CHHATTISGARH GRAMIN BANK, RAIPUR,RAIPUR vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), RAIPUR, RAIPUR

The present appeal filed by the assessee bank is directed against the order passed by the Commissioner of Income-Tax (Appeals), National Faceless Appeal Center (NFAC), Delhi, dated 14.03.2023, which in turn arises from the order passed by the A.O under Sec.143(3) of the Income-tax Act, 1961 (in short ‘the Act’) dated 31.03.2015 for the assessment year 2012-13. The assessee has assailed the impugned order on the following grounds of appeal:

Succinctly stated, the assessee, which is engaged in the business of banking, had filed its return of income for A.Y.2012-13 on 28.09.2012, declaring income of 3 Chhattisgarh Gramin Bank Vs. DCIT, Circle-1(1), Raipur Rs.43,68,32,080/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s. 143(2) of the Act.

During the assessment proceedings, it was observed by the A.O. that the assessee had made investments of Rs.60.50 crores in exempt income-yielding assets. On being queried why the expenditure incurred on earning the exempt income may not be disallowed u/s.14A r.w.r 8D of the Income Tax Rules, 1962, the assessee failed to come forth with any submissions. Considering the aforesaid facts, the A.O. worked out a disallowance u/s.14A r.w.s. 8D(2)(iii) of Rs.31,75,050/-, as under:

Aggrieved the assessee carried the matter in appeal before the CIT(Appeals) but without success.

The assessee, being aggrieved with the order of the CIT(Appeals), has carried the matter in appeal before us.

We have heard the ld. Authorized Representatives of both the parties perused the orders of the lower authorities and the material available on record, as well as 4 Chhattisgarh Gramin Bank Vs. DCIT, Circle-1(1), Raipur considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

At the threshold of hearing of the appeal, it was submitted by the Shri B. Subramanyam, Ld. Authorized Representative (for short ‘AR’) that as the assessee company during the year under consideration was not in receipt of any exempt income, therefore, there was no justification for the A.O to have made a disallowance of Rs.31.75 lacs (approx.) u/s. 14A of the Act. The Ld. AR, to fortify his aforesaid contention that the assessee firm had not received any exempt income during the year under consideration, took us through its return of income, Pages 51 to 56 of APB. Also, the Ld. AR, in order to buttress his claim that in the absence of any exempt income, no disallowance u/s.14A of the Act was called for in its hands, had relied on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC) and that of the Hon’ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT (2015) 378 ITR 33 (Delhi).

Per contra, the Ld. Departmental Representative (for short, ‘DR’) relied on the orders of the lower authorities. It was submitted by him that pursuant to the “Explanation” to Sec. 14A of the Act, as had been available on the statute vide the Finance Act, 2022, the legislature had clarified that the provisions of Section 14A would be applicable and shall be deemed to have always applied in a case where income not forming part of the total income under the Act, had accrued or arisen or has not been received during the previous year in relation to the assessment year and expenditure has been incurred during the said previous year in relation to such 5 Chhattisgarh Gramin Bank Vs. DCIT, Circle-1(1), Raipur income not forming part of the total income of the assessee. Accordingly, it was averred by the Ld. DR that as in light of the aforesaid “Explanation” to Section 14A of the Act, the fact that the assessee was not earning any exempt income during the year under consideration was no more material for working out the disallowance u/s.14A of the Act, therefore, the claim of the Ld. AR that in the absence of any exempt income having been received by the assessee, no disallowance could have been made in the hands of the assessee does not merit acceptance.

We have thoughtfully considered the contentions advanced by the Ld. Authorized Representatives of both the parties. We are principally in agreement with the claim of the Ld. AR that in case the assessee had not earned any exempt income during the year under consideration, no disallowance u/s.14A of the Act was warranted in its hand. Our aforesaid view is fortified by the judgments of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (supra) and also of the Hon’ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT (supra).

Apropos the claim of the Ld. DR that as pursuant to the “Explanation” to Section 14A of the Act, the fact that the assessee was not in receipt of any exempt income would have no bearing for working out the disallowance u/s.14A as regards the expenditure incurred on earning of such exempt income; therefore, the aforesaid contention of the assessee that no disallowance u/s.14A of the Act could have been made in its hand in absence of any exempt income did not merit acceptance and was liable to be rejected, the same does not find favor with us. We, say so, for the 6 Chhattisgarh Gramin Bank Vs. DCIT, Circle-1(1), Raipur reason that as the “Explanation” to Section 14A had been made available vide the Finance Act, 2022 w.e.f. 01.04.2022; therefore, the same being prospective would not be applicable to the case of the assessee company before us for A.Y.2012-13.

Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Delhi in the case of Pr. CIT v. Era Infrastructure (India) Ltd. (2022) 448 ITR 674 (Delhi). The Hon’ble High Court, after deliberating at length on the issue under consideration, i.e., as to whether or not the “Explanation” to Section 14A of the Act was retrospective, had held that the same was effective from 1st April 2022 and will apply in relation to A.Y.2022-23 and subsequent assessment years. Albeit, the Hon’ble High Court had observed that its aforesaid view would be subject to the final decision of the Hon’ble Apex Court in the Special Leave Petition (SLP) filed by the revenue in the case of Pr. CIT Vs. IL & FS Energy Development Company Ltd., 2017 SCC Online Del 9893.

Be that as it may, we are of the considered view that as held by the Hon’ble High Court of Delhi in the case of Pr. CIT v. Era Infrastructure (India) Ltd. (supra), as the “Explanation” to Section 14A is applicable prospectively w.e.f. A.Y. 2022-23; therefore, the same has no bearing on the case of the present assessee before us.

Adverting to the facts of the case of the assessee company, we may herein observe that though it is the claim of the Ld. AR that the assessee had not earned any exempt income during the year under consideration and, in support thereof, had 7 Chhattisgarh Gramin Bank Vs. DCIT, Circle-1(1), Raipur drawn our attention to the returned income of the assessee company, but we may herein observe that the said fact is not conclusively established therefrom.

We, thus, in terms of our aforesaid observations, restore the matter to the file of the A.O. with a direction to him to verify whether the assessee company during the year under consideration had earned any exempt income. In case, the assessee, as claimed by the Ld. AR had not earned any exempt income during the year under consideration; then, no disallowance u/s.14A of the Act would be called for in its case. Thus, the Grounds of appeal No.1 and 2 raised by the assessee are allowed for statistical purposes in terms of our aforesaid observations.

The Grounds of appeal No. 3 and 5 (sic), being general, are dismissed as not pressed.

In the result, the appeal of the assessee is allowed for statistical purposes in terms of our aforesaid observations.