee did not furnish working as per amended provisions of Rule 8D in spite of being specifically asked in respect of applicability of section 14A and addition made under MAT. Therefore, the Assessing Officer disallowed Rs. 8,12,90,897/- u/s. 14A r.w.s. 8D and added it to the income of the assessee. The MAT calculation of book profits and addition u/s. 14A of the Act was also done as explanation 1 (F) to section 1115JB(2) to compute book profit.
& 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 4. Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The ld. A.R. submitted as follows:- “Assessee relies on the decision of ITAT Ahmedabad in & 1916/Ahd/2024 in Jay Chemical Industries Pvt. Ltd dated 28-02-2025 Relevant Para is reproduced:
6. Ground No. 2 deleting the addition of Rs. 10,84,214/ on account of disallowance u/s 14A rw.r BD of the Act. The findings of the Ld CIT(A) that there is no dividend income earned by the assessee thereby deleted the addition by observing as follows:
It has been recorded by the Ld. AO that the assessee had shown investment of Rs 4,51,81,510/- at the beginning of the year and Rs 4,52,32,143/- at the end of the year hence he had show caused the assessee as to why disallowance u/s 144 should not be made. It has been further recorded that the assessee by relying on the decision of the Hon'ble ITAT in its own case for AY 2008-09 submitted that it had no exempt income and so there was no application of provisions of section 144 as per the decision of Hon'ble High Court, Gujarat. The impugned order indicates that the Ld. AO was not convinced and after recording the dissatisfaction, he proceeded to make disallowance u/s 144 as per Rule BD The appellant submitted the copy of the Acknowledgement of the ITR fled for the year under consideration and the complete set of ITR is still awaited. Nevertheless respectfully following the binding decisions of the Hon'ble High Court, Gujarat in the cases of the appellant as mentioned above, the Ld AO is directed to delete the disallowance u/s 14A of Rs 10,84,214/- if the claim of the assessee that there was no exempt income during the year under consideration is found to be correct from its ITR filed for the year under consideration Last but not the least on the issue of whether the amendment by virtue of Finance Act, 2022 to the provisions of section 14A is prospective in nature and would be applicable for AY 2022-23 and onwards or it is retrospective in nature, the Hon'ble ITAT Guwahati in the case of ACIT v Williamson Financial Services Ltd. (2022) 140 taxmann.com 164 (Guwahati Trio) has held it to be retrospective in nature. However, the Hon'ble Delhi High Court in the later decision in the case of PCIT (Central) v. Era Infrastructure (India) Ltd (2022) 141 taxmann.com 289 (Delhi) has held it to be prospective in nature. Similarly, the Hon'ble ITAT. Mumbai has held it to be prospective & 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 in nature in the case of ACIT Vs K Raheja Corporate Services Pvt. Ltd. in to 2527/Mum/2021.”
6.1. We do not find any infirmity in the above order, it is undisputed fact that the assessee has not received any dividend during the Financial Year The Ld. CIT(A) has considered that the amended provisions of Section 144 will be applicable prospectively and relied upon various case laws Therefore, the order passed by the Ld CIT(A) does not require any interference Thus, the Ground raised by the Revenue is devoid of merit and liable to be dismissed.
Extract from ITAT Ahmedabad in in DCIT v CLP India Pvt. LIS dated 4-11-2022.
“7.1 Respectfully following the above judicial principles the insertion of Explanation to Section 14A by the Finance Act, 2022 is operative only from the Assessment Year 2022-23 onwards and not applicable for the earlier Assessment Years and therefore the argument of the Ld. D.R. is hereby rejected.
7.2. The decision relied by Ld. A.R. in assessee's own case in for the Assessment Year 2014-15 is clearly distinguishable, wherein dividend Income has been earned by the assessee during the financial year and the disallowance is restricted to that amount. Therefore the decision is not applicable to the present case since there is no dividend income earned during this financial year.
7.3. For the above reasons and following the judicial decisions, we have no hesitation in confirming the order passed by the Ld CIT(A) and deleting the addition made u/s. 144 of the Act both on normal computation as well as in the book profits u/s 115JB of the Act. Thus, the Grounds raised by the Revenue has no merits and the same are dismissed.”
The ld. D.R. submitted as follows: “1. BRIEF FACTS 1.1 The assessee company filed its return of income for A.Y. 2017-18 declaring total loss of Rs. (-)2,09,14,530/-. 1.2 During assessment proceedings, the Assistant Commissioner observed that the assessee had substantial investments in shares, mutual funds etc., yielding exempt income, and made disallowance under Section 14A read with Rule 8D of Rs. 8,12,90,897/- 1.4 The final assessed income was determined at Rs. 6,80,81,551/-. 1.5 The learned CIT(A) has erred in allowing relief to the assessee, which is contrary to law and established legal principles. 2. GROUNDS FOR RESTORATION OF ASSESSMENT ORDER 4 & 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 2.1 SECTION 14A DISALLOWANCE-CLARIFICATORY AMENDMENT 2.1.1 Most respectfully, it is submitted that there has been a clarificatory amendment in Section 14A vide Finance Act 2022 which provides:
Explanation-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income nit forming part of the total income under thus Act. has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.
