AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1044
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....as within his jurisdiction to issue notices u/s 153A of the Act in respect of six assessment years preceding the assessment year of search i.e. in the present case, search took place in AY 2018-19, so, the AO was empowered u/s 153A of the Act to reopen six assessment years immediately preceding the searched assessment year and those AYs were AYs 2012-13 to 2017-18. It was pointed out that, prior to the date of search, the income-tax assessment u/s 143(3) of the Act for AY 2012-13, 2013-14, 2014-15 & 2015-16 were completed on 26.03.2015, 21.03.2016, 23.12.2016 and 23.06.2017 respectively. Accordingly, the assessments for AY 2012-13 to 2015-16 being not-pending before the AO on the date of the search, did not abate consequent to the search as per second proviso to section 153A of the Act. And also, since the return of income for AY 2016-17 was filed on 17.10.2016, and undisputedly the time limit for issuance of notice u/s 143(2) of the Act for this year had expired as on the date of search on 30-11-2017. Accordingly, the AY 2016-17 was also unabated, and was not pending before the AO on the date of the search. With regard to AY 2017-18, it was pointed out that the time limit for issu....
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....ch action which was in presence of independent witnesses having overriding effect over the subsequent retraction. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance u/s 14A of the IT Act as there was no exempt income received by the assessee during the year under consideration without appreciating the Circular No. 5 of 2014 dated 11.02.2014 of CBDT 4. First, we will take up Ground Nos. 1 to 3 which are common in all the years wherein the Revenue has assailed the action of the Ld. CIT(A) deleting the addition of Rs.4,80,00,000/- made by the AO u/s 69C of the Act. Brief facts are that, the assessee is a Private Limited Company which is engaged in the business of providing project and business support services and leasing of premises. In the year under consideration, the company had earned income by way of license fees, rent, compensation, maintenance cost recovery, business support fees, management consultant fees, royalty, interest, sale of scrap, etc. The AO noted that, in the course of search conducted u/s 132 of the Act at the premises of M/s K Raheja group (hereinafter Raheja group) on 30-11-2017, th....
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....tual background, the AO summoned each of these four employees who had retracted their statements and cross-examined them on oath. Upon examination, each of these employees stood by their retraction statements and stated that the statements u/s 132(4) of the Act were recorded under duress and coercion. They affirmed that there were no cash favours extended by them for undertaking liaisoning work. The AO however did not agree with the same. Primarily relying on the statement of Mr. Chandan, the AO concluded that the assessee was indeed incurring cash expenses of Rs.40 lakhs per month towards liaisoning work which were not accounted for in the books; and accordingly he extrapolated the same across all seven AYs 2012-13 to 2018-19 and added Rs.4,80,00,000/- as unexplained expenditure u/s 69C of the Act in each of these years. Aggrieved by the order of the AO, the assessee preferred appeals before the Ld. CIT(A) who deleted the addition made by the AO. The Revenue is now in appeal before us. 5. Assailing the action of the Ld. CIT(A), the Ld. CIT-DR appearing on behalf of the Revenue supported the action of the AO. He contended that the four(4) different employees of the assessee had ....
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.... activity and consequent cash payments had being going on for a long time and therefore the AO had rightly inferred that these gratuitous payments of Rs.40 lakhs per month tendered to the officials for getting the approvals for the projects had been made in earlier years as well. So, according to Ld. CIT-DR, the AO had rightly extrapolated the addition of Rs.4,80,00,000/- made u/s 69C of the Act in AY 2018-19 in earlier years as well. He thus contended that the order of the Ld. CIT(A) be reversed and that of the AO be restored. Per contra, the Ld. AR appearing on behalf of the assessee mainly relied on the finding recorded by the Ld. CIT(A) which will be discussed (infra) in detail. 6. We have heard both the parties and perused the material on record. As stated above, we take AY 2018-19 to be the lead AY. The main thrust of the Revenue's argument is that the addition made by the AO u/s 69C of the Act was justified as it was made on the basis of the statements given by four employees in the course of search u/s 132(4) of the Act which is an important piece of evidence in itself and that their subsequent retraction was of no relevance. In order to adjudicate this contention, it is....
