2023 (6) TMI 1276 - AT - Income Tax

Tax Appeal Allowed: Section 14A Addition Reversed

The appeal by the assessee against the addition made under section 14A of the Income Tax Act was allowed by the Appellate Tribunal in Kolkata. The ... Addition u/s 14A - notional expenses incurred for earning of exempt income - Scope of newly inserted explanations to Section 14A - HELD THAT:- Where the assessee has not derived any tax exempt income from investments, then no disallowance is attracted u/s 14A of the Act. Recent decision in the case of PCIT Vs. Era Infrastructure (India) Ltd [2022 (7) TMI 1093 - DELHI HIGH COURT] wherein, it has been held that the aforesaid explanation inserted to Section 14A of the Act is applicable prospectively. Appeal of assessee allowed. Issues involved:The appeal against the order of the National Faceless Appeal Centre u/s 250 of the Income Tax Act regarding the addition made u/s 14A for notional expenses in relation to exempt income.Issue 1: Addition u/s 14A of the ActThe appellant challenged the addition of Rs. 1,31,797 u/s 14A of the Act for notional expenses related to earning exempt income. The appellant contended that no exempt income was earned during the year, citing case laws such as Cheminvest Ltd. vs. CIT and others, which held that no disallowance is attracted u/s 14A if no tax-exempt income is derived from investments. However, the Departmental Representative (D/R) relied on the newly inserted explanations to Section 14A of the Act, emphasizing its retrospective applicability based on the decision in ACIT vs. Williamson Financial Services Ltd. The appellant, on the other hand, relied on the prospective application of the explanation as per the decision in PCIT Vs. Era Infrastructure (India) Ltd. by the Hon'ble Delhi High Court. In the absence of a specific decision from the Jurisdictional High Court or Supreme Court, the Tribunal followed the Delhi High Court decision and allowed the appeal, deleting the additions made by the Assessing Officer u/s 14A.Conclusion:The appeal by the assessee against the addition made u/s 14A of the Income Tax Act was allowed by the Appellate Tribunal in Kolkata, following the principle of judicial hierarchy and the decision of the Hon'ble Delhi High Court regarding the prospective application of the explanation to Section 14A.