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2022 (12) TMI 81 - HC - Income TaxDisallowance u/s 14A r.w.r.8D - disallowing any expenditure incurred in relation to the exempt income - HELD THAT - This Court is of the view that the present case is covered by the Division Bench judgment in Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT wherein it has been 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. Also 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. See M/S. ERA INFRASTRUCTURE (INDIA) LTD. 2022 (7) TMI 1093 - DELHI HIGH COURT - Decided in favour of assessee.
Issues:
Challenge to ITAT order on addition under Section 14A of the Income Tax Act, 1961 for Assessment Year 2012-13. Interpretation of Section 14A in cases where no exempt income is earned. Applicability of Division Bench judgment in Cheminvest Ltd. vs. CIT. Impact of the amendment to Section 14A by the Finance Act, 2022. Analysis: The High Court addressed the challenge to the ITAT order regarding the addition under Section 14A of the Income Tax Act, 1961 for the Assessment Year 2012-13. The appellant contended that the ITAT erred in deleting the addition of Rs.4.65 crores made by the assessing officer under Section 14A. The appellant argued that no disallowance can be made under Section 14A read with Rule 8D if no exempt income was earned during the relevant year. However, the authorities below had found that the assessee did not earn any dividend income during the year under consideration. The Court referred to the Division Bench judgment in Cheminvest Ltd. vs. CIT, which held that for Section 14A to apply, there must be an actual receipt of income not included in the total income during the relevant previous year. In other words, Section 14A does not apply if no exempt income is received or receivable during the relevant year. The Court relied on this interpretation to support the decision that no disallowance under Section 14A was warranted in the absence of dividend income earned by the assessee. Additionally, the Court discussed the impact of the amendment to Section 14A by the Finance Act, 2022. It noted that the amendment, aimed at "removal of doubts," should not be presumed to be retrospective if it alters or changes the existing law. Citing the judgment in Pr. Commissioner of Income Tax (Central)-2 Vs. M/s Era Infrastructure (India) Ltd., the Court emphasized that such amendments should not be assumed to have retrospective effect if they modify the law as it previously stood. Consequently, the Court concluded that no substantial question of law arose for consideration in the present appeal and dismissed the appeal accordingly. The judgment reaffirmed the principles regarding the application of Section 14A in cases where no exempt income is earned and highlighted the significance of legal interpretations in determining tax liabilities.
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