The Hyderabad Bench of Income Tax Appellate Tribunal (ITAT) held that no disallowance under Section 14A of the Income Tax Act, 1961 can be made if the assessee had not earned any exempt income during the year under consideration.
The assessee, NCC Infrastructure Holdings Limited is a company, filed its return of income for the assessment year 2017-18 declaring loss of Rs. 2,76,89,21,681 and book loss at Rs. 9,06,60,050. During the course of scrutiny, Assessing Officer (AO) found that the assessee incurred interest expense and at the same time it made investments to the tune of Rs. 4,96,16,65,412.
The AO by invoking section 14A of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962 made addition equivalent to 1% of the annual average of the monthly averages of the opening and closing balances on the value of the investment.
Aggrieved by the order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT (A)]. The CIT (A) while referring to the amendment to section 14A of the Income Tax Act by insertion of explanation, which allows for such disallowance even if no exempt income had arisen, and also referring to the view taken by the Guwahati Bench of the Tribunal in the case of ACIT vs. Williamson Financial Services Limited upheld the addition and dismissed the appeal.
The Authorised Representative of the assessee C.S. Subramaniyam, contended that the amendment to section 14A by insertion of an explanation referred to by the CIT(A) is prospective in its operation and cannot be made applicable to the year under consideration. Further, he relied on various decisions of the Tribunal and also the decision of the Delhi High Court in the case of PCIT vs. Era Infrastructure.
The Departmental Representative Kumar Aditya, submitted that the Tribunal at Hyderabad is not bound by the decisions of the Delhi High Court and the view taken by the learned CIT(A) legal and in accordance with the provisions of law.
The Bench comprising of Rama Kanta Panda, Accountant Member &K.Narasimha Chary, Judicial Member observed that in the case of M.M. Aqua Technologies Ltd. vs. CIT it is held that, “the amendment of section 14A of the Act which is ‘for removal of doubt’ cannot be presumed to be retrospective even where such language is used, if it alters or changes law as it earlier stood”.
Further the bench concluded, “No disallowance under section 14A of the Act can be made if the assessee had not earned any exempt income during the year under consideration” relying on the decision of Delhi High Court in the case of PCIT vs. IL&FS Energy Development Co. Ltd.
Hence the appeal of the assessee was allowed.
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