2022 (8) TMI 430 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - expenditure on exempt income earned by the Assessee during the relevant previous year - Scope of amendments to Section 14A of the Act - HELD THAT - We note that the Mumbai Bench of the Tribunal has, in the case of Assistant Commissioner of Income Tax- Circle 3(1)(1) Vs Bajaj Capital Ventures (P.) Ltd. 2022 (7) TMI 23 - ITAT MUMBAI and also in the case of K Raheja Corporate Services Private Limited 2022 (7) TMI 1044 - ITAT MUMBAI held that the amendments to Section 14A introduced by the Finance Act 2022 shall apply from Assessment Year 2022-23 and onwards. Further, Hon ble Delhi High Court in the case of Principal Commissioner of Income-Tax (Central) -2 Vs. M/s Era Infrastructure India Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT has rejected the contention of the Revenue that amendments to Section 14A introduced by the Finance Act 2022 shall have retrospective effect. Accordingly, Ground No.1 raised by the Revenue is dismissed. MAT computation - Disallowance u/s 14A computed as per the provisions of Rule 8D of the Rules for the purpose of computing book profits in terms of Section 115JB - HELD THAT - This issues stands decided in favour of the Assessee by the decision of Special Bench of the Tribunal in the case of ACIT Vs Vireet investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI . Further, the Tribunal has, in the case of the Assessee for the Assessment Year 2013-14 and 2014-15 deleted identical adjustment made by the Assessing Officer while computing Book Profits for the purpose of Section 115JB - CIT(A) has granted relief to the Assessee by following the aforesaid decisions. It is not the contention of the Revenue that the operation of the aforesaid decisions has been stayed in appeal preferred by the Revenue. In view of the aforesaid and taking into account our findings in paragraph 7 above, we hold that there is no infirmity in the order passed by the CIT(A) on this issue. Accordingly, Ground No. 2 raised by the Revenue is dismissed.

Summary

Issues involved:
1. Disallowance under Section 14A read with Rule 8D of the Income Tax Rules.
2. Inclusion of disallowance under Section 14A in book profits for computing tax under Section 115JB.

Issue 1: Disallowance under Section 14A read with Rule 8D of the Income Tax Rules:

The Revenue challenged the order passed by the Ld. Commissioner of Income Tax (Appeals)-51 for the Assessment Year 2015-16, where the disallowance under Section 14A of the Act read with Rule 8D was restricted by the CIT(A) to the amount of exempt income earned by the Assessee during the relevant previous year. The Revenue contended that the amendments introduced by the Finance Act 2022 apply retrospectively, requiring the disallowance to be restored as the provisions do not restrict the disallowance to the amount of exempt income. However, the Assessee argued that the amendments have prospective application, citing judgments holding that disallowance cannot exceed the exempt income earned. The Tribunal noted precedents and held that the amendments apply from Assessment Year 2022-23 onwards, rejecting the Revenue's contention for retrospective application.

Issue 2: Inclusion of disallowance under Section 14A in book profits for computing tax under Section 115JB:

The second ground of appeal challenged the direction of the CIT(A) to exclude the disallowance under Section 14A from book profits for computing tax under Section 115JB. The Tribunal noted that a Special Bench decision and previous rulings favored the Assessee in similar cases for prior assessment years. As the Revenue did not contest the operation of these decisions, the Tribunal upheld the CIT(A)'s order on this issue. Consequently, the appeal by the Revenue was dismissed, affirming the decisions made by the CIT(A) regarding both issues.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s orders on both issues related to the disallowance under Section 14A and its inclusion in book profits for tax computation under Section 115JB for the Assessment Year 2015-16. The judgments and interpretations regarding the retrospective or prospective application of amendments to Section 14A were crucial in determining the outcome of the appeal.