2022 (10) TMI 300 - HC - Income Tax

Disallowance u/s 14A - Scope of expression 'does not form part of the total income' in Section 14A - HELD THAT - In the opinion of this Court, the present case is covered by the Division Bench judgment in Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT wherein this Court has held that the expression 'does not form part of the total income' in Section 14A of the Act means that there should be an actual receipt of income which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. This Court in Pr. Commissioner of Income Tax (Central)-2 Vs. M/s Era Infrastructure (India) Ltd. . 2022 (7) TMI 1093 - DELHI HIGH COURT has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act held that the amendment of Section 14A, which is for removal of doubts cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. - No substantial question of law.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Challenge to the Impugned Order by the Income Tax Appellate Tribunal (ITAT) regarding disallowance of interest expenses under Section 14A of the Income Tax Act, 1961.
3. Interpretation of the term "in relation to" in Section 14A of the Act.
4. Consideration of legislative intent and CBDT Circular No. 5/2014.
5. Analysis of the Division Bench judgment in Cheminvest Ltd. vs. CIT.
6. Impact of the amendment to Section 14A by the Finance Act, 2022.
7. Determination of whether a substantial question of law arises for consideration.

Analysis:
1. The Court condoned the delay in re-filing the appeal after considering the averments in the application.
2. The appeal challenged the ITAT's order regarding the disallowance of interest expenses related to exempt income under Section 14A of the Act for the Assessment Year 2010-11. The Appellant argued that a direct nexus between the expenditure and earning of exempt income is required, emphasizing the term "in relation to."
3. The Appellant contended that the ITAT erred in deleting the disallowance without considering the legislative intent of Section 14A, as clarified by CBDT Circular No. 5/2014.
4. The Court referred to the Cheminvest Ltd. judgment, stating that Section 14A does not apply if no exempt income is received or receivable during the relevant year.
5. In light of the amendment to Section 14A by the Finance Act, 2022, the Court held that such amendments, even for "removal of doubts," are not presumed to be retrospective if they alter the existing law.
6. Ultimately, the Court found no substantial question of law for consideration in the appeal and dismissed the same based on the precedents and interpretations provided.