TaxTMI 
TaxTMI 
2025 (4) TMI 2020
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....peal for adjudication. 3. Grounds of appeal filed by the revenue are as under: (1) The order of the Ld. CIT(A), NFAC, Delhi is opposed to law on the facts and in the circumstances of the case. (2) The Ld. CIT(A) erred in observing that the assessee had more non- interest bearing funds which exceeds the investment made by the assessee, without considering the fact that the assessee had not established the same before the Assessing Officer. (3) The Ld. CIT(A) erred in holding that disallowance under Rule 8D 2(iii) can be made only for those investments that have earned exempt income during the year. (4) The Ld. CIT(A) erred in not considering the explanation inserted to section 14A of the Act in the Finance Act, 2022 wherein it has been clarified that " 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 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 not forming part of total income" (5)....
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....ade investment in shores of its sister companies for earning exempt income out of its own noninterest bearing funds then provisions of Section 144 will not be applicable because there would be no cost attributable for making investment in one's own concern. Further we find that the MAO has not made a finding as to whether any cost is attributable for earning exempt income in the case of the assessee in order to invoke the provisions of Section 14A and Rule 8D of the Rules. Therefore in the interest of justice, we hereby remit back the matter to the file of Ld.AO for flesh consideration for both the assessment years. In the result, the Appeals of the assessee for both the assessments years are allowed for statistical purposes." On such remand, the AO called for particulars regarding the position of assessee's own non-interest bearing finds in each of the years in Which investments were made by the assessee. The assessee furnished year wise details of investments made commencing from FY 1973-74 (being the very first year in which investments were made) and details of own funds in the each of those years, which established the fact that your Appellant possessed substantial ....
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....nts made and the own funds of the company are given below, indicating that in each of these years your Appellant had huge own funds much in excess of the investments made: S. No Year in which Investments were made Net additional investment in the year Cumulative investment as at year end excluding in Srilankan Subsidiaries Paid Up Share Capital Reserves & Surplus Total Net Worth A B C D E F=D+E 1 Upto 1972 - 0.55 36.95 24.73 61.68 2 1972-74 1.24 1.79 49.88 32.90 82.78 3 1974-75 0.48 2.27 49.98 41.57 91.55 4 1975-76 0.09 2.36 49.98 60.01 109.98 5 1976-77 (0.09) 2.27 57.98 71.55 129.52 6 1977-78 (0.09) 2.18 57.98 91.02 149.00 7 1978-79 0.01 2.19 57.98 114.12 172.10 8 1979-80 (0.08) 2.11 87.00 116.16 203.16 9 1980-81 0.12 2.22 87.00 162.96 249.96 10 1981-82 (0.07) 2.15 87.00 212.50 299.50 11 1982-83 1.52 3.67 87.00 330.80 417.80 12 1983-84 14.16 17.84 130.50 367.07 497.57 13 1984-85 ....
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....oup 23.23 23.23 Grand Total of Investments 20,261.68 20,261.68 d) The following additional facts were also furnished to the 40 in the course of the remand proceedings to establish the fact that no expenditure was incurred for earning the exempted dividend income: - i. Dividends declared by the companies were automatically arid directly credited to Appellants bank accounts by NEFI/RTGS, expenses for which will be borne by the investee companies and not by the Assessee. ii. The investments were prominantly in group companies (99.89%) that have remained static and passive for several years, with no intention to sell any of these investments and consequently there was no monitoring activity in the investment portfolio necessitating any expenditure for the maintenance of the said portfolio. iii. All investments are held in demat format. Thus, the activity of safe keeping as well as maintaining records of shareholding have been outsourced by your Appellant to the depository participant (DP) by incurring demat charges of Rs. 1,770/- which were already identified and duly disallowed by assessee u/s 14A in the return of income. ....