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.... Act and the presumption would be that it has been given by that person voluntarily. The burden to prove that the statement is not voluntarily obtained, but due to threat, coercion, promise etc, is upon the maker of statement. And such a burden would be discharged, if the maker of the statement is able to create "reasonable doubt" that the admission made in respect of fact-in-issue was not voluntary or was obtained by threat or coercion or inducement, then the onus shifts on the shoulder of Revenue to prove that statement was taken voluntarily. For that it is always emphasized that such statement may be recorded before independent/respectful witnesses. In this context, the Hon'ble Apex Court in the case of Pullengole Rubber Produce Co. Ltd. v. State of Kerala (91 ITR 18) has held that although an admission is an extremely important piece of evidence but it cannot be said that it is conclusive. It was held that, it is open to the assessee who made the admission to show that it is incorrect. The same view has been expressed by the Hon'ble Supreme Court in the case of Sarwan Singh Rattan Singh v. State of Punjab AIR 1957 SC 637 where it was observed that admission is not conclusive as....
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.... evidence, are later retracted by the concerned assessee while filing returns of income. In these circumstances, such confessions during the course of search and seizure and survey operations do not serve any useful purpose. It is, therefore, advised that there should be focus and concentration on collection of evidence of income which leads to information on what has not been disclosed or is not likely to be disclosed before the Income Tax Department. Similarly, while recording statement during the course of search and seizure and survey operations no attempt should be made to obtain confession as to the undisclosed income. Any action on the contrary shall be viewed adversely. Further, in respect of pending assessment proceedings also, Assessing Officers should rely upon the evidences/materials gathered during the course of search/survey operations of thereafter while framing the relevant assessment orders." 9. This view was again reiterated by the CBDT in their Circular No. F.NO.286/98/2013-IT (INV.II)], dtd 18-12-2014 which read as follows: "Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to a....
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....itect) was being examined from the date of search, i.e. 30.11.2017, and his statement was recorded over several days and the interrogation finally concluded after four days i.e. 03.12.2017. Similarly, Mr. Anand Chandan (Associate VP-Finance) whose statement forms the basis of the impugned addition, was continuously questioned over three days (began on 02.12.2017 and ended on 04.12.2017). The Ld. AR pointed out that Mr. Amogh Patankar, who was on leave and in Kolhapur on 01.12.2017, had been summoned by the Investigating Officer and that after travelling continuously for several hours, he had reached the office at 4 p.m. He was immediately interrogated for several hours on the same date and his statement was recorded. Having regard to these facts and surrounding circumstances, the Ld. AR contended that these statement which were recorded during the search proceedings continued for long periods. He submitted that it is common knowledge that in a search, employees or individuals are continuously interrogated and questioned for several hours at a stretch (which in the present case was days) and therefore many a times the said individuals would give involuntary statement solely with the....
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....ecorded by the Assessing Officer under section 132(4) of the Act and whether any cognizance may be taken of the retracted statement. So far as case on hand is concerned, the glaring fact required to be noted is that the statement of the assessee was recorded under section 132(4) of the Act at mid night. In normal circumstances, it is too much to give any credit to the statement recorded at such odd hours. The person may not be in a position to make any correct or conscious disclosure in a statement if such statement is recorded at such odd hours. Moreover, this statement was retracted after two months. 23. The main grievance of the Assessing Officer was that the statement was not retracted immediately and it was done after two months. It was an afterthought and made under legal advise. However, if such retraction is to be viewed in light of the evidence furnished along with the affidavit, it would immediately be clear that the assessee has given proper explanation for all the items under which disclosure was sought to be obtained from the assessee...............There was, therefore, no reason for making addition of Rs. 4 lakhs on the basis of alleged disclosure made by the....
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..... Manoj Shah in his statement had stated in his Answer to Q No. 13 that he was responsible for handling the cash matters. According to his Answer to Q No. 11, he would discuss the requirements of the local authorities with his senior, Mr. Nikhil Mehta who in turn would discuss with his senior, Mr. K Bhatija who would sanction the payments, which would range between Rs.3-5 lakhs per approval for each project. In the backdrop of such an averment, the Ld. AR wondered as to how he (Manoj Shah) was not able to spell out the specific details of even one project, for which he had dealt with local authorities and got it completed, which could have supported the so-called modus-operandi which he explained to the Investigating Officer. According to the Ld. AR, if the statement of Shri Manoj Shah is taken at its face value, then according to Mr. Shah, he was responsible for negotiating with local authorities, estimating the expected gratuitous payments to be made, conveying it to seniors, obtaining sanction for the same and thereafter handling the cash. The Ld. AR however brought to our notice that apart from stating general modus operandi, the statement of Mr. Shah did not even contain a whi....
