2023 (6) TMI 575 - AT - Income Tax

Disallowance u/s 14A - Scope of amendment of section 14A - retrospectivity - assessee incurred interest expenditure in respect of the amounts that were used for making investment also - CIT(A) relied upon the amendment to section 14A of the Act by insertion of explanation by Finance Act, 2022 - HELD THAT - In the case of Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT considered the effect of amendment made by the Finance Act, 2022 to section 14A of the Act by insertion of a non obstante clause and explanation after the proviso, subsequent to the decision of the Hon'ble Delhi High Court in the case of PCIT vs. IL FS Energy Development Co. Ltd. 2017 (8) TMI 732 - DELHI HIGH COURT analysed the same in the light of the decision in the case of Sedco Forex International Drill. Inc. vs. CIT 2005 (11) TMI 25 - SUPREME COURT reiterated in M.M. Aqua Technologies Ltd. 2021 (8) TMI 520 - SUPREME COURT and held that the amendment of section 14A of the Act which is for removal of doubt cannot be presumed to be retrospective even where such language is used, if it alters or changes law as it earlier stood. Thereupon the Hon'ble High Court followed the decision of IL FS Energy Development Co. Ltd., (supra) and concluded that no disallowance u/s 14A of the Act can be made if the assessee had not earned any exempt income during the year under consideration. Hon'ble High Court, however, was pleased to clarify that the orders passed in the case of Era Infrastructure (India) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT shall abide by the final decision of the Hon'ble Supreme Court in the SLP filed in the case of IL FS Energy Development Co. Ltd., (supra). We are not in agreement with the submissions made on behalf of the Revenue that since the Tribunal at Hyderabad is not bound by the decisions of the other Hon'ble High Courts, the findings of the learned CIT(A) following the provisions of law has to be upheld. As pertinent to note that learned CIT(A) himself followed the decision in the case of Williamson Financial Services Limited 2022 (7) TMI 451 - ITAT GAUHATI In the absence of any decision of the Hon'ble jurisdictional High Court/Hon'ble Supreme Court, the decisions of other Hon'ble High Courts will constitute the binding precedent to be followed by the Tribunal. Decided in favour of assessee - orders now passed in this appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of IL FS Energy Development Co. Ltd., (supra).

Summary

Issues involved:
The issues involved in this case are related to the disallowance made under section 14A of the Income Tax Act, 1961 for the assessment year 2017-18 based on interest expenditure incurred by the assessee for investments made.

Summary:

1. Disallowance under section 14A of the Income Tax Act, 1961:
The assessee, a company, filed its return of income for the assessment year 2017-18 declaring a loss. The Assessing Officer disallowed an amount under section 14A of the Act, read with rule 8D of the Rules, based on the interest expense incurred by the assessee for investments made. The CIT(A) upheld the addition citing an amendment to section 14A allowing for disallowance even if no exempt income had arisen, and a decision of the Guwahati Bench of the Tribunal. The assessee contended that the amendment is prospective and cannot apply to the year under consideration, relying on various Tribunal decisions and judgments of the Delhi High Court.

2. Applicability of the amendment to section 14A:
The Tribunal noted that during the year under consideration, the assessee did not earn any exempt income. The CIT(A) relied on the amendment to section 14A by insertion of an explanation by Finance Act, 2022. The Tribunal observed that the amendment, aimed at removing doubt, cannot be presumed to be retrospective if it alters or changes the law as it previously stood. The Tribunal emphasized the decisions of the Delhi High Court in similar cases and concluded that no disallowance can be made under section 14A if no exempt income was earned during the relevant year.

3. Precedence of High Court decisions:
The Tribunal disagreed with the Revenue's argument that it is not bound by decisions of other High Courts. It noted that in the absence of a decision by the jurisdictional High Court or the Supreme Court, decisions of other High Courts serve as binding precedents. The Tribunal allowed the appeal of the assessee, indicating that the orders passed would abide by the final decision of the Supreme Court in a related case. The appeal of the assessee was allowed based on the above observations.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the disallowance made under section 14A of the Income Tax Act, 1961 for the assessment year 2017-18, emphasizing the absence of exempt income during the relevant year and the non-retrospective nature of the amendment to section 14A. The Tribunal highlighted the precedence of decisions by other High Courts in the absence of a jurisdictional High Court or Supreme Court ruling.