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Facts
The Revenue appealed against the CIT(A)'s deletion of disallowance made under Section 14A read with Rule 8D, contending that the assessee utilized borrowed funds for non-business purposes by investing in zero-percent debentures of a sister concern. The Revenue also disputed the CIT(A)'s deletion of a corresponding disallowance for calculating book profit under Section 115JB (MAT) and argued for the retrospective application of Section 14A amendments.
Held
The tribunal upheld the CIT(A)'s decision, finding that the assessee had not diverted interest-bearing funds for investments in debentures and thus Section 14A read with Rule 8D was not applicable. It also affirmed that amendments to Section 14A introduced by the Finance Act, 2022, are prospective, as per the Delhi High Court's ruling. Consequently, with no disallowance under Section 14A, the ground related to book profit u/s 115JB was also dismissed.
Key Issues
Whether the CIT(A) erred in deleting the disallowance u/s 14A read with Rule 8D concerning borrowed funds invested in debentures, and whether the amendments to Section 14A by Finance Act, 2022, are retrospectively applicable for calculation of book profit u/s 115JB.
Sections Cited
Section 14A, Rule 8D, Section 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: Sh. C. N. PrasadDr. B. R. R. Kumar
Asstt. Year : 2016-17 ACIT(OSD), Vs. G S Pharmbutor Pvt. Ltd., Range-10, Plot No. 58, 59, 66 & 67, Sector-3, New Delhi-110002 Integrated Industrial Estate, Pantnagar, Rudrapur, Uttarakhand (APPELLANT) (RESPONDENT) PAN No. AAACG2925P Assessee by : Sh. P. S. Kashyap, FCA Revenue by : Sh. Vivek Kumar Upadhyay, Sr. DR Date of Hearing: 01.08.2024 Date of Pronouncement: 28.08.2024 ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the Revenue against the order of National Faceless Appeal Centre (NFAC), Delhi dated 11.01.2024.
Following grounds have been raised by the Revenue:
“(1) "Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred, in deleting the addition of Rs. 2,48,70,011/- on account of the disallowance made u/s 14A r.w. Rule 8D, not appreciating the fact that the borrowed funds were utilized by the assessee for purposes other than its business activity, having been invested in the form of zero percent debentures in a sister concern.? (2) Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred, in deleting the addition of Rs. 2,48,70,011/- on account of the disallowance made u/s 14A r.w. Rule 8D for purpose of calculation of book profit u/s 115JB(MAT), not appreciating the fact that the borrowed funds were utilized by the assessee for purposes other than its 2 G S Pharmbutor Pvt. Ltd. business activity, having been invested in the form of zero percent debentures in a sister concern? (3) "Whether ld. CIT(A) was erred in law by ignoring the amendment in section 144 introduce by Finance Act, 2022 as per which disallowance u/s 14A r.w. Rule 6D is applicable retrospectively being clarificatory in nature, even if no exempted income was earned by the assessee." Ground No. 1: Disallowance u/s 14A:
This issue stands adjudicated in assessee’s own case for A.Y. 2013-14, A.Y. 2014-15 and A.Y. 2015-16 by the Co- ordinate Bench of ITAT in 4136/Del/2018, & 6716/Del/2018 respectively wherein a categorical finding has been given that the assessee company has not diverted its interest bearing fund in making investments in debentures.
Since, there has been no change in the facts of the case as the investment was made on 30.04.2021 and they were converted into equity on 25.03.2014 and no dividend has been issued on the equity shares. Hence, we hold that the provisions of Section 14A r.w. Rule 8D are not applicable.
Ground No. 3: Section 14A retrospective amendment:
With respect to applicability of amendment brought out by Finance Act, 2022, it has been held by Hon’ble Jurisdictional Delhi High Court in the case of ACIT Vs. Era Infrastructure (India) Ltd. In its order dated 20.07.2022 has upheld the view that the amendments to Section 14A, inserted vide the Finance Act, 2022 are prospective in nature. This finding has been given by ld. CIT(A) in para no. 5.3.2. and para 5.4 on internal page no. 6 of ld. CIT(A) order.
3 G S Pharmbutor Pvt. Ltd. 6. Since, the order of the ld. CIT(A) is in consonance with the judgment of Hon’ble Jurisdictional High Court, we decline to interfere with the order of the ld. CIT(A) on this issue.
Ground No. 2: Book Profit u/s 115JB (MAT):
Since, there was no disallowance u/s 14A, the ground of appeal on this issue is hereby allowed.
In the result, the appeal of the Revenue is dismissed. Order Pronounced in the Open Court on 28/08/2024.