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....ghly unusual that he was unable to provide any of these details, but he was able to conveniently do the math and state that monthly payment ranged from Rs.8-10 lakhs. According to the Ld. AR, these inconsistencies in the statement fortified his contention that the statements reflected the version of the Department which the employees were pressured to accept and sign. So according to the Ld. AR, the aforementioned statement cannot be taken as a voluntary statement and also cannot be taken as a sole basis to act against the assessee and therefore it has to be discarded. 13. Taking us through the statement of Mr. Amogh Patankar who was the Vice President of Planning & Strategy, the Ld. AR pointed out similar fallacies and inconsistencies, as was noted in the statements of Mr. Nikhil Mehta and Mr. Manoj Shah. In response to Q No. 16, Mr. Amogh Patankar stated that he would inform the requests of the officials to Mr. Rajesh Sidhwani, Senior Manager, Banking, who would then sanction his request and inform him whether to honour the requests made by the officials or not. According to Ld. AR, this averment is appalling for the reason that Mr. Amogh Patankar, VP was senior to Mr. Rajesh ....
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....uely stated that a sum of Rs.35-45 lakhs per month was expended towards liaisoning expenses. According to him, the source of such expenses to the extent of Rs.10 lakhs was out of the cash withdrawals from the accounts of the promoters and that the source of the balance sum was unknown to him, but within the knowledge of Mr. Rajesh Sidhwani and the promoters. Again, even Mr. Anand Chandan did not provide the specific details of such liaisoning expenses such as the name of project, nature of approval, concerned payee, quantum of payment, etc. which he ought to have had known and divulged had such liaisoning expenses been genuinely made by the assessee. 15. In view of the above discussion, according to the Ld. AR, these statements relied upon by the AO to justify the addition impugned in these grounds were not only general and vague but factually inconsistent as well. He therefore submitted that the Ld. CIT(A) had rightly discarded these statements, in as much as even if they were considered at their face value, these statements in itself did not contain any evidence or material which could be used against the assessee to justify the addition made u/s 69C of the Act. 16. It is f....
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.... requested to go through Q.No.12 to Q18 of the said Statement and offer your comments. Ans: I have gone through the statement. I am not involved in arranging any cash for providing favours to various officials and I cannot offer any comments. Q.9 During the course of search action u/s.132 of the Income-tax Act, 1961 in the case of M/s. K Raheja Group at Raheja Tower, Plot No.C-30, G-Block, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051 the statement of Shri Amogh Patankar [Vice President (Planning & Strategy - Industrial Infrastructure Division}, was recorded on oath on 02.12.2017. You are requested to go through Q.No.13 to Q21 and offer your comments Ans: I have gone through the statement. I am not involved in arranging any cash for providing favours to various officials and I cannot offer any comments. Q.10 During the course of search action u/s.132 of the Income-tax Act, 1961 in the case of M/s. K Raheja Group at Raheja Tower, Plot No.C-30, G-Block, Bandra Kurla Complex, Bandra: (E), Mumbai 400 051 the statement of Shri Anand Chandan [Associate Vice President (Finance)], was recorded on oath on 02.12.2617. You are requested to go: through ....
