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TMI Blog2024 (6) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... craves leave to add alter amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal." 3. The brief facts of the case are that during the course of the course of assessment proceedings, Ld. Assessing Officer observed that the assessee has made average investment of Rs 9,60,10,037/- and claimed interest expenses of Rs. 45,69,620/- The AO observed that appellant has not made any disallowance of expenses u/s 14A of the Act hence he applied Rule 8D and made disallowance u/s. 14A of the Act at Rs 9,60,100/-. On the other hand, the assessee claimed that as against interest expenses of Rs. 45,69,620/-, it has offered interest income of Rs 99.41 lacs which means that net interest income is earned. The appellant has also contended that it has sufficient interest free funds in form of Share Capital and Reserves & Surplus which is in excess of such investments hence disallowance of interest is not justified. The appellant has also contended that exempt income earned during the year is Rs 2,088/- only hence in any case, disallowance should be restricted to such amount for which reliance was placed on various judicial precedents. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctive clarification to law on the issue involved. In such a case, there is no requirement at all to rely on any subordinate piece of legislation like the Memorandum, Any contrary interpretation, if accepted, would render these amendments, redundant and superfluous which cannot be agreed to, as it belies the basic tenet of rule of interpretation as discussed above. Considering these facts, contention of appellant that disallowance u/s. 14A cannot be made even there is no exempt income or disallowance u/s. 14A is required to be restricted to such exempt income cannot be accepted. 8.17 The object of an amending and validating Act is to remove and rectify the defect in phraseology or lacuna of other nature and also to validate the proceedings, including realization of tax, which have taken place in pursuance of the earlier enactment which has been found by the Court to be vitiated by an infirmity. Such an amending and validating Act in the very nature of things has a retrospective. Its aim is to effectuate and carry out the object for which the earlier principal Act had been enacted. 8.18 It is observed that though Hon'ble Delhi High Court in the case of Cheminvest Ltd. (61 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r view, is not the intention of the legislature. 35. The aforesaid explanation does not propose to levy any new taxes upon the assessee but it only purports to clarify the intention of the legislature that actual earning or not earning of the exempt income is not the condition precedent for making the disallowance of the expenditure incurred to earn exempt income. This was the legal position as declared by the Hon'ble Supreme Court in the case of Walfort (supra) that the expenses allowed can only be in respect of earning of taxable income that the basic principle of the taxation is to tax the net income and on the same analogy the exemption is also in respect of net income. The Hon'ble Supreme Court thus way back in the year 2010 has, by saying so, held that the expenditure in relation to earning of exempt income has to be disallowed and exemption is only of net income. The Hon'ble Supreme Court in the case of CITvs. Rajendra Prasad Moody (2002-TIOL-751- S&115 ITR 519 (SC) has held that even if there was no income, the expenditure is allowable. It is now well settled that income includes loss also as held by the Hon'ble Supreme Court in the case of CIT vs. Harpras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e counsel for the assessee submitted that it is a well established law, as held by various judicial precedents on the subject, that disallowance under section 14A read with Rule 8D cannot exceed the amount of exempt income earned by the assessee. In the instant facts, the assessee has indisputably earned only exempt income to the tune of _ 2,088/-, and accordingly, the disallowance cannot exceed the amount of exempt income. The second contention of the counsel for the assessee is that disallowance made under section 14A read with Rule 8D cannot be used for the purpose of making disallowance/adjustments to book profit under section 115 JB of the Act. 6. In response, DR placed reliance on the observations made by the Ld. CIT(A) and the assessing officer, in their respective orders. 7. We have heard the rival contentions and perused the material on record. We are of the considered view that it is a well-settled law on the subject that no disallowance can be made under section 14A in case the assessee has not earned any exempt income or in excess of income claimed to be exempt. The Hon'ble Supreme Court in the case of State Bank of Patiala [2018] 99 taxmann.com 286 (SC) held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Era Infrastructure supra amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 01-04-2022 and cannot be presumed to have retrospective effect and therefore will not apply to the impugned assessment year under consideration. 8. Secondly, on the issue whether disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act, the Supreme Court of India in the case of Atria Power Corporation Ltd. [2022] 142 taxmann.com 413 (SC) dismissed the SLP of the Department against High Court ruling that disallowance made under section 14A could not be added in assessee-company's income for purpose of computation of income under section 115JB of the Act. The Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. [2022] 139 taxmann.com 375 (Karnataka) held that amounts disallowed under section 14A could not be added to net profit while computing book profit under section 115JB of the Act. The ITAT Ahmedabad in the case of Vishal Export Overseas Ltd [2022] 143 taxmann.com 305 (Ahmedabad - Trib.) held that disallowances ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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