ADANI GREEN ENERGY LIMITED,AHMEDABAD vs. THE PR. CIT, AHMEDABAD-1, AHMEDABAD

The assessee-company filed its return of income on 26-03-2019 declaring total income of Rs. (-)32,70,00,706/-. The return was processed u/s.143(1) of the Act determining total income of Rs. (-) 32,48,93,990/-, after an adjustment of Rs.21,06,716/- on account of late payment of employees’ contribution to National Pension Scheme. Later on, the case was selected for complete scrutiny under CASS by issuing notice u/s 143(2) of the Act dated 22-09-2019 for the scrutiny of following issues:

A notice u/s 142(1) of the Act was issued on 01-02-2020 requiring the assessee to provide information relating to the issues specified in notice u/s. 143(2) of the Act. The assessee filed its reply on 28-02-2020 giving the particulars called for including the expense incurred for earning exempt income. The assessee submitted that during the year under assessment no exempt income has been earned on investments made in shares and debentures of subsidiary companies as well as on investments in LLP and also stated that no disallowance u/s.14A of the Act has been made. While stating so, the assessee cited the decision of Hon’ble Supreme Court in case of CIT (Central)-1 Vs. Chettinad Logistics (P.) Ltd. [2018] 95 taxmannc.om 250 (SC), where the Hon’ble Apex Court dismissed the revenue’s SLP against the ruling of Hon’ble Madras High Court in the case Asst. Year : 2018-19

Thereafter, the Ld.PCIT observed that the assessee has invested in listed and unlisted equity shares during the year under consideration and also observed that the AO has not invoked provisions of section 14A of the Act read with Rule 8D of the I.T. Rules, 1962 and issued a notice u/s. 263 of the Act on 28-02-2024 requiring the assessee to show-cause as to why the order passed u/s.143(3) r.w.s. 144B of the Act dated 14-05-2021 should not be revised. In response to the same, the assessee challenged the juri iction assumed by the Ld.PCIT u/s.263 of the Act. The Ld.PCIT passed an order u/s 263 of the Act dated 16-03-2024 as the assessee did not submit anything on the merit of the issue but argued on the legal aspect of the proceeding u/s.263 of the Act. The Ld.PCIT set aside the order passed by the AO u/s. 143(3) r.w.s. 144B of the Act with a direction to pass afresh assessment order after duly examining the facts of the case to the extent discussed in the order.

Aggrieved by the order of the Ld.PCIT, now the assessee is in appeal before us with the following grounds of appeal:

In law and in the facts and circumstances of the Appellant's case, the Principal Commissioner of Income Tax, Ahmedabad-1 has erred in arriving at a conclusion without any basis whatsoever to the effect that the assessment order passed u/s 143(3) of the Act by the Assessing Officer was erroneous as well as prejudicial to the interest of the revenue.

In law and in the facts and circumstances of the Appellant's case, the Principal Commissioner of Income Tax, Ahmedabad-1 has failed to appreciate that the twin conditions for assuming juri iction u/s. 263 of the Act are not satisfied in the case of appellant company as issue which has been relied upon for passing the order u/s. 263 does not show any error or prejudice to the interest of the revenue.

The appellant craves leave to add, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal.

During the course of hearing before us, the Ld.Authorised Representative (AR) of the assessee, took us through the notices issued by the AO and the reply submitted by the assessee in response thereto. The Ld.AR stated that the assessee has not earned any exempt income as it is evident from the statement of income submitted. The Ld.AR also stated that the Ld.PCIT has relied on the Circular No. 5 of 2014 issued by CBDT and concluded that the AO has failed to make proper examination of the issues. The Ld.AR further stated that the issue was properly examined by the AO by issuing the notice u/s.142(1) of the Act as explained and, therefore, the conclusion of the Ld.PCIT is not correct. The Ld.AR placed Asst. Year : 2018-19

On the other hand, the Ld.Departmental Representative (DR) argued that the Explanation to section 14A inserted by the Finance Act, 2022 w.e.f. 1.4.2022 is clarificatory in nature and, hence, it has retrospective applicability and, therefore, the provisions of section 14A are applicable to the assessee even if there is no exempt income earned by the assessee. For the retrospective applicability of the amendment, the Ld.DR placed reliance on the Judgment of Hon’ble Supreme Court in the case of Commissioner of Income-tax, Ahmedabad Vs. Gold Coin Health Food (P.) Ltd. reported at [2008] 304 ITR 303 (SC).

We have considered the submissions made by both the parties and perused the material on record. It is an undisputed fact that the assessee did not earn any exempt income during the year under consideration. The Hon'ble Supreme Court in Chettinad Logistics (P.) Ltd. (supra) has categorically held that when no exempt income is earned, no disallowance under section 14A of the Act can be made. The AO, in the original assessment proceedings, had duly examined the issue by issuing a notice under section 142(1) of the Act, to which the assessee had responded. The AO, after being satisfied with the submissions, passed the order under section 143(3) read with section 144B of the Act.

The Ld.PCIT has invoked Section 263 of the Act, claiming that the AO did not properly examine the applicability of Section 14A of the Act, Asst. Year : 2018-19

The Ld.DR has argued that the amendment to Section 14A of the Act, brought by the Finance Act, 2022, is clarificatory and has retrospective effect, relying on the judgement of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Ahmedabad Vs. Gold Coin Health Food (P.) Ltd. (supra). The Ld.DR's argument is that, even in the absence of exempt income, the provisions of Section 14A of the Act would still apply retrospectively, as the explanation was intended to clarify the law as it always stood.

However, after considering the decisions relied upon by both parties, we find that the judgement of the Hon’ble Supreme Court in Chettinad Logistics (P.) Ltd. [2018] 95 taxmann.com 250 (SC), relied upon by the assessee, provides a clear legal position that when no exempt income is earned, no disallowance under Section 14A of the Act can be made. This Adani Green Energy Limited vs. Pr.CIT Asst. Year : 2018-19

So far as the reliance placed by the Ld.DR in the case of Gold Coin Health Food (P.) Ltd.(supra) is concerned, it is crucial to note that this decision deals with the levy of penalty under Section 271(1)(c) of the Act, and the retrospective applicability of amendments regarding penalties. The principles laid down in Gold Coin Health Food (P.) Ltd. do not directly address the issue of disallowance under Section 14A of the Act in the context of the earning of exempt income. Moreover, the explanation inserted by the Finance Act, 2022, though stated to be clarificatory, pertains specifically to the treatment of expenditure related to exempt income, and several judicial authorities, including the Co-ordinate Bench in N.K. Proteins Ltd. (supra) have held that such amendments apply prospectively and not retrospectively.

Therefore, in light of the consistent judicial view including the decisions of the Hon’ble Supreme Court and various High Courts, the amendment to Section 14A of the Act introduced by the Finance Act, 2022, cannot be applied retrospectively to the assessment year under consideration. The revisionary order under Section 263 of the Act, based on the assumption of retrospective applicability, is thus unsustainable. Asst. Year : 2018-19

Considering the above discussion, we hold that the Ld.PCIT was not justified in invoking juri iction under section 263 of the Act. The revisionary order is hereby quashed, and the appeal of the assessee is allowed.

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

""यथ" / The Respondent. 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त ( अपील ) / The CIT(A)/The Pr.CIT, Ahmedabad-1

"वभागीय ""त"न"ध , आयकर अपील"य अ"धकरण , राजोकट/DR,ITAT, Ahmedabad, 6. गाड" फाईल /Guard file.