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....2017. Please go through the statement of Shri Nikhil Ramesh chandra Mehta and confirm that you have understood the contents therein. Ans. Sir, I have gone through the statement of Shri Nikhil Rameshchandra Mehta recorded u/s. 132(4) of the Act dated 03-12-2017 and I confirm that I understood the content thereon. Q.32 In the statements recorded on oath Shri Anand Chandan, Associate Vice President During the course of search action u/s.132 of the Income-tax Act, 1961 in the case of M/s. K Raheja Group at Raheja Tower, Plot No.C-30, G-Block, Bandra Kurla Complex, Bandra ({E), Mumbai - 400 051 the statement of Shri Anand Chandan, Associate Vice President (Finance) was recorded on oath + w/e. 132(4) of the Income-tax Act, 1961 on 02-12-2017 / 03-12-2017 & 04-12-2017. Please go through the statement of Shri. Anand Chandan and confirm that you have understood the contents therein. Ans, Sir, 1 have gone through the statement of Shri Anand Chandan recorded u/s.132(4) of the Act dated 02-12-2017 / 03-12-2017 and 04-12-2017 and confirm that I understood the content thereon." 20. It is noted that the Revenue was unable to bring on record any post-search enquiries ....
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....re bald and thus unreliable. 23. Having regard to the above, even if the statements of the four (4) employees are considered at their face value (ignoring the retraction, as sought by the Ld. CIT-DR), then also in our view, these original testimonies lacked probative value on account of long duration of sustained interrogation running for days and the inconsistency/contradiction brought out and discussed (supra). In the light of the infirmities discussed, we are of the view that some kind of material corroboration was required. Otherwise, such statements alone cannot be sufficient to fasten the assessee with any liability. Eventhough, on first blush, these statements may appear relevant but as noted in the foregoing on account of the infirmities and failure of the Revenue to corroborate the same with some independent evidence about the purported general modus operandi as carried out by them on behalf of assessee [that monies were actually paid for getting approval of projects] it is not prudent to rely on the same to drew adverse inference against the assessee. We note that the Ld.AR appearing on behalf of the assessee has brought out the apparent fallacies in these four (4) sta....
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....Ld. CIT(A), that it was improper for the AO to draw adverse inference on the basis of the retracted testimonies of the four employees. 26. As for as the reliance placed by the Revenue on the decision of the Hon'ble Rajasthan High Court in the case of Bannalal Jat Constructions (P.) Ltd.Vs. ACIT(106 taxmann.com 128)is concerned, we have perused the facts involved in the said judgment and find ourselves in agreement with the Ld. CIT(A) that the said judgment was distinguishable on facts and has been not relied by the Ld CIT(A). The relevant Para 6.9 of the Ld. CIT(A)'s order is as under:- "6.9 In the current case, the undisputed fact is that there are no documents relating to sourcing of funds required for meeting the demands of local authorities not there is any evidence of actual payment made to them. There is also no evidence of any internal memo / correspondence / conversation / noting in this regard. The statements given by various persons do not match with respect to either the process or the estimate of actual expenditure. In the assessment order, the AO has relied on various judicial pronouncements in support of his decision to reject the statement of promoter Nee....
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....ection 131 on 04.12.2014 again confirmed the admission of undisclosed cash of Rs.1,21,43,210/as has already been offered under Section 132(4) of the IT Act. The CIT (Appeals) and ITAT concurred with the findings recorded by the Assessing Officer and dismissed the appeal filed by the appellant-company. The High Court upheld rejection of subsequently produced cash books / ledgers of the proprietary firm which were not produced at the time of search action doubting their correctness. The High Court observed that: 19.Reverting back to the present case, the ITAT, on the basis of such statement of Shri Bannalal Jat, concluded that he was managing his business affairs of both his proprietary concern as well as appellant-company from his residence and that in the absence of individual cash-book of respective concerns and other details maintained by him, it is not possible to identify whether the cash so found belongs to the proprietary concern or to the assessee company. Subsequently, when the statement under Section 132(4) of the IT Act was recordeddt. 10. 10.2014, which was concluded at his residence, Shiv Bannalal Jat categorically admitted that the cash amount of Rs.1,24,43,21....
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....n definite evidence to come to the conclusion that indicating that there was an element of compulsion for assessee to make such statement. In this case, the statement of the owner / promoter was under challenge and it related to explanation regarding source of unaccounted cash of Rs 1,21,43,210/- which had been found and seized during search action." 27. Instead, we find merit in the following decisions relied upon by the Ld. AR: (i) Pr.CIT Vs Nageshwar Enterprises (277 Taxman 86) (Guj HC) 28. In the decided case, on the basis of information received from Department of Revenue Intelligence (DRI), search action u/s 132 of the Act was conducted upon the residential premises of the partners of the assessee firm in which one of the partners admitted to importing goods from China/Japan at undervalued figures and stated that the differential was paid in cash to the sellers. The said statement was later on retracted by the partner stating that it was obtained under duress. 29. The AO, however, by placing reliance on this statement made addition in the hands of the assessee firm. On appeal both the Ld. CIT(A) and this Tribunal deleted the addition as it was made merely....