2.1.2 The Explanation uses the phrase "and shall be deemed to have always applied in a case" which makes it crystal clear that provisions of Section 14A apply to the case of A.Y. 2017-18 also.
2.2 CBDT CIRCULAR NO. 05/2014 SUPPORTS REVENUE'S POSITION 2.2.1 CBDT Circular No. 05/2014, dated 11.02.2014 clarifies the scope of Section 14A even for years when no exempt income was earned.
2.2.2 Para No. 6 of the said Circular provided:
Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income."
2.2.3 Hence, there is no doubt about the scope of operation of Section 14A even for the year when no exempt income was earned.
2.3 LEGISLATIVE INTENT IS CLEAR 2.3.1 The Circular explained the intention of the Legislature:
The purpose for introduction of Section 14A was to ensure that expenses incurred to earn exempt income are disallowed from taxable income, "irrespective of the fact whether any such income has been earned during the financial year or not."
2.3.2 The legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not.
2.4 CLARIFICATORY OPERATION AMENDMENT IS RETROSPECTIVE BY 2.4.1 Reliance is placed on the ratio of J.K. Synthetics Ltd. v. Union of India, [1992] 65 Taxman 420 (SC) to aver that a clarificatory amendment is retrospective by operation.
2.4.2 The Hon'ble Supreme Court held:
In our opinion the said amendment is merely clarificatory in nature. It makes explicit what was implicit in the provisions. Question of its constitutionality, therefore, does not arise. Though purporting to be retrospective, it does not take any any rights which had legally vested in the assessees.
& 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 Further, reliance is also placed on ratio of CIT v. Vatika Township (P) Ltd. [2014] 49 taxmann.com 249/227 Taxman 121/367 ITR 466 (SC). When the provisions is clear and the intention of the legislature of apparent and loud that the provision was always to be read as if it applied even if no exempt income was earned during that year. Even ratio of case law supports the position.
It may please be noted that the 2022 amendment has been clarificatory. The Vatika Township(supra) judgment clearly lays down that an Amendment is retrospective when it is clearly laid down. Clarificatory amendments are retrospective by very nature. The instant amendment is a clarificatory one, which cleared the air regarding the issue and since the amendment is in favour of revenue- it cannot be said not to be clarificatory. Further, there is no new levy. The section existed during earlier A.Ys also. Only a clarification has been rendered via the amendment, Post-amendment SLP has been admitted in case of Delhi International Airport (P.) Ltd. [2022] 142 taxmann.com 328 (SC)
2.4.3 Hence, the present amendment has clarified the existing position and scope of Section 14A since its inception in 2001. Such clarificatory amendment was necessitated due to erroneous interpretations.
2.5 CIT(A)'S RELIEF 2.5.1 The scheme of Section 14A read with Rule SD aims to take into ambit those investments from which no exempt income has been earned, yet potential for earning of exempt income "includible" in total income exists.
2.5.2 All the relied cases by the assessee have not considered the impact of the clarificatory and retrospective phrase "deemed to have always been applied". Hence, such judgments are not applicable to the case.
2.5.3 The amendment is crystal clear, clarificatory and thereby, retrospective.
PRAYER In view of the above submissions, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to a) RESTORE the order of the Assistant Commissioner in its entirety; b) CONFIRM the disallowance under Section 14A read with Rule SD of Rs. 8,12,90,897/-; c) DISMISS the appeal filed by the assessee.
5. CONCLUSION The clarificatory amendment in Section 14A vide Finance Act 2022 with the specific phrase "and shall be deemed to have always applied settles the legal position conclusively. The amendment is clarificatory by nature and operates retrospectively. The CIT(A)'s relief to the assessee is contrary to the established legal position and the clear legislative intent. The Assistant Commissioner's order to be restored.”
We have heard both the parties and perused all the relevant material available on record. In both the years, there is no exempt income and as per the explanation to section 14A, the & 758/Ahd/2025 Arvind Fashions Ltd., A.Y. 2017-18 & 2018-19 same was inserted on 01-04-2022 with retrospective applicability. The CIT(A) has rightly held that amendment by Finance Act, 2022 of section 14A by inserting a non-substantive clause and explanation has taken effect 01-04-2022 and cannot be presumed to have retrospective effect and therefore the amendment could not be applied to the assessment year under consideration the decision of Hon’ble Jurisdictional High Court in case of CIT vs. Corrtech Energy Pvt. Ltd. 45 taxman.com 116 (2014) categorically held that where the applicant do not make any claim for exemption, in such circumstances, section 14A would have no application as the assessee has not claimed any exempt income in that assessment year. Thus, there is no need to interfere with the findings of the CIT(A). Hence, the appeal of the Revenue being A.Y. 2017-18 is dismissed. for assessment year 2018-19, the same is also identical and hence the appeal filed by the Revenue is dismissed.
In the result, both the appeals of the Revenue are dismissed.