2023 (9) TMI 154 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - expenditure for earning exempted income in the form of dividend on shares - whether the disallowance u/s 14A is triggered even when exempt income is absent during the relevant year? - HELD THAT - We find that in assessee s own case for AY 2017- 18 2023 (1) TMI 1285 - ITAT INDORE has already held that no disallowance is attracted in such cases. Coming to the subsequent development of amendment in section 14A, we have seen the Explanatory Memorandum to Finance Bill, 2022, we find that it is clearly mentioned therein that the amendment shall apply from 01.04.2022. Furthermore, the said amendment has also been examined in two decisions relied upon by Ld. AR, M/S. ERA INFRASTRUCTURE (INDIA) LTD. 2022 (7) TMI 1093 - DELHI HIGH COURT and LODHA DEVELOPERS LTD. (SUCCESSOR TO PALAVA DWELLERS PVT. LTD) 2022 (9) TMI 152 - ITAT MUMBAI and have held that the amendment is prospective. We are inclined to accept the pleadings made by Ld. AR for assessee. Consequently, we hold that the disallowance made by AO u/s 14 is not valid. The same is hereby deleted. The assessee succeeds in this appeal.

Summary

Issues involved:
The solitary issue involved in the present appeal is the disallowance of Rs. 1,34,43,488/- made by AO u/s 14A read with Rule 8D on account of expenditure for earning exempted income in the form of dividend on shares.

Details of the Judgment:

Issue 1: Disallowance under section 14A:
The ITAT, Indore considered the appeal against the disallowance made by the AO under section 14A. The assessee argued that since no exempt income was earned during the relevant year, no disallowance should be made under section 14A. The ITAT referred to the assessee's own case for AY 2017-18 where it was held that no disallowance can be made when there is no exempt income. The ITAT also noted the amendment made by Parliament in section 14A through the Finance Act, 2022, which clarified the applicability of the section. However, it was observed that the said amendment is prospective from AY 01.04.2022 and not applicable to AY 2012-13. Relying on the Explanatory Memorandum to Finance Bill, 2022, and previous decisions, the ITAT held that the disallowance made by the AO was not valid and therefore deleted the same, allowing the assessee's appeal.

Conclusion:
The ITAT, Indore allowed the appeal of the assessee, holding that the disallowance made by the AO under section 14A was not sustainable due to the absence of exempt income during the relevant year and the prospective nature of the amendment to section 14A introduced by the Finance Act, 2022.