TaxTMI 
TaxTMI 
2025 (3) TMI 2087
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.... are that assessee is a private limited company belong to Elan group wherein a search and seizure action was carried out u/s 132 of the Act on 29.05.2018. Assessee was also covered in search and accordingly the proceedings u/s 153A were also initiated in its case. The return of income for the year under appeal was originally filed on 24.10.210 declaring total loss of Rs. 2,96,97,322/-. The ld.AO has observed that assessee has made investments in equity shares to the tune of Rs. 10 crores in group company namely Elan Buildcon Pvt. Ltd. and also claimed expenditure of Rs. 2,33,20,351/- being interest paid on borrowed funds however, no disallowance u/s 14A was made. 3. According to AO assessee has filed the return of income declaring Loss a....
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....ister concern though its share capital was of Rs. 10,00,000/- and Reserves and Surplus are in negative and long term borrowings of Rs. 6,24,90,031/- and short terms borrowings of Rs. 6,04,24,897/- were shown in Balance Sheet. He further submits that the AO observed that if the negative figure of reserve and surpluses taken out of the borrowed funds it leaves an amount of around Rs. 10 Crores in the hands of the assessee which is the amount it has invested in the shares of the sister concern. This investment of Rs. 10 Crores is thus clearly made out of the borrowed funds on which an interest of Rs. 2,33,20,351/- has been paid. Therefore, the assessee has incurred finance cost on such investment and since the investment in sister concern woul....
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....ctional high court in the case of PCIT Vs. Era Infrastructure (India) Ltd. reported in (2022) 448 ITR 674 (Delhi) wherein the Hon'ble jurisdictional high court has held the said amendment is prospective and cannot be applied retrospectively. With regard to the revenue's ground of the pending SLP before Hon'ble Supreme court in the case of M/s IL & FS Development Company Ltd., ld. AR brought to our notice that Hon'ble Supreme court has already dismissed the SLP of the Revenue in Diary No. 12145/2018 in SLP(C) No. 002292/2019 vide order dt. 19.02.2024. He also produced before us a copy of the SLP dismissal order by the Hon'ble Apex court which is placed on record. He further placed reliance on the recent judgement of Hon'ble jurisdictional hi....
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....on to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act :] Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under sectio....
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....e. The language of section 14A is not at all ambiguous and in fact very clear and by virtue of the same, only expenditure actually incurred in relation to income not includible in total income shall be disallowed. In no way, it could be interpreted that it seeks to disallow expenses incurred in the year in relation to exempt income in future years, as it would be completely against the well recognized "matching concept." Therefore, disallowance u/s 14A can be made only when assessee has actually earned exempt income. Further the Hon'ble Jurisdictional High Court in the case of Cheminvest Ltd. (supra), has held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the appellant. We also n....
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.... 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." 9. Concededly, the said explanation is applicable prospectively and thus, would be inapplicable to the assessment year in question (AY 2016-17). It is relevant to note that this Court had in Principal Commissioner of Income-tax (Central) v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384/448 ITR 674 (Delhi) held that the explanation would be applicable only prospectively and would have no retrospective operation. 10. In the given facts of this case, where the assessee does not have any exempt income in the relevant a....