2022 (11) TMI 422 - AT - Income Tax

Disallowance u/s. 14A r.w.r 8D - assessee has made investment in shares and claimed expenditure on account of interest payment on loans - Book Profit u/s. 115JB estimation - HELD THAT - Explanation to Section 14A by the Finance Act, 2022 is operative only from the Assessment Year 2022-23 onwards and not applicable for the earlier Assessment Years and therefore the argument of the Ld. D.R. is hereby rejected. The decision relied by Ld. A.R. in assessee s own case in 2022 (6) TMI 1325 - ITAT AHMEDABAD for the Assessment Year 2014-15 is clearly distinguishable, wherein dividend income has been earned by the assessee during the financial year and the disallowance is restricted to that amount. Therefore the decision is not applicable to the present case, since there is no dividend income earned during this financial year. We have no hesitation in confirming the order passed by the CIT(A) and deleting the addition made u/s. 14A of the Act both on normal computation as well as in the book profits u/s. 115JB of the Act. Thus the Grounds raised by the Revenue has no merits and the same are dismissed. Appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Applicability of Section 14A read with Rule 8D.
3. Disallowance under Section 14A in the absence of exempt income.
4. Adjustment of disallowance under Section 14A in computing book profit under Section 115JB.
5. Retrospective application of the amendment to Section 14A by the Finance Act 2022.

Issue-wise Detailed Analysis:

1. Delay in Filing the Appeal:
The appeal was filed with a delay of 47 days, falling within the COVID-19 pandemic period. Following the Hon'ble Supreme Court judgment dated 23.03.2020 in suo moto Writ Petition (Civil) No.3 of 2020, the time limit for filing appeals was extended from 15.03.2020. Thus, the tribunal held that there was no delay in filing the appeal.

2. Applicability of Section 14A read with Rule 8D:
The assessee, a company engaged in the generation and sale of electricity, made investments in shares and claimed interest expenditure on loans. The Assessing Officer (AO) invoked Section 14A read with Rule 8D, disallowing Rs. 21,07,73,322/- comprising interest disallowance of Rs. 46,12,522/- and administrative expenditure of Rs. 20,61,60,800/-. The AO also made a similar adjustment while computing book profit under Section 115JB.

3. Disallowance under Section 14A in the Absence of Exempt Income:
The assessee argued that the investments were strategic, made with its own funds, and no exempt income was earned during the year. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted this argument, citing several judicial precedents, including:
- CIT v. Corrtech Energy Pvt. Ltd. [45 Taxmann.com 116]
- Cheminvest Ltd. v. CIT [61 taxmann.com 118]
- Commissioner of Income Tax v. Chettinad Logistics (P.) Ltd [80 taxmann.com 221]
- PCIT v. Oil Industry Development Board [103 taxmann.com 326]

These cases established that no disallowance under Section 14A is warranted if no exempt income is earned.

4. Adjustment of Disallowance under Section 14A in Computing Book Profit under Section 115JB:
The CIT(A) also deleted the disallowance made under Section 115JB, aligning with the judicial pronouncements that Section 14A disallowance is not applicable in the absence of exempt income.

5. Retrospective Application of the Amendment to Section 14A by the Finance Act 2022:
The Revenue contended that the amendment to Section 14A by the Finance Act 2022 should be applied retrospectively. However, the tribunal, referencing the Delhi High Court judgment in PCIT vs. Era Infrastructure (India) Ltd. [288 Taxmann.com 384], held that the amendment is effective from 1st April 2022 and applies prospectively. The tribunal also cited Supreme Court judgments in Sedco Forex International Drill. Inc. v. CIT and M.M Aqua Technologies Ltd. v. Commissioner of Income Tax, Delhi-Ill, supporting the principle that retrospective provisions in tax laws cannot be presumed unless explicitly stated.

Conclusion:
The tribunal upheld the CIT(A)'s order, confirming that no disallowance under Section 14A is warranted in the absence of exempt income and that the amendment to Section 14A by the Finance Act 2022 is not retrospective. The appeal filed by the Revenue was dismissed.