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....alcutta High Court Judgment in the case of PCIT (Central) Vs Avantha Realty Ltd. [2024] 164 taxmann.com 376 (Calcutta) for the proposition that the amendment made by Finance Act, 2022 to section 14A by inserting a non-obstante clause and explanation will take from 01.04.2022 are prospective and cannot be applicable retrospective. He also referred the special Bench order in the case of Vireet Investment [2017] 82 taxmann.com 415 (Delhi-Trib.)(SB). 8. We have heard both the parties, perused the materials available on record and gone through orders of the authorities below and case law citations. 9. In the case of sister concern titled 'The Ramco Cements Limited Vs DCIT ITA No. 1897/Chny/2017 for AY 2013-14 dated 03.07.2024, the co-ordinate bench of the Tribunal held as under: 6. Disallowance u/s 14A 6.1 The assessee earned exempt income of Rs. 76.20 Lacs and offered suo-moto disallowance of Rs. 1250/- in the computation of income. The assessee did not maintain any separate account for the same. Therefore, rejecting the submissions of the assessee and by applying Rule 8D, Ld. AO computed disallowance of Rs. 91.54 Lacs which was interest disallowance u/r 8D(2)(i....
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.... that no disallowance under section 14A of the Act can be made if the assessee had not earned any exempt income), as the revenue has not been accepted the said decision and has preferred an SLP against the said decision. 4. Learned counsel for the petitioner also submits that in view of the amendment made by the Finance Act, 2022 to section 14A of the Act by inserting a non obstante clause and an explanation after the proviso, a change in law 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, t....
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....did not refer to the 1999 Explanation in upholding the inclusion of salary for the field break periods in the assessable income of the employees of the appellant. However, the respondents have urged the point before us. 10. In our view the 1999 Explanation could not apply to assessment years for the simple reason that it had not come into effect then. Prior to introducing the 1999 Explanation, the decision in CITv. S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] was followed in 1989 by a Division Bench of the Gauhati High Court in CITv. Goslino Mario [(2000) 241 ITR 314 (Gau.)]. It found that the 1983 Explanation had been given effect from 1-4-1979 whereas the year in question in that case was 1976-77 and said: (ITR p. 318) "[I]t is settled law that assessment has to be made with reference to the law which is in existence at the relevant time. The mere fact that the assessments in question has (sic) somehow remained pending on 1-4- 1979, cannot be cogent reason to make the Explanation applicable to the cases of the present assessees. This fortuitous circumstance cannot take away the vested rights of the assessees at hand. " 11. The reasoning of the Gauhati High....
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....erefore intended to apply prospectively [See CITv. Patel Bros. & Co. Ltd., (1995) 4 SCC 485, 494 (para 18) : (1995) 215 ITR 165]. It was also understood as such by CBDT which issued Circular No. 779 dated 14-9-1999 containing Explanatory Notes on the provisions of the Finance Act, 1999 insofar as it related to direct taxes. It said in paras 5.2 and 5.3. "5.2 The Act has expanded the existing Explanation which states that salary paid for services rendered in India shall be regarded as income earned in India, so as to specifically provide that any salary payable for the rest period or leave period which is both preceded and succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India. 5.3 This amendment will take effect from 1-4-2000, and will accordingly, apply in relation to Assessment Year 2000-2001 and subsequent years". 16. The departmental understanding of the effect of the 1999 Amendment even if it were assumed not to bind the respondents under section 119 of the Act, nevertheless affords a reasonable construction of it, and there is no reason why we should not adopt it. 1....
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....provision with effect from the time that the main provision came into force [See Shyam Sunderv. Ram Kumar, (2001) 8 SCC 24; Brij Mohan Das Laxman Dasv. CIT, (1997) 1 SCC 352; CITv. Podar Cement (P.) Ltd., (1997) 5 SCC 482]. 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 SG. Pgnatale [(1980) 124 ITR 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 by way of an Explanation in 1983 effected a change in the scope of that judicial definition so as to include with effect from 1979, "income payable for service rendered in India". 19. When the Explanation seeks to give an artificial meaning to "earned in India" and brings about a change effectively in the existing law and in addition is stated to come into force with effect from a future date,....