2022 (7) TMI 1093 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - ITAT deleted the addition - scope of amendment made by the Finance Act, 2022 to Section 14A - Amendment is retrospective or prospective in nature - Whether ITAT erred in relying on the decision of this Court in PCIT vs. IL FS Energy Development Company Ltd., 2017 (8) TMI 732 - DELHI HIGH COURT wherein it has been held that no disallowance under Section 14A of the Act can be made if the assessee had not earned any exempt income? - HELD THAT - A perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The Supreme Court in Sedco Forex International Drill. Inc. v. CIT, ( 2005 (11) TMI 25 - SUPREME COURT has held that a retrospective provision in a tax act which is for the 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. Consequently, this Court is of the view that the 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. Though the judgment of this Court has been challenged and is pending adjudication before the Supreme Court, yet there is no stay of the said judgment till date. Consequently, in view of the judgments passed by the Supreme Court in Kunhayammed and Others vs. State of Kerala and Another, 2000 (7) TMI 67 - SUPREME COURT and Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras ( 1992 (4) TMI 183 - SUPREME COURT the present appeal is dismissed being covered by the judgment passed by the learned predecessor Division Bench in PCIT vs. IL FS Energy Development Company Ltd ( 2017 (8) TMI 732 - DELHI HIGH COURT and Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT . As clarified that the order passed in the present appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL FS Energy Development Company Ltd .

Summary

Issues:
Challenge to ITAT order on disallowance under Rule 8D of Income Tax Rules, 1962 read with Section 14A of the Income Tax Act, 1961.
Interpretation of the amendment to Section 14A of the Act by the Finance Act, 2022.
Applicability of the amendment to Section 14A with retrospective effect.

Analysis:
The High Court heard an Income Tax Appeal challenging the ITAT's order concerning the disallowance of Rs.3,61,53,268 under Rule 8D of Income Tax Rules, 1962 read with Section 14A of the Income Tax Act, 1961 for the Assessment Year 2013-14. The Appellant contended that the ITAT erred in law by deleting the disallowance. The Appellant argued that the ITAT's reliance on a specific decision was incorrect, as the revenue had not accepted that decision and had filed an SLP against it. The Appellant also highlighted the amendment made by the Finance Act, 2022 to Section 14A of the Act, inserting a non obstante clause and an explanation, which altered the existing law. However, it was noted that the amendment would only be effective from 1st April, 2022, for the assessment year 2022-23 and subsequent years.

The High Court referred to the Supreme Court's judgment in Sedco Forex International Drill. Inc. v. CIT, (2005) 12 SCC 717, which emphasized that a retrospective provision in a tax act, aimed at "removal of doubts," should not be presumed to be retrospective if it changes the existing law. The Court cited legislative history and previous decisions to support the principle that amendments altering the law should not be applied retrospectively. The Court further referenced another Supreme Court decision in M.M Aqua Technologies Ltd. v. Commissioner of Income Tax, Delhi-III, 2021 SCC OnLine SC 575, reiterating the principle that amendments changing the law should not be presumed to have retrospective effect.

Consequently, the High Court held that the amendment to Section 14A, being "for removal of doubts," should not be considered retrospective if it changes the existing law. Despite the pending challenge to the judgment before the Supreme Court, the High Court dismissed the appeal, citing previous judgments and emphasizing that the order would abide by the final decision of the Supreme Court in the relevant case. The High Court's decision was based on the principles established in previous rulings and the interpretation of the amendment to Section 14A of the Act.