The Surat Bench of the Income Tax Appellate Tribunal ( ITAT ) held that Section 14A of the Income Tax Act, 1961 was a Non-Obstante clause that can be applied prospectively from 01.04.2022 and quashed the order of PCIT.
Meri Life Sciences Private Limited (assessee) is a company that filed an income tax return for the Assessment Year 2018-2019 and declared income of Rs. 39,24,06,630. The Assessing Officer (AO) selected the case for complete scrutiny and accepted the total income.
The Principal Commissioner of Income Tax ( PCIT ) issued a notice under section 263 of the Income Tax Act and sought an explanation from the assessee on grounds related to the disallowance of Rs. 98,88,137 under Section 14A of the Income Tax Act.
The assessee filed a reply but the PCIT did not accept the explanation of the assessee. Therefore, the PCIT held the assessment order as erroneous and set aside the order. The AO was directed to pass a fresh assessment order. Aggrieved by the order of the PCIT, the assessee filed an appeal before ITAT.
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The counsel for the assessee argued by relying on several decisions like Keti Construction Ltd.,(2024), Era Infrastructure (India) Ltd., (2022), etc., which held the section 14A of the Income Tax Act amendment in the Finance Act, 2022 can be applied only prospectively.
Whereas, the counsel for the Revenue argued that disallowance under section 14A of the Income Tax Act would be attracted even if the exempt income was not earned during the year. The counsel relied on the decision of the PCIT.
The two-member bench comprising Pawan Singh ( Judicial Member ) and Bijayananda Pruseth ( Accountant Member ) observed that the decisions of Keti Construction Ltd.,(2024), Era Infrastructure (India) Ltd., (2022) which held that the amendment to section 14A of the Income Tax Act was a Non-Obstante clause and it took effect from AY 2022-2023. But the present case relates to the AY 2018-2019.
Therefore the tribunal held that the decision of PCIT cannot be applied to the present case and set aside the order of PCIT. the appeal was allowed.
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