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TMI Blog2022 (11) TMI 179X X X X Extracts X X X X X X X X Extracts X X X X ..... djustment is not in accordance with the directions of the DRP and to this extent, the TP adjustment is quashed. We see merit in the contention that the jurisdictional AO has become functus officio once the final assessment order is passed and that there is no authority for him to pass any order modifying the final assessment order. We therefore hold that the order passed by the jurisdictional AO giving effect to the revised TP adjustment is not sustainable in law and is infructuous. TP adjustment is quashed on the basis that the final assessment order is not in accordance with the directions of the DRP - This ground of the assessee is allowed. Disallowance u/s. 14A - assessee is contending the disallowance as assessee has not earned any exempt income, investments are out of own funds and assessee has not incurred any specific expenditure towards investments - HELD THAT:- Considering the fact that the assessee has not earned any exempt income during the year under consideration and respectfully following the decision of the Hon ble Delhi High Court in the case of Era Infrastructure India Ltd. [ 2022 (7) TMI 1093 - DELHI HIGH COURT] . we hold that no disallowance is warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO passed an order proposing TP adjustment of Rs.43,03,79,111. Consequently the AO passed the draft assessment order dated 13.4.2021 incorporating the TP adjustment and also made disallowance u/s. 14A of the Act for an amount of Rs.1,03,81,258 and disallowance towards R D expenditure of Rs.36,000. 6. Aggrieved the assessee filed the objections before the DRP. The DRP by order dated 18.1.2022 issued directions to the TPO to reconsider the inclusion of certain comparables and also excluded some of the comparables included by the TPO. In the final assessment order dated 11.2.2022, the AO retained the TP adjustment at Rs.43,03,79,111 as in the draft assessment order by stating that the DRP has confirmed the addition made by the TPO. The assessee is in appeal before the Tribunal against the final order of the AO which according to the assessee is not in accordance with the directions of the DRP. 7. During the course of hearing the ld. AR drew our attention to the following directions of the DRP:- 5.1.1 M/s. Archroma India Pvt Ltd : The argument of the assessee is that this company is involved in manufacture of speciality chemicals and fails the trading sales / total sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the draft assessment order, the assessee filed an objection before DRP on TP adjustment and disallowance u/s14A, which was disposed on 18.01.2022 giving directions to TPO. The disallowance u/s 14A was upheld by the DRP. Final assessment Order was passed by Faceless Assessment Unit on 11.02.2022. Based on the directions of DRP, TPO passed an OGE dated 15.2.2022 arriving at total adjustment of Rs 31,38,49,565/-. 3. The assessment made u/s 143(3) r.w.s. 144(13) r.w.s. 144B of the Act dated 11.02.2022 is modified as follows to give effect to the T P adjustment revised after DRP directions: Assessed income as per Order u/s. 143(3) r.w.s. 144(13) r.w.s. 144B of the Act 44,29,14,102 Less : TP Adjustment 43,03,79,111 Add : TP adjustment as per OGE on TP issues dated 15.02.2022 31,38,49,565 Gross Total Income 32,63,84,556 10. In this regard the ld. AR contended that the final assessment order is already passed by NFAC, Delhi on 11.2.2022 and there is no provision under the Act under which it can be modified by the j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade a disallowance of an amount of Rs.1,03,81,268. The DRP upheld the disallowance made by the AO. 16. Before us, the ld. AR submitted that the assessee does not have any exempt income and therefore the provisions of section 14A of the Act cannot be invoked. He further submitted that that the provisions of Section 14A of the Act provide for disallowance of expenses incurred in connection with the earning of exempt income and it is clear that the precondition for disallowance under section 14A is that the assessee should have earned exempt income during the year which is not included in the total income of the assessee. Further, such disallowance cannot exceed the exempt income earned by the taxpayer. Hence, in the absence of receipt of exempt income during the year, section 14A cannot be invoked. 17. The ld AR further submitted that the assessee had also made submissions before the lower authorities that the company had not earned any exempt income and thus disallowance under section 14A of the Act was unwarranted by pointing out that disallowance under section 14A of the Act is not attracted since the assessee has not earned any exempt income and that the assessee has not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 IL FS Energy Development Co. Ltd. (supra) . 22. The Hon ble Delhi Court in the above has also considered the amendment to section 14A and has held that the explanation inserted to section 14A vide Finance Act 2022 is prospective in nature. The relevant observations are reproduced here under 5. However 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 relevant extract of Clauses 4, 5, 6 7 of the Memorandum of Finance Bill, 2022 are reproduced hereinbelow: 4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Court in CIT v. Goslino Mario [(2000) 10 SCC 165 : (2000) 241 ITR 312] . These decisions are thus authorities for the proposition that the 1983 Explanation expressly introduced with effect from a particular date would not effect the earlier assessment years. 12. In this state of the law, on 27-2-1999 the Finance Bill, 1999 substituted the Explanation to Section 9(1)(ii) (or what has been referred to by us as the 1999 Explanation). Section 5 of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India. The Finance Act, 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change. 13. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker.)] while ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P.) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are it is declared or for the removal of doubts .' (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M. Aqua Technologies Ltd. v. CIT [2021] 129 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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