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2022 (8) TMI 904 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - CIT-A restricted the disallowance to the extent of the exempt income - HELD THAT - As in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) which essentially holds that Section 14A of the Act can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A of the Act cannot be invoked where no exempt income was earned in the relevant assessment years. Thus, without going into other aspect of contentions, in consonance with the judicial precedents, we do not see any infirmity in the conclusion drawn by the CIT(A) for non applicability of Section 14A of the Act in the facts of the case. The judgment rendered in Joint Investment Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT thus clinches the issue in favor of assessee. Thus, the CIT(A) has rightly restricted the disallowance to the extent of the exempt income. Significantly, the Hon'ble Delhi High Court in the case of PCIT vs. M/s. ERA Infrastructure (India) Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT had the occasion to examine the law on applicability of Section 14A having regard to the newly inserted Explanation to Section 14A as codified by Finance Act, 2022. The Hon'ble High Court held that the aforesaid Explanation cannot be presumed to be retrospective in operation. As a corollary, the law prevailing prior to the insertion of Explanation would continue to apply and shall not be guided by the Explanation being prospective. We therefore see no reason to interfere with the order of the CIT(A) which is in sync with extant law as expounded by judicial precedents. Appeal of revenue dismissed.
Issues involved:
Challenge to disallowances under Section 14A concerning AY 2015-16. Analysis: The appeal was filed by the Assessee against the order of the Commissioner of Income Tax (Appeals) concerning disallowances made under Section 14A. The Revenue challenged the action of the CIT(A) in reversing the disallowances amounting to Rs. 1,65,16,139. The key issue revolved around whether Section 14A could be invoked when no exempt income was earned during the relevant year. The CIT(A) considered the AO's viewpoint, the appellant's submissions, and relevant judicial decisions. The CIT(A) referred to the judgment of the Hon'ble Delhi High Court in CHEMNIVEST LTD. VS. CIT-IV, which held that Section 14A does not apply if no exempt income is received or receivable during the relevant year. The CIT(A) also cited the case of PCIT vs. IL & FS Energy Development Company Ltd., emphasizing the correlation between exempt income earned and expenditure incurred. The CIT(A) concluded that no disallowance under Section 14A was warranted due to the absence of exempt income during the year. The Tribunal heard the rival submissions and noted that the assessee did not earn any exempt income during the relevant year. Citing judicial precedents, including decisions by various High Courts, the Tribunal concurred with the CIT(A)'s conclusion that Section 14A cannot be invoked in the absence of exempt income. The Tribunal referenced judgments by the Hon'ble Delhi High Court and the Hon'ble Madras High Court, which emphasized that disallowance under Section 14A cannot exceed the amount of tax-exempt income. The Tribunal also mentioned the dismissal of the SLP filed against the decision of the Hon'ble Madras High Court. Ultimately, the Tribunal upheld the CIT(A)'s decision on the non-applicability of Section 14A based on judicial precedents. In a subsequent discussion, the Tribunal referred to the judgment of the Hon'ble Delhi High Court in a related case, which confirmed that the newly inserted Explanation to Section 14A was not retrospective. The Tribunal concluded that the law prevailing before the insertion of the Explanation would continue to apply. Therefore, the Tribunal found no reason to interfere with the CIT(A)'s order, which aligned with the existing legal principles. Consequently, the appeal of the Revenue was dismissed, affirming the decision of the CIT(A) regarding the non-applicability of Section 14A in the case due to the absence of exempt income. The judgment was pronounced on 29/07/2022 by the Appellate Tribunal ITAT DELHI, with the appeal challenging disallowances under Section 14A for AY 2015-16 being dismissed.
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