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....h, books of accounts and loose papers were found and seized, but there was no evidence unearthed which showed that the assessee was involved in the purchase and sale of shares which yielded income of Rs. 10,50,000/-. The AO however did not agree with the objections put forth by the assessee and added the impugned sum as undisclosed income of the assessee. On appeal the appellate authorities noted that there was no evidence to support the very existence of this income except the so called statement u/s 132(4) of the Act. It appreciated the contention of the assessee that, the said admission defied logic for the reason that why would any assessee admit any income in his statement, which admittedly the Department did not unearth from any documents or material found in the course of search. The appellate authorities accordingly deleted the addition. On appeal, the Hon'ble High Court answered the question in favour of the assessee by holding as follows: "6. We have heard learned Counsel for the respective parties and perused the records of the case. We are of the view that the CIT (Appeals) has rightly appreciated the case based on the sound principles of law and has also consi....
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....section 132(4) of the Income Tax Act and when there is incriminating admission against himself, then it is required to be examined with due care and caution. In the judgement of Kailashben Manharlal Chokshi (supra), the Division Bench of Gujarat High Court has considered the issue in the facts of that case and found the explanation given by the assessee to be more convincing and that was not considered by the authorities below. Here in this case also, no specific reason has been given for rejection of the assessee's contention by which the assessee has retracted from his admission. None of the authorities gave any reason as to why Assessing Officer did not proceed further to enquire into the undisclosed income as admitted by the assessee in his statement under section 134(2) in fact situation where during the course of search, there was no recovery of assets or cash by the Department. This fact also has not been taken care of and considered by any of the authorities that in a case where there was search operation, no assets or cash was recovered from the assessee, in that situation what had prompted the assessee to make declaration of undisclosed income of Rs. 20 lakhs. Mere re....
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....at Mr. Surinder Miglani was not an assessee, who facing search action when his statement on oath was recorded. However, the Assessing Officer cannot be said to be justified in rejecting the sworn affidavit of Mr. Miglani on the above ground. Though I agree with the Assessing Officer that none can be allowed to retract from the statement made during the course of search, unless there was evidence to establish that such statement was recorded under duress etc., in the case of appellant, though there is apparently no evidence of such duress etc., this aspect is to be seen keeping in view the totality of the facts and circumstances. As brought out in the assessment order also, the statements of other 11 employees was also recorded during the course of search. Even the names of these persons are mentioned in para 10.2 of the assessment order. The Assessing Officer admits in the assessment order itself that all these statements were in favour of the appellant. However, he has rejected such evidence on the ground that the employees would speak in conformity with interest of their employees. However, again the Assessing Officer cannot be held to be justified in rejecting the evidence as ab....
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....ping in view the entirely of the facts and circumstances i.e., statement of 11 other employees recorded during the course of search and the subsequent affidavit of Mr. Miglani which has been rejected by the Assessing Officer not for some good and valid reasons, it would not be appropriate even to sustain addition even in respect of salary paid to Mr. Miglani. In view of the above, addition of Rs.14,33,132 made by the Assessing Officer is, therefore,deleted. 14. From the above, we find that ld. CIT(A) has decided this issue in proper perspective because the Assessing Officer has based his conclusion on the statement of one employee whereas 11 other employees have stated in the statements that they were getting full salary as debited by the assessee in its books. We also find that the statement of one employee of Shri Miglani was also retracted by him by filing an affidavit. Under these facts we find no good reason to interfere in the order of the ld. CIT(A) on this issue and hence we uphold the same. This ground of the revenue is dismissed." 8. No perversity or illegality could be pointed out by the learned counsel for the appellant in the aforesaid findings record....
