The Gauhati High Court, in a recent case has held that the explanation inserted to Section 14A of the Income Tax Act, 1961 vide Finance Act, 2022 is applicable prospectively.
Further held that the order passed by the Tribunal dated 06.07.2022, holding that insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory and thereby retrospective in nature, is erroneous in law.
The appellant Williamson Financial Services Limited, filed appeal under Section 260A of the Income Tax Act, 1961 against the order passed by the Income Tax Appellate Tribunal (ITAT) Guwahati Bench, for the Assessment Year 2012-13;
The appellant is a Company ( “the appellant Company”), incorporated under the Companies Act, 1956, engaged in the business of Lease Financing, Financial Advisory and Capital Market Operations, had filed its return of income for the Assessment Year 2013-14 on 26.09.2013 showing a loss of Rs.6,02,59,950/-.
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After scrutiny through CASS and a notice under Section 143(2) of the Act of 1961 was issued and thereafter, another notice under Section 142(1) of the Act of 1961 was issued asking the Assessee to file certain details and documents for the relevant period.
The appellant Company, through its representative, had furnished the details before the Assessing Officer and the Assessing Officer, after considering the same, passed the Assessment Order.
The assessee has made disallowances under section 14A of Rs.22,548,284/- not by following any systematic or specific method of calculation but on the basis of disallowance made in assessment orders of earlier assessment years.
Being aggrieved with the assessment order, the appellant Company preferred an appeal before the Commissioner of Income Tax (Appeals) under Section 250 of the Act of 1961 which was partly allowed vide order affirming the action of invocation of provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962. However, the CIT(A) held that the disallowance under Section 14A read with Rule 8D of Income Tax Rules, 1962 cannot exceed the income claimed exempt.
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Being aggrieved with the said finding of the CIT(A), the Revenue has preferred appeals, before the Tribunal and the Tribunal has accepted the said appeals and set aside the orders passed by the CIT(A) dated 31.01.2019 relating to different assessment years and affirmed the orders passed by the Assessing Officer.
Against the Tribunal order, the appellant Company has preferred the instant appeals. The question was whether in the facts and circumstances of the case, the order dated 06.07.2022 passed by the learned Income Tax Appellate Tribunal in holding that the insertion of the Explanation to Section 14A of the Income Tax Act of 1961 is clarificatory and thereby retrospective in nature is erroneous as well as perverse and thereby the same is erroneous in law.
It was also questioned that whether the finding of the learned Tribunal to the effect that the insertion of the Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory is contrary to the legislative intention as expressed in the Memorandum to the Finance Bill, 2022 whereby it was stated that the amendment shall be applicable from 01.04.2022 and the Assessment year 2022-2023 onwards and thereby whether the said order passed by the learned Tribunal is erroneous in law.
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In view of the Memorandum Explaining the Provisions in the Finance Bill, 2022 and various decisions rendered by the different High Courts, the Chief Justice Mr. Vijay Bishnoi and Justice N. Unni Krishnan Nair held that the Explanation inserted to Section 14A vide Finance Act, 2022 is applicable prospectively.
The bench held that “ (i)the order passed by the Tribunal dated 06.07.2022, holding that insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory and thereby retrospective in nature, is erroneous in law.
(ii)the findings of the Tribunal to the effect that the insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory, is contrary to the legislative intention as expressed in Memorandum to the Finance Bill, 2022.”
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