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TMI Blog2022 (7) TMI 1476X X X X Extracts X X X X X X X X Extracts X X X X ..... s exempt from the tax - HELD THAT:- Recently, in the case of Williamson Financial Services Ltd. [ 2022 (7) TMI 451 - ITAT GAUHATI] had the occasion to examine the above said provision and also the aspect whether the recent amendment in section 14A was clarificatory in nature and hence, have a retrospective applicability. After examining the details, the co-ordinate Bench had came to the conclusion that the amendment to section 14A was clarificatory in nature and therefore, it is required to be applied retrospectively even to the pending appeals before the Tribunal. The amendment in section 14A is retrospective, hence matter is restored back to the file of Assessing Officer with a view to re-examine the issue in the light of newly amended Section 14A read with applicable rules and decide accordingly. Appeal of the assessee is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;for the amounts as income in the books of account as receipt towards sale ·price of the power. Further, the amounts could not be recovered from the Government. Therefore, the amount was written off in the books. It is submitted that according to the Provisions of Sec.36(1)(vii) r.w.s. 36(2) of the I.T. Act, the amounts which formed part of the income for the earlier year is allowable as deduction if it is written off in the books of account. The Assessing Officer mentioned that there is no evidence that the accounts of the debtors were closed. There is no such condition either in Sec. 36(1)(vii) or in Sec. 36 (2) of the I.T. Act and it is enough if the amount is written off from the books of account. Therefore, the Assessing Officer is not justified in disallowing the bad debts written off. The Assessing Officer made disallowance u/s. 14A of Rs.16,31,331/-. The investment made is Rs.32,62,66,325/- During the year under consideration, the appellant did not derive any income which is exempt from tax. Therefore, the provisions u/s 14A of the I.T. Act have no application." 4. On the other hand, the ld. DR had drawn our attention to order passed by the ld.CIT(A) and it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2.-- For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of subsection (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;] 5.1 Undoubtedly, it is required for the assessee to prove that amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year, before such amount was irrecoverable . However, despite the opportunities granted before the lower authority, nothing had been brought to their notice that the such bad amount for which assessee had sought be written off was earlier considered to be part of the turnover in any of the previous assessment years. 5.2 However the ld. AR before us had submitted that the assessee was incapacity on account of the fact that the assessee was a non function company and the record of the assessee companies are not available at that time, therefore the requisite details were not filled before the lower authorit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 to 59 are now to be allowed only with reference to income which is brought under one of the heads of income and is chargeable to tax. And at the same time the Supreme Court clarified that if an income like dividend income is not part of the total income, the expenditure / deduction related to such income, though of the nature specified in section 15 to 59, cannot be allowed against other income which is includable in the total income for the· purpose chargeability to tax. 6.8 The Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act clarified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. The relevant circular reads as follows: SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - CLARIFICATION ON DISALLOWANCE OF EXPENSES UNDER SECTION 14A IN CASES WHERE CORRESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEAR CIRCULAR NO.5/2014 [F.NO.225/182/2013-ITA.II], DATED 11-2-2014 Section 14A of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot material that assessee should have earned such exempt income during the financial year under consideration. 5. The above position is further substantiated by a language used in Rule 8D(2)(ii) & 8D(2)(iii) of I.T. Rules which are extracted below. "(ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt of amount computed in accordance with the following formula, namely:- A*B/C Where ..... B=the average of value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;" (iii) an amount equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year." (Emphasis added) 6. Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opening words of the explanation reveal in an unambiguous manner that the said provision is clarificatory and has been inserted for removal of doubts. Further, as provided in the memorandum explaining the aforesaid provision, the aforesaid explanation has been inserted in order to make the intention clear and to make it free from any misinterpretation. The said explanation when seen in the light of the principle laid down by the various decisions of the Supreme Court as discussed above, there leaves no doubt that the said explanation is clarificatory in nature inserted for the purpose of removal of doubts and to make the intention of the legislature clear and free from misinterpretation and thus the same, obviously, would operate retrospectively. Any contrary interpretation that the said explanation shall operative prospectively will render the words "shall apply and shall be deemed to have always applied" contained in the said statutory provision as redundant and meaningless, which, in our view, is not the intention of the legislature." 9. We have heard the rival contention of the parties and perused the material available on record. In this case, the Assessing Officer had ..... X X X X Extracts X X X X X X X X Extracts X X X X
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