2022 (11) TMI 882 - AT - Income Tax

Tribunal overturns disallowance under section 14A, rejects retrospective amendment

The Tribunal allowed the appeal, directing the Assessing Officer to delete the disallowance of Rs. 76,22,179 under section 14A. It held that for A.Y. ... Disallowance u/s 14A read with rule 8D - HELD THAT:- We find that during the year the assessee has not earned any exempt income. As it is held in Era Infrastructure India Limited [2022 (7) TMI 1093 - DELHI HIGH COURT] that there cannot be disallowance in the hands of the assessee as the 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. Therefore, in A.Y. 2014-15 no disallowance could be made under section 14A if no exempt income was earned by the assessee. Appeal of assessee allowed. Issues:1. Disallowance under section 14A read with rule 8D of Rs. 76,22,179/-.2. Applicability of provisions of section 14A and Rule 8D in case of the appellant.3. Effect of the amendment made by The Finance Act, 2022 on the assessment.Analysis:1. The appeal was filed against the appellate order passed by the CIT(A) for A.Y. 2014-15, challenging the assessment order under section 143(3) of the Income Tax Act, 1961, where a disallowance of Rs. 76,22,179/- under section 14A read with rule 8D was dismissed. The assessee contended that the provisions of section 14A were not applicable as no exempt income was earned during the year. 2. The Assessee, engaged in the hotel and restaurant business, had investments in equity shares of associate companies. The Assessing Officer noted the potential for exempt income from these investments. Despite the absence of exempt income during the year, the Assessing Officer invoked Rule 8D for disallowance under section 14A. The CIT(A) upheld this disallowance, citing the retrospective application of the amendment by Finance Act, 2022.3. The assessee appealed, arguing that the amendment by The Finance Act, 2022 should not have retrospective effect and relied on a decision by the Hon'ble Delhi High Court. The Tribunal observed that no exempt income was earned during the year, and the amendment to section 14A by the Finance Act, 2022 should not be presumed to have retrospective effect. Therefore, for A.Y. 2014-15, no disallowance could be made under section 14A if no exempt income was earned.4. The Tribunal allowed Ground No. 2 of the appeal, directing the Assessing Officer to delete the disallowance under section 14A of Rs. 76,22,179/-. Consequently, the appeal of the assessee was allowed, emphasizing that the amendment made by The Finance Act, 2022 should not have retrospective effect.This detailed analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the Tribunal's decision based on the interpretation of relevant legal provisions and precedents.