2022 (9) TMI 1528 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT (A) deleted the disallowance as the assessee did not receive any exempt income during the assessment year under consideration - scope of amendment made by the Finance Act, 2022 to Section 14A - HELD THAT - CIT (Appeals) followed the decision of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT . Also recently in the case of M/S. ERA INFRASTRUCTURE (INDIA) LTD. 2022 (7) TMI 1093 - DELHI HIGH COURT and Sedco Forex International Drill. Inc 2005 (11) TMI 25 - SUPREME COURT and M.M. Aqua Technologies Ltd. 2021 (8) TMI 520 - SUPREME COURT held that the Amendment to section 14A of the Act w/o for removal of doubts cannot be presumed to be retrospective. No infirmity in the order passed by the ld. CIT (Appeals) in deleting the disallowance made under section 14A read with Rule 8D - Decided against revenue.

Summary

Issues:
- Disallowance under section 14A read with Rule 8D of the Act for the Assessment Year 2015-16.

Analysis:
The appeal was filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) deleting the disallowance under section 14A read with Rule 8D of the Act for the Assessment Year 2015-16. The assessee did not receive any exempt income during the assessment year, and the Ld. CIT (Appeals) deleted the disallowance based on this fact. The decision of the Hon'ble Delhi High Court in the case of Cheminvest Limited Vs. CIT was followed in this regard. The Revenue contended that the Amendment to section 14A of the Act clarifying the application of section 14A read with Rule 8D even in the absence of exempt income was held to be prospective by the jurisdictional High Court in the case of PCIT Vs. Eros Infrastructure (India) Ltd. However, the Tribunal observed that the Amendment to section 14A without removal of doubts cannot be presumed to be retrospective, citing relevant decisions of the Hon'ble Delhi High Court and the Hon'ble Supreme Court. Consequently, the Tribunal upheld the order of the Ld. CIT (Appeals) and dismissed the appeal of the Revenue.

This judgment highlights the interpretation of section 14A read with Rule 8D of the Act concerning the disallowance of expenses related to exempt income. The Tribunal emphasized the significance of exempt income in determining the applicability of disallowance under section 14A. The decision underscores the importance of following judicial precedents, such as the judgments of the Hon'ble Delhi High Court and the Hon'ble Supreme Court, in interpreting tax provisions and amendments. It clarifies that unless expressly stated, amendments cannot be presumed to have retrospective effect, especially in the absence of removal of doubts clause. The judgment provides guidance on the prospective application of tax amendments and the relevance of exempt income in disallowance calculations under section 14A read with Rule 8D.