TaxTMI 
TaxTMI 
2025 (6) TMI 812
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....wance, but ground No.4 is that the assessee has not earned any exempt income and therefore there should not be any disallowance u/s 14 A of the Act. 3. The brief facts of the case show that assessee is a company, filed its return of income for AY 2017-18 on 31.10.2017 declaring returned income of Rs. 2,81,233. The case of the assessee was taken up for limited scrutiny with respect to examination of the expenses incurred for earning exempt income. 4. During the examination, the ld. AO found that the assessee made investment of Rs. 25 crores in India Build Villas Development Pvt. Ltd. through India REIT fund. The above investment was made out of the loan from Axix Finance. Therefore, assessee was issued show cause notice that why expenditure incurred for earning exempt income should not be disallowed. 5. The assessee submitted that provisions of section 14A of the Act does not apply to the assessee as it has no exempt income earned during the year and therefore no disallowance can be made. 6. The ld. AO despite the above fact computed the disallowance taking 1% of annual average of investment and worked out the disallowance of Rs. 23,61,111 u/s. 14A of the Act r.w. Rule 8....
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....ion 14A of the Income Tax Act, 1961 is inserted vide Finance Bill, 2022. The Ministry of Finance, Union of India, issued Memorandum Explaining the Provisions in the Finance Bill, 2022. The relevant extract of the said Memorandum reads as under: "Clarification in respect of disallowance under Section 14A in absence of any exempt income during an assessment year. 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. The CBDT issued Circular No.5 of 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 ....
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....t.) 226) reveals that it explicitly stipulates that the amendment made to Section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill, 2022 are reproduced hereinbelow: "4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify 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 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. 5. This amendment will take effect from 1st April, 2022. 6. It is also proposed to amend sub-section (1) of the said section, so as to include a non-obstante clause in respect of other provisions of the Income-tax Act and provide that no deduction shall be allowed i....
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....by us as the 1999 Explanation). Section 5 of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: 'Explanation.--For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for-- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India." The Finance Act, 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [(1992] [1991] 65 Taxman 472/193 ITR 49 (Kerala), while following the Gujarat High Court's decision in CIT v. S.G. Pgnatale [[1980] 4 Taxman 79/124 ITR 391 (Gujarat)] to hold that the Explanation was not declaratory but widened the scope of Section 9(1)(ii). It was further held that even if it were assumed to be clarificatory or that it removed whatever ambiguity there was in Section 9(1)(ii) of the Act, it....
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....ng 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 : AIR 1981 SC 1274, 1282 para 24]. 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". (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M Aqua Technologies Ltd. V. Commissioner of Income Tax, Delhi-III, [2021] SCC OnLine SC 575. The relevant portion of the said judgment is reproduced hereinbelow (page 597 OF 436 ITR):- "Second, a retrospective provision in a tax act which is "for the removal of doubts" cannot be presumed to be retrospective, even where such language is used, if it alters or ch....
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.... the law as it earlier stood." 15. In Era Infrastructure India Ltd., order dated 16.07.2024 (supra), the Delhi High Court, relying on the decision rendered in "Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra), has dismissed the appeal preferred on behalf of the Revenue. 16. The High Court of Kolkata in Jas Toll Road Company Ltd. (supra) has dismissed the appeal filed by the Revenue while relying on the decision of the Delhi High Court rendered in "Era Infrastructure (India) Ltd., Judgment dated 20.07.2022" (supra) and held that the explanation inserted to Section 14A by Finance Act, 2022 will be applicable prospectively. The operative portion of the decision rendered in M/s Jas Toll Road Company Ltd. (supra) is reproduced hereunder: "Upon careful consideration and going through the materials on record we find that the learned tribunal was fully justified in dismissing the appeal filed by the revenue affirming the order passed by the Commissioner of Income Tax [Appeals], Kolkata- 20. The issue involved in the case is that whether disallowance under Section 14A of the Act can be made even if the assessee has not earned any exempt....