Introduction: The Delhi High Court, in the case of PCIT Vs Techno Trexim (India) Pvt. Ltd., has issued a significant ruling regarding Section 14A disallowance without exempt income. This analysis delves into the details of the judgment, highlighting key points and implications for taxpayers.
Delay Condonation: The court allowed the condonation of delay in filing and re-filing the appeal, acknowledging the reasons provided by the appellant. This sets the procedural tone for the subsequent analysis of the case.
Issue Under Consideration: The primary issue under consideration revolves around the Tribunal’s order dated 05.09.2022. The focus is on whether the Tribunal erred in deleting the disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962.
Amount in Dispute: The record indicates that the deletion of the disallowance amounted to Rs.3,81,71,231. This financial aspect is crucial in understanding the impact of the court’s decision on the taxpayer and the revenue.
Applicability of Rule 8D: The appellant argues that, given the substantial investments made, expenses would naturally be incurred in managing such investments. However, the court notes that, in the relevant period (AY 2015-16), the respondent had not earned any exempt income.
Judicial Precedents: The court refers to previous judgments, emphasizing that the applicability of Section 14A and Rule 8D is not contingent on the actual earning of exempt income. The Finance Act, 2022, is mentioned but deemed insufficient to alter established judicial positions.
Conclusion on Section 14A Disallowance: Despite the appellant’s stance on significant investments, the court stands firm in its interpretation that Section 14A disallowance applies even in the absence of exempt income. This conclusion aligns with previous court decisions and dismisses the appellant’s argument.
Retrospective Effect of Finance Act, 2022: The court, referencing another case, clarifies that the Finance Act, 2022, cannot have a retrospective effect. This aspect adds a layer to the analysis, emphasizing the importance of understanding the temporal application of tax amendments.
Closing the Appeal: The court, finding no substantial question of law, decides to close the appeal. This decision signals the finality of the case, and the parties are instructed to act based on the digitally signed copy of the judgment.
Conclusion: In this landmark judgment, the Delhi High Court reaffirms the applicability of Section 14A disallowance, even when no exempt income is earned. The analysis provides a comprehensive overview of the court’s considerations, emphasizing the significance of judicial precedents and the temporal limitations of tax amendments.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to just exceptions.
CM Nos.50332-33/2023 [Applications filed on behalf of the appellant seeking condonation of delay of 31 days in filing and 136 days in re-filing the appeal]
2. These are the applications moved on behalf of the appellant/revenue seeking condonation of delay in filing and re-filing the appeal.
2.1 According to the appellant/revenue, there is a delay of 31 days in filing and 136 days in re-filing the appeal.
3. For the reasons given in the applications, the delay in filing and re-filing the appeal is condoned.
4. The applications are disposed of, in the aforesaid terms. ITA 558/2023
5. This appeal concerns Assessment Year (AY) 2015-16.
6. Via the instant appeal, the appellant/revenue seeks to assail the order dated 05.09.2022 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
7. According to Mr Puneet Rai, learned senior standing counsel, who appears on behalf of the appellant/revenue, the only issue which arises for consideration is whether the Tribunal erred in deleting the disallowance under Section 14A of the Income Tax Act, 1961 [in short, “1961 Act”] read with Rule 8D of the Income Tax Rules, 1962 [in short, “1962 Rules”]?
8. The record shows that the deletion of disallowance of deductions sustained via the impugned order amounted to Rs.3,81,71,231/-.
9. The stand taken by the appellant/revenue is that since huge investments had been made, amounting to nearly Rs.45.80 crores, expenses would have been incurred in managing such investments.
10. However, the record shows, something which is not disputed by Mr Rai, that in the period in issue, i.e., AY 2015-16, the respondent/assessee had not earned any exempt income. It is sought to be contended by Mr Rai that this position, i.e., the applicability of Rule 8D of 1962 Rules, is clarified by Finance Act, 2022.
11. We are unable to agree with the submissions advanced by Mr Rai as both issues stand covered by judgments of this court.
11.1 Insofar as the issue concerning whether Section 14A of the 1961 Act read with Rule 8D of the 1962 Rules could be triggered where no exempt income has been earned, it stands covered by the judgment rendered by this court in Principal Commissioner of Income Tax (Central)-3 v. Bhilwara Energy Ltd. (2023):DHC:5467-DB, wherein reference is made to other judgments on the point in issue. For convenience, the relevant observations contained therein are set forth hereafter:
“9. Via these appeals, the appellant/revenue seeks to assail the common order of the Income Tax Appellate Tribunal [in short, “Tribunal”] dated 02.08.2022.
10. Mr Abhishek Maratha, senior standing counsel, who appears on behalf of the appellant/revenue, submits that the issue that arises for consideration is whether the Tribunal was right in sustaining the deletion of disallowance under Section 14A of the Income Tax Act, 1961 [in short, “Act”] in view of the fact that no income exempt from tax had been earned during the relevant period.
11. According to us, the issue is covered by the following decisions:
(i) judgement dated 02.09.2015 passed in ITA 749/2014, titled Cheminvest Limited v. Commissioner of Income Tax-VI.
(iii) Order dated 30.05.2023 passed in ITA Nos. 316/2023 and 317/2023, titled Principal Commissioner of Income Tax Delhi 4 v. IL And FS Energy Development Co Ltd.”
12. Mr Rai does not dispute that a Special Leave Petition (SLP) was preferred against Cheminvest Limited, which was dismissed via order dated 02.07.2018; which is reported in  95 taxmann.com 250 (SC). The order passed by the Supreme Court reads as follows:
“The Special Leave petition is dismissed on the ground of delay as well as on merits.”
13. As regards, the other issue, i.e., whether the Finance Act, 2022 could have retrospective effect, the said aspect also stands covered by the judgment rendered by a coordinate bench of this court in Principal Commissioner of Income Tax (Central)-2 v. M/s Era Infrastructure (India) Ltd. 2022-DHC:2690-DB.
14. Thus, for the foregoing reasons, we are not inclined to entertain the appeal as, according to us, no substantial question of law arises for consideration.
15. The appeal is, accordingly, closed.
16. Parties will act based on the digitally signed copy of the judgment.