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.... block period. The relevant findings of the Tribunal are as under: "8.2 The statement of two purchasers is the bedrock for additions in controversy. It is an admitted position that the statements of two purchasers allegedly claiming to have paid cash money of Rs. 14.10 Lakhs in aggregate, were obtained behind the back of the assessee. The copy of the statement was not provided to the assessee at all. The cross examination of the purchasers were also not provided by the Revenue authorities despite several requests made by the assessee. Such overwhelming facts remain unrebutted on behalf of the Revenue. This being so, the action of the AO in placing reliance upon statement of third party to crucify the assessee is clearly in negation of overriding principles of natural justice which is supposed to be guiding factor in an adjudication process. Needless to say, the appropriate opportunity to an affected party is not a gift but an absolute and salutary right which cannot be simply bypassed. The infringement of basic principles of natural justice has thus vitiated the order of the AO to the core. The legitimate expectation of the assessee to seek cross examination of a person ma....
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....y that estimation of unaccounted money cannot be made only on the basis of contemplation. The order of the AO in making additions of Rs. 3.28 Crores is thus clearly arbitrary and unsustainable in law. It is well settled that the Revenue authorities cannot base its findings on suspicions, conjunctures or surmises nor should it act on no evidence at all or on vague considerations partly on evidence and partly on suspicion, conjunctures or surmises. The Revenue could not demonstrate any material except unsupported statements of two persons. Such unverified statements without any proof towards its assertions are not a good evidence and do not raise any estoppel against the assessee. Therefore, the addition made by the AO is in the realm of speculation without any basis whatsoever. Hence, we decline to interferewith the order of the CIT (A) in so far as appeal of the Revenue is concerned." 35. For the various reasons set out above, we therefore do not see any reason to interfere with order of the Ld. CIT(A) and accordingly dismiss the Ground Nos. 1 to 3 raised by the Revenue in AY 2018-19. The same findings shall mutatis mutandis apply to Ground Nos. 1 to 3 of the appeals for AYs 201....
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....fter the Rules), cannot go beyond the provision contained in Section 14A of the Act itself. Going by the language employed in Section 14A of the Act, the position which emerges is that, where the assessee has not earned any exempt income, there cannot be "disallowance" of expenditure, as it would result in imposing tax on hypothetical income, which is wholly impermissible in law. We find that the Hon'ble Delhi High Court in the decision rendered in the case of Pr. CIT Vs IL&FS Energy Development Pvt Ltd (399 ITR 483) after considering the Board Circular No.5/2014, has upheld the assessee's contention that, in absence of any exempt income earned in the year in question, the disallowance u/s 14A of the Act is unwarranted. The relevant findings of the High Court is as under: "18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D (1) of the Rules at all but only refers to the word "includible" occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered....
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....owance of expenditure u/s 14A can never exceed the amount of exempt income so earned by the assessee. The relevant extracts of the decision are as follows: "5. What seems to have caused this continuous problem is the CBDT Circular No. 5/2014 dated 11-22014, referred to in paragraph 5 of the impugned order of the Tribunal dated 6-4-2016 before us in the present case. In that Circular, the CBDT has clarified that Rule 8D read with Section 14A of the Act provides for disallowance of expenditure even where the taxpayer in a particular year has not earned any exempt income. This argument of Revenue, which prevailed with the Tribunal, is not at all tenable. ... 12. Another Bench of Madras High Court in the case of CIT v. Chettinad Logistics (P.) Ltd. [2017] 80 taxmann.com 221 248 Taxman 55 wherein the Division Bench of the Court followed another Division Bench judgement in the case of Redington (India) Ltd. v. Addl. CIT [2017] 77 taxmann.com 257 (Mad.) and held that the view of the Central Board of Direct Taxes in Circular No. 5 of 2014 dated 112-2014, which has been relied by the Tribunal in the impugned order cannot be upheld and the disallowance under sectio....
