AI Drafter 
TaxTMI 
TaxTMI 
2024 (6) TMI 983
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.... the Assessing Officer by way of disallowance u/s. 14A read with Rule 8D. 2. That, without prejudice to the generality of ground of appeal no. 1, Ld. CIT(A) erred in: - a) Not appreciating that the petitioner had not received any dividend income or any other exempt income and in the absence of exemption of an income from the charge of tax the provisions of Section 14A could not be applied; b) Not appreciating that learned Assessing Officer had made disallowance of huge interest expenditure without arriving at a finding that the petitioner had employed borrowed funds for the acquisition of the shares in question; c) Not appreciating that the disallowance under Rule 8D was not automatic and it was incumbent upon learned Assessing Officer to record proper satisfaction on actual facts of the case that disallowance under Rule 8D was called and d) Erroneously applying the provisions of Explanation inserted by Finance Act 2022 to Section 14A whereas the Assessment Year under consideration is 2016-17. 3. That the appellant craves leave to reserve to himself the right to add to, alter or amend any of the aforesaid grounds of appeal befor....
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....had not received any dividend and therefore there was no question of application of Section 14A. The appellant has also cited case laws in support of its contention." 4. In order to proceed further and understand the matter in controversy para 5 of the Assessment Order is relevant and is reproduced as under: "5. Disallowance u/s 14A: 5.1 The assessee company Vide Notice u/s 142(1) issued on 19.08.2018 was asked to explain why provision of Sec 14A r.w.r. 8D are not applicable to you and why disallowance may not be made u/s 14A r.w.r. 8D of the LT.Rules. Further a show-cause notice were also issued on 07/12/2018, requesting the assessee to show cause as to why disallowance u/s 14A r.w.r 8D as worked out at amounting to Rs. 50,81,159/- shall not be made in your case. In response to the same the A R of the assessee filed its reply as follows: "We have not received any exempt income, hence provisions of Section 14A r.w.r. 8D of the IT Rules are not applicable to us. Without prejudice to the above, we further submit that we have purchased shares of Zodiac Developers Private Limited to acquired controlling interest in the subsidiary company ....
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....unquoted shares of companies, the probability of earning taxable income being many times higher than probability of earning dividend income, hence it is wrong to say that investment is made, and expenses in form of carrying costs, are incurred only to earn Dividend income. 5.2 Assessee's submission is considered but not found acceptable as the assessee submitted a general statement, without corroborating the facts with the financial statements of the assessee. The following facts were drawn from the Financial Statement of the assessee: (i) on perusal of the balance sheet of the assessee it was observe that the assessee had Non-Current Investment of Rs. 15,60,00,000/- as on 31/03/2016 and 31/03/2015 in the Equity Shares, out of the total of the assets side of Rs. 15,94,58,744/- as on 31.3.2016 and Rs. 15,72,01,787/- as on 31.03.2015. The income from the above investment may result into Dividend income which is exempt income (ii) The assessee had Short-term borrowing of Rs. 3,06,01,355 as on 31.03.2016 and Rs. 3,31,20,033 as on 31.03.2015. (iii) The assessee had Finance Cost of Rs. 43,65,629/- debited to the profit & loss account and other expe....
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....ome 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. 0.5% of Rs. 15,60,00,000/- Rs. 7,80,000/- Total Expenditure disallowed u/s. 14A Rs. 50,81,159/- Note i. A = Amount of Expenditure by way of Interest = Rs. 43,65,629/-. ii. B = Average of exempt income yielding investments = Rs. 15,60,00,000/- iii. C = Average of total assets as appearing in the balance sheet of the assessee = Rs. 15,83,30,265/- B. Average Value of Investments - = Opening balance of investments + Closing Bal. of investments = 15,60,00,000 + 15,60,00,000 = Rs. 15,60,00,000/- 2 C. Average value of Total assets = Opening balance of Total Assets + Closing Balance of Total Assets 2 5.6. In view of the above facts, Rs. 50,81,159/- is disallowed u/s. 14A and added to the total income of the assessee. This is the fit case for initiated of penalty u/s. 271(1)(c) of the Income Tax Act, 1961, as the assessee has furnished inaccurate particulars of its income. Therefore, penalty notice u/s. 271 (1)(c) of the....
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....e Act to clarify that notwithstanding anything to the contrary contained in the Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income." 6. If we summarize the grounds of appeal, two questions arises for determination by this Tribunal as under: a. Whether disallowance can be made u/s. 14A r.w.r. 8D of the I.T. Rules, 1962 in the absence of exempt income for the relevant A.Y. 2016-17? b. Whether disallowance can be made under Rule 8D without satisfaction of the Ld. AO u/s. 14A or whether the explanation to section 14A inserted by Finance Act, 2022 can be made applicable retrospectively? 7. We have heard the Ld. AR on behalf of the assessee and Ld. DR on behalf of the revenue and also considered the facts and circumstances and the case referred and relied on behalf of appellant/assessee. The Ld. AR on behalf of the appellant/assessee has argued that: i. When no exempt income was ea....
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....er the High Court is correct in holding that interest amount being interest referable to funds given to subsidiaries is allowable as deduction under Section 36(1)(iii) of the Income Tax Act, 1961 (for short 'the Act') when the interest would not have been payable to banks, if funds were not provided to subsidiaries: 7. Insofar as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, it could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for Assessment Year 2002-03." * Case No. 3: SLP (Civil) Diary No(S). 13507 of 2019, Principal Commissioner of Income Tax Vs. GVK Project and Technical Services Ltd., [2019] 106 taxmann.com 181 (SC), dated 03.05.2019: "1. The Revenue's appeal is with respect to the disallowance made by the Assessing Officer ("AO") under Section 14A of the Income-tax Act, 1961 (hereinafter "the Act"). The AO had proceeded to calculate the disallowances based upon....
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....irmed by this Court in Goslino Mario [(2000) 10 SCC 165] a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance 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 i....
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....w has been brought about and consequently, the judgments relied upon by the authorities below including IL&FS Energy Development Co. Ltd. (supra) are no longer good law. The amendment to Section 14A of the Act is reproduced hereinbelow: 'Amendment of section 14A. In section 14A of the Income-tax Act, (a) in sub-section (1), for the words "For the purposes of, the words "Notwithstanding anything to the contrary contained in this Act, for the purposes of shall be substituted; (b) after the proviso, the following Explanation shall be inserted, namely:- "[Explanation.-For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]" 5. However, a perusal of the Memorandum of ....
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....appearing in the Balance Sheet of the assessee. 11. The Ld. AO has reached to the said conclusion on the basis of the fact that on perusal of the balance sheet of the assessee, it was noticed that, the appellant had Non-Current Investment of Rs. 15,60,00,000/- as on 31.03.2016 and 31.03.2015 in the Equity Shares. Therefore, the income from the above investment may result into Dividend income which is exempt income. Further, the interest-bearing dividend fund were used to make investment in equity shares. 12. On examining the Ld. CIT(A) order, it is to be noticed that the Ld. CIT(A) has based his finding while upholding the disallowance made by the Ld. AO on the ground that the Finance Act, 2020 has amended Section 14A by adding explanation to section 14A of "the Act" to clarify that notwithstanding anything to contrary contained in this Act, the provisions of this Section shall apply and shall be deemed to have always applied in a case where the exempt income has not accrued or arisen or has not been received during the previous year relevant to an A.Y. and the expenditure has been incurred during the said previous year in relation to such exempt income. The Ld. CIT(A) has co....