JCIT Vs Gateway Distriparks Ltd (ITAT Mumbai)
ITAT Mumbai held that the Explanation to section 14A of the Income Tax Act inserted by the Finance Act, 2022 is prospective in nature and cannot be applied to assessment years preceding the amendment. Accordingly, appeal of revenue dismissed.
Facts- The case was selected for scrutiny, and assessment was completed u/s. 143(3) of the Act. During the course of assessment proceedings, AO observed that the assessee had earned dividend income amounting to Rs.18,36,27,060/-. The total investment in shares during the relevant assessment year stood at Rs.504,25,64,868/-. The assessee, on a suo motu basis, disallowed an amount of Rs.59,50,496/- u/s. 14A of the Act, read with Rule 8D(2)(iii) of the Income-tax Rules, 1962. This disallowance was computed at 0.5% of the average value of investments that actually yielded dividend income.
However, AO rejected the assessee’s working and applied Rule 8D(2)(iii) on the entire average investment portfolio of Rs.518,10,64,868/-, thereby computing the disallowance at Rs.2,59,05,324/-.
CIT(A) accepted the assessee’s explanation and restricted the disallowance to the amount suo motu disallowed by the assessee, i.e., Rs.59,50,496/-. Being aggrieved, the revenue has preferred the present appeal.
Conclusion- Hon’ble Delhi High Court in the case of Era Infrastructure India Ltd held that the insertion of Explanation to section 14A to Finance Act, 2022 is only applicable prospectively and not retrospectively and so is not applicable for the impugned assessment year. Further, the Tribunal has been holding consistently that the calculation of disallowance under section 14A should be made only on the income yielding investment. So, on the entire amount of the investment should not be considered.
