DCIT Vs Welspun Steel Ltd. (ITAT Mumbai)
Mumbai ITAT heard the appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) [CIT(A)] concerning Welspun Steel Ltd. for the Assessment Year 2015-16. The primary issue was the disallowance of INR 3,02,08,627 under Section 14A of the Income Tax Act, read with Rule 8D, which the CIT(A) had reduced to INR 7,43,185, aligning with the exempt income earned by the assessee. The Revenue argued that the Finance Act 2022 had amended Section 14A retrospectively, thus making the earlier court rulings on restricting disallowance to exempt income inapplicable. The Department cited various Supreme Court judgments supporting its interpretation. In contrast, the assessee contended that the amendments applied prospectively from AY 2022-23 and could not be imposed retrospectively. The Tribunal, considering precedents from the Bombay High Court and Supreme Court, held that Section 14A disallowance could not exceed the exempt income, dismissing the Revenue’s claim.
Another issue raised was whether disallowance under Section 14A should be added back to book profits under Section 115JB of the Act. The Tribunal noted that similar adjustments had been overturned in previous rulings concerning the assessee and reaffirmed the Special Bench decision in ACIT Vs. Vireet Investments Pvt. Ltd., which excluded Section 14A disallowance from book profits. As the Revenue did not present any stay on these precedents, the Tribunal upheld the CIT(A)’s decision. Consequently, the appeal by the Revenue was dismissed in its entirety, confirming the assessee’s stance on both grounds.
