2023 (8) TMI 878 - AT - Income Tax

Disallowance u/s. 14A r.w.r.8D - Scope of amendment in Section 14A - expenditure incurred on earning exempt income - HELD THAT - As in the present case before us which pertains to A.Y.2013-14 are of the opinion that change in provision of Section 14A will have no retrospective binding effect. Contention of the Ld. AR that now when the assessee company had not received any exempt income during the year under consideration therefore no disallowance u/s. 14A of the Act was called for in its hand is acceptable since the aforesaid contention of the Ld. AR is duly supported by the judgment of Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 - SC ORDER and in the case of Pr. CIT Vs. Oil Industries Dev. Board 2019 (3) TMI 1571 - SC ORDER . Thus disallowance u/s 14A gets restricted to the extent of exempt income even if the provisions of the section are attracted. In view of the above precedents which are squarely applicable to the facts of the instant case we limit the disallowance to the extent of exempt income.

Summary

Issues Involved:
The appeal pertains to the disallowance of Rs. 59,13,532/- under section 14A read with rule 8D of the Income Tax Act, 1961 for the assessment year 2013-14.

Summary:
1. The assessee, a private limited company, filed its return of income for A.Y. 2013-14 showing nil income but paid tax on book profit under MAT. The case was selected for scrutiny, and an addition of Rs. 59,13,532/- was made under section 14A read with rule 8D.

2. The assessee's appeal before the CIT(A) was dismissed, leading to the current appeal before the ITAT Raipur challenging the disallowance.

3. The AR argued that no disallowance should be made as no exempt income was earned during the year. They relied on various judicial decisions, emphasizing that the disallowance should be restricted to the extent of exempt income.

4. The DR supported the revenue authorities' orders on the issue.

5. The ITAT held that the change in provision of Section 14A would have no retrospective effect, applying prospectively from 01.04.2022. Considering the exempt income earned by the assessee, the ITAT restricted the disallowance to Rs. 3,82,401/-, in line with judicial precedents.

6. Citing relevant case laws, the ITAT directed the AO to verify the details of exempt income and restrict the addition accordingly. The appeal of the assessee was partly allowed for statistical purposes.

Judicial Pronouncements:
- CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC)
- Pr. CIT Vs. Oil Industries Dev. Board, 104 CCH 156 (SC)
- Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del)
- CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC
- Principal Commissioner of Income Tax, Patiala vs. State Bank of Patiala [2018] 99 taxmann.com 286 (SC)

Conclusion:
The ITAT restricted the disallowance under section 14A to the extent of exempt income earned by the assessee, setting aside the CIT(A)'s order and directing the AO to verify and adjust the addition accordingly. The appeal was partly allowed for statistical purposes.