Rajasthan Industries Limited Vs DCIT (ITAT Kolkata)
Section 14A Amendment of Finance Act (FA) 2022 held Prospective – Disallowance restricted to Dividend Yielding Investments: ITAT Kolkata
Assessee Company filed return of income declaring Rs.18,25,380 & later filed revised return with same income. During assessment, AO noticed that Assessee earned dividend income of Rs.17,06,800 which did not form part of total income. Assessee had suo motu disallowed Rs.1,30,821 u/s 14A r.w. Rule 8D. However, AO computed disallowance under Rule 8D(2)(ii) by considering all investments irrespective of whether they yielded exempt income, resulting in an additional disallowance of Rs.6,82,775. Finally, AO assessed income at Rs.25,08,160.
On appeal, CIT(A) confirmed AO’s action relying on certain High Court decisions holding that even if there is no exempt income, disallowance can still be made u/s 14A.
Before Tribunal Assessee argued that AO wrongly applied amendment to s.14A inserted by Finance Act 2022, which requires disallowance on all investments irrespective of exempt income. Assessee submitted that amendment is prospective & applies only from A.Y. 2022-23 onwards, not for A.Y. 2017-18. Reliance was placed on PCIT vs Era Infrastructure (India) Ltd [288 Taxman 384 Del-HC] which held the amendment to be prospective, as well as on ITAT Kolkata decision in Babul Fiscal Services (P) Ltd vs ACIT.
