PCIT Vs Jas Toll Road Company Ltd. (Calcutta High Court)
Summary: The Calcutta High Court dismissed an appeal filed by the Principal Commissioner of Income Tax, Central-1, Kolkata, against M/s Jas Toll Road Company Ltd. under Section 260A of the Income-tax Act, 1961. The Revenue challenged the order dated 24 March 2023 passed by the Income Tax Appellate Tribunal, Kolkata “C” Bench, in ITA/345/Kol/2022 for assessment year 2012–13. The Tribunal had upheld the decision of the Commissioner of Income Tax (Appeals), Kolkata-20, concerning disallowance under Section 14A where the assessee had not earned exempt income during the relevant assessment year. The Revenue questioned the Tribunal’s reliance on the Delhi High Court’s decision in PCIT Vs Era Infrastructure (India) Ltd., particularly because that decision was stated to be subject to the outcome of proceedings before the Supreme Court in the matter of IL&FS Energy Development Co. Ltd.
The Revenue raised two substantial questions of law. First, it questioned whether the Tribunal was justified in dismissing its appeal by relying on Era Infrastructure (India) Ltd., given the pending Supreme Court proceedings concerning the requirement of exempt income for Section 14A disallowance. Second, it argued that the Tribunal should have qualified its decision in the manner adopted by the Delhi High Court, as the legal issue had allegedly not attained finality. After considering the materials, the Calcutta High Court observed that the question of making a Section 14A disallowance without exempt income was no longer res integra. It referred to judicial decisions establishing that the amendment introduced by the Finance Act, 2022 operates prospectively and that disallowance should not exceed the exempt income earned by the assessee during the relevant year. The Court also noted the Supreme Court decisions in CIT Vs Chettinad Logistics Pvt. Ltd. and PCIT-18 Vs Oil Industries Development Board.
The Division Bench comprising Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya found that the Tribunal had correctly dismissed the Revenue’s appeal and affirmed the CIT(A)’s order. The High Court accepted the principle that the Finance Act, 2022 amendment to Section 14A could not be applied retrospectively to assessment year 2012–13 and that disallowance under the provision should not exceed the exempt income earned during the year. Finding no justification for interfering with the Tribunal’s decision, the Court dismissed the Revenue’s appeal and answered both substantial questions of law against the Revenue. The ruling reinforces the judicial position on the prospective applicability of the Section 14A amendment and the limitation on disallowance where exempt income has not been earned.
Cases Discussed
- PCIT Vs Era Infrastructure (India) Ltd. — ITA 204/2022, Delhi High Court.
- IL&FS Energy Development Co. Ltd. — 399 ITR 483; Supreme Court proceedings referred to in the Revenue’s questions.
- CIT Vs Chettinad Logistics Pvt. Ltd. — (2018) 95 taxmann.com 250 (SC).
- PCIT-18 Vs Oil Industries Development Board — SLP (Civil) Diary No. 2755/2019.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
The Court :- This appeal filed by the revenue under section 260A of the Income Tax Act, 1961 [the Act] is directed against the order dated 24.3.2023 passed by the Income Tax Appellate Tribunal, “C” Bench, Kolkata in ITA/345/Kol/2022 for the assessment year 2012-2013.
The revenue ha raised the following substantial questions of law for consideration.
“A. Whether on the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal was justified in law, to dismiss the appeal of the revenue by relying on the judgment of the Hon’ble High Court in the case of Era Infrastructure India Ltd. [ITA/204/2022], wherein the Hon’ble High Court, was pleased to clarify that the order passed in said case, shall abide by the final decision of the Hon’ble Supreme Court, in the SLP filed, in the case of IL&FS Energy Development Co. Ltd. [399 ITR 483], which is still pending as on date ?
B. Whether on the facts and in the circumstances of the case the order of the Learned Income Tax Appellate Tribunal was justified in law by dismissing the appeal of revenue without qualifying the same as done by the Hon’ble Delhi High Court in the decision of Era Infrastructure India Ltd. [ITA/204/2022], by not considering that the issue of necessity of earning of exempt income during the relevant assessment year for disallowance under section 14A of the Act has not yet attained any finality ?”
Heard learned counsel for the appellant.
The revenue has been served but none appears for the respondent.
Upon careful consideration and going through the materials on record we find that the learned tribunal was fully justified in dismissing the appeal filed by the revenue affirming the order passed by the Commissioner of Income Tax [Appeals], Kolkata-20. The issue involved in the case is that whether disallowance under section 14A of the Act can be made even if the assessee has not earned any exempt income, the issue is no longer res Integra and there are several decisions to the effect that amendment made under section 14A of the Act by Finance Act, 2022 will be applicable prospectively and disallowance should not exceed the exempt income earned by the assessee during the year. The PCIT has also noted the decision of the Hon’ble Supreme Court in CIT vs. Chettinad Logistics Pvt. Ltd. [2018] 95 taxmann.com 250 and PCIT -18 vs. Oil Industries Development Board, SLP [Civil] Diary No.2755/2019.
Thus, we find no ground to interfere with the order passed by the learned tribunal.
Accordingly, the appeal is dismissed and the substantial questions of law are answered against the revenue.