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....ed the SLP filed by the Revenue against the judgement of the Hon'ble Delhi High Court dated 16.02.2018 by relying upon its decision in the case of CIT vs Essar Teleholdings Limited (2018) 3 SCC 253. The Hon'ble Delhi High Court had ruled that, in absence of any exempt income, disallowance u/s 14A of the Act of any amount was not permissible. In arriving at this conclusion, the Hon'ble Delhi High Court had relied upon its earlier decision in the case of Cheminvest Ltd. vs CIT (378 ITR 33). The relevant extracts of the judgement are as under: "1. The Revenue's appeal challenges an order of the Income Tax Appellate Tribunal (ITAT) which had set aside the disallowance of Rs. 1,62,49,000/- under Section 14A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 2. The Assessing Officer (AO) and later the CIT (A) made the disallowance by taking into account only the investment patterns of the assessee for the concerned assessment. 3. The ITAT relied upon the ruling of this Court in Cheminvest Ltd. v. CIT [2015] 378 ITR 33 which ruled in the absence of any exempt income, disallowance under Section 14-A of the Act of any amount was not pe....
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....lowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT though we are not subscribing to the theory of dominant intention applied by the High Court." (ii) The Hon'ble Delhi High Court in the case of PCIT vs DLF Home Developers Ltd. (114 taxmann.com 97) also restricted the disallowance u/s 14A to the extent of exempt income earned during the year. The relevant extracts of the said decision are as follows: "2. As far as first issue - disallowance under Section 14A is concerned, the Court notices that the exempted income in this case is Rs. 3.17 lakhs. The Assessing Officer had disallowed Rs. 59 crores which was reduced to Rs. 8 crores by the CIT(A). Following the decision of this court in Joint Investments (P.) Ltd. v.....
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....ome was earned in the concerned assessment year expenditure under Section 14A could be disallowed against anticipated income. 11.3 Pertinently, the Division Bench in Redington (India)Ltd. (supra) case has repelled this precise argument. 12. The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of Section 5 of the Act, is made qua real income and not, vis-a-vis, notional income. 12.1 The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked. 12.2 While coming to this conclusion, the Division Bench also took note of the aforementioned Circular, issued by the Board. ...... 15. However, it is, our view, as indicated above, independent of the reasoning given in Redington (India) Ltd. case (supra) that Rule 8D cannot be read in a manner, which takes it beyond the scope and content of the main provi....
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....ce Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139].) 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 U.P., (1981) 2 SCC 585, 598]. 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". 18. There was and is no ambiguity in the main provision of Section 9(1)(ii). It includes salaries in the total income of an assessee if the assessee has earned it in India. The word "earned" had been judicially defined in S.G. Pgnatale [(1980) 124ITR 391 (Guj)] by the High Court of Gujarat, in our view, correctly, to mean as income "arising or accruing in India". The amendment to the section b....
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....pts: i) prospective amendment with effect from a fixed date; ii) retrospective amendment with effect from a fixed anterior date; and iii) clarificatory amendments which are retrospective in nature." 48. The above judgement of the Hon'ble Supreme Court was also taken note of by the Hon'ble Supreme Court in the case of M/s Snowtex Investment Ltd. vs. PCIT dated 30.04.2019 [Civil Appeal No(s). 4483 of 2019, Special Leave to appeal (c) No. 20017/2017] wherein the Hon'ble Supreme Court has explained the test to be applied to find out whether the intent of the Legislature/Parliament is to give retrospective operation of law and accordingly held as under: "The Test to be applied is essentially one of the intent of the legislature. 28. In a more recent decision in Commissioner of Income Tax vs. Vatika Township Pvt. Ltd. (2015) 1 SCC 1, a Constitution Bench of this Court held thus: 29. In M/s. Vijay Industries (supra), decided on 1 March 2019, a three judge Bench of this Court held that the provisions of Section 80AB which were introduced by the Finance (No. 2) Act, 1980 with effect from 1 April 1981 could not be regarded as clarifica....
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....ect from a fixed anterior date; and (iii) clarificatory amendments which are retrospective in nature. 50. On the above touchstones, we note that the Memorandum explaining the Notes on Clauses of Finance Act, 2022 read as under: "Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income that does not form part of the total income as per the provisions of the Act (exempt income). 2.Over the years, disputes have arisen in respect of the issue whether disallowance under section 14A of the Act can be made in cases where no exempt income has accrued, arisen or received by the assessee during an assessment year. 3.CBDT issued Circular No. 5/2014, dated 11/02/2014, clarifying that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. However, still some courts have taken a view that if there is no exempt income during a year, no disallowance under section 14A of the Act can be made for that year. Such an interpretation is not in line with the intention of the legislature. T....