Case Law Details
Ace Urban Developers Private Limited Vs ACIT (ITAT Visakhapatnam)
ITAT Visakhapatnam, in the case of Ace Urban Developers Private Limited vs. ACIT, addressed the issue of disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The dispute arose from the addition made by the Assessing Officer (AO) on the grounds that the assessee did not earn any exempt income during the relevant assessment year. The CIT(A) upheld the addition, citing the Explanation to Section 14A introduced by the Finance Act, 2022, which states that the provision applies even in cases where no exempt income is accrued. However, the assessee challenged this, arguing that the Explanation is prospective and not applicable to the assessment year 2017-18, relying on the Delhi High Court ruling in PCIT vs. Era Infrastructure (India) Limited.
The tribunal, considering precedents from the Delhi High Court, ruled in favor of the assessee. It noted that in the absence of exempt income, no disallowance could be made under Section 14A, as established in cases like PCIT vs. IL&FS Energy Development Company Ltd. Furthermore, it affirmed that the Explanation to Section 14A has only a prospective effect from April 1, 2022, and cannot be retrospectively applied to earlier assessment years. Consequently, the ITAT set aside the addition and allowed the appeal. This ruling reinforces the principle that disallowance under Section 14A is unwarranted in the absence of exempt income for the relevant period.
FULL TEXT OF THE ORDER OF ITAT VISAKHAPATNAM
Aggrieved by the order dated 04/01/2024 passed by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (“Ld. CIT(A)”), in the case of Ace Urban Developers Private Limited (“the assessee”), assessee preferred this appeal.
2. Only issue involved in this appeal is the addition U/s. 14A of the Income Tax Act, 1961 (“the Act”) read with rule 8D of the Income Tax Rules, 1962 (“the Rules”). According to the assessee, during the year, assessee did not earn any exempt income and therefore, in terms of the consistent view taken by various High Courts, no addition could be made by invoking the provisions of section 14A read with rule 8D of the Act.
3. The assessee pleaded so before the learned CIT(A) also. But, as could be seen from paragraph 6.6 of the impugned order, learned CIT(A) discarded the same by holding that under Explanation to section 14A inserted by the Finance Act, 2022, with effect from 01/04/2022, the provisions of section 14A shall apply even in a case, where no exempt income had accrued during the year.
4. Aggrieved by such finding of learned CIT(A), assessee preferred this appeal and submitted that the Explanation inserted to section 14A in the Finance Act, 2022 with effect from 01/04/2022 cannot be given retrospective effect and, it is so held by the Hon’ble High Court of Delhi in the case of PCIT vs. Era Infrastructure (India) Limited [2022] 141 com 289 (Delhi).
5. Learned Departmental Representative (“learned DR”) vehemently relied on the orders of the lower Authorities.
6. We have gone through the record in the light of the submissions made on either side. It can be seen from the impugned order that the assessee had taken the plea that no exempt income was earned by it during the year under consideration. In the case of Principle Commissioner of Income Tax vs. IL&FS Energy Development Company Ltd (2017) 84 com 186 (Delhi), the Hon’ble Delhi High Court held that no disallowance could be made U/s. 14A of the Act, if no exempt income was earned by the assessee. Further, in the case of PCIT vs. Era Infrastructure (India) Limited (supra), the Hon’ble Delhi High Court has held that the Explanation to section 14A cannot be presumed to have retrospective effect and it shall be made applicable only with effect from 01/04/2022.
7. Respectfully following the view taken by the Hon’ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Limited (supra), wherein it was held that the Explanation to section 14A is only prospective in nature and cannot be made applicable to the AY 2017-18, we hold that there cannot be any addition by invoking the provisions of section 14A read with Rule 8D of the Act in the year in which no exempt income is earned by the assessee. The Grounds raised by the assessee are answered accordingly.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on the 17th January, 2025.
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