M/s Gujarat Siddhi Cement Ltd., Veraval V. The Pr. Commr. Of Income Tax-1, Rajkot, Rajkot

ITA 45/RJT/2022

• Counselvise Citation: [2024] 100 COUNSELVISE.COM (IT) 3451 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 20-02-2024
• Assessment Year: 2017-2018
• Appeal Filed On: 02-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Assessment record; Rule 8D
• Section: 263; 2; 143(3); 14A; 250; 113

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT (Conducted through E-Court at Ahmedabad) BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . N o .4 5 / R j t/2 0 2 2 ( A s se ss m e nt Y e a r : 20 17- 18 ) G uj a r at S id hee C e m e n t Lt d. , Si d he eg r a m V e r a va l K o d in a r R o a d, P ra sh na vd a , J u na g a d h, G uj a r at - 3 6 2 27 6 Vs . Pr i nc ip a l C o m mi s s i o ne r o f I nc o m e Ta x- 1, R a jk o t [ P A N N o . AA A C G8 05 7 G ] (Appellant) .. (Respondent) Appellant by : Shri Vimal Desai, A.R. Respondent by: Shri Shramdeep Sinha, CIT DR D a t e of H ea r i ng 21.02.2024 D a t e of P r o no u n ce me nt 08.03.2024 O R D E R PER SIDDHARTHA NAUTIYAL, JM: This appeal has been filed by the assessee against the order passed by the Ld. Principal Commissioner of Income Tax, (in short “Ld. PCIT”), Rajkot-1, in DIN & Order No. ITBA/REV/F/REV5/2021- 22/1039300926(1) vide order dated 02.02.2022 passed for Assessment Year 2017-18. 2. The assessee has taken the following grounds of appeals:- “1. The order u/s. 263 is bad in law. 2. The learned Principal CIT has erred in law as well as on facts in not considering the submission of the appellant that the order passed by the A.O. u/s. 143(3) was neither erroneous nor prejudicial to the interest of revenue and provisions of Section 263 of the Act were not applicable to the case of the appellant. 3. The learned Principal CIT has erred in law as well as on facts in setting aside the assessment order passed by the A.O. u/s. 143(3) and directing to reframe ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 2 - the assessment to the limited extent of examining the applicability of provisions of Section 14A of the Act. 4. The learned Principal CIT has erred in law as well as on facts in not accepting the submission made on merits of the appellant that disallowance u/s. 14A cannot exceed the amount of exempt income and also the fact that the appellant has actually not incurred any expenses towards earning exempt income and hence the provisions of Section 14A r.w.r. 8D have no application to the appellant’s case.” 3. The brief facts of the case are that the assessee filed return of income for A.Y. 2017-18 declaring total loss of Rs. 35,18,38,243/-. The assessment order was passed under Section 143(3) of the Act determining assessed loss of Rs. 31,26,28,537/- and after making total additions of Rs. 3,92,09,706/-. On verification of the assessment records, the PCIT observed that vide note 13 of audited books of accounts, the assessee had made investment in equity shares, the income from which is exempt. The PCIT observed that the CBDT vide Circular No. 05/2014 dated 11.02.2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of expenditure even when the taxpayer in a particular year has not earned any exempt income. Accordingly, the PCIT worked out the amount of disallowance Rule 8D r.w.s. 14A of the Act and was of the considered view that in terms of the above provisions, total disallowance under Section 14A of the Act amounting to Rs. 39,34,885/- should have been made by the Assessing Officer. Accordingly, PCIT was of the view that this has rendered the assessment order erroneous and prejudicial to the interests of the Revenue. 4. The assessee is in appeal before us against the aforesaid order passed by the PCIT. Before us, the assessee submitted that during the year under consideration the assessee has earned exempt income of Rs. 100 only from it’s investments. This is evident from the copy of acknowledgement of ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 3 - return of income, computation of income and audited financial statements for the year under consideration. The first contention of the Counsel for the assessee was that in the instant facts, it is a well established principle of law that disallowance under Section 14A of the Act cannot exceed the exempt income. This view is supported by the decision of Hon’ble Supreme Court in the case of PCIT vs. State Bank of Patiala 99 taxmann.com 286 (SC) , wherein the Hon’ble Apex Court dismissed the SLP approving the decision of the High Court which had taken the view that amount of disallowance under Section 14A should be restricted to the amount of exempt income only. Further, the Counsel for the assessee submitted that the Hon’ble Jurisdictional Rajkot Bench of ITAT, has also consistently taken the same view in various cases. The Counsel for the assessee placed reliance on the decision of Rajkot ITAT in the case of Saurashtra Cement Ltd. in ITA No. 394/Rjt/2015. The Counsel for the assessee submitted that in view of the above decision rendered by the Hon’ble Supreme Court, disallowance under Section 14A of the Act in the assessee’s case cannot exceed the exempt income of Rs. 100/- earned during the year under consideration. Secondly, the Counsel for the assessee submitted that reliance placed by the Ld. PCIT in respect of CBDT Circular No. 5/2014 dated 11.02.2014 requiring disallowance under Rule 8D r.w.s. 14A of the Act even whether taxpayer in a particular year has not earned any exempt income from investment is misplaced and the aforesaid view has been completely negative by the Hon’ble Supreme Court in the case of State Bank of Patiala (supra) and also by various High Courts. In this connection, the Counsel for the assessee placed reliance on the case of PCIT vs. IL & FS Energy Development Company Ltd. 84 taxmann.com 186 (Delhi High ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 4 - Court), wherein the High Court has held that if there is no exempt income exempt income earned in the assessment year in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A read with rule 8D would not arise. Further, the Delhi High Court held that CBDT Circular dated 11.02.2014 does not refer to Rule 8D(1) of the Rules at all, but only refers to the word “includible” occurring in the title to Rule 8D as well as the title to Section 14A of the Act. Further, the Counsel for the assessee also placed reliance on PCIT vs. Vardhman Chemtech Pvt. Ltd. 102 taxmann.com 132, wherein the Punjab & Haryana High Court held that the Hon’ble Supreme Court in the case of Commissioner of Central Excise vs. M/s. Ratan Melting & Wire Industries in Civil Appeal No. 4022 of 1999 dated 14.02.2008, has categorically held that decision of High Court / Supreme Court overrule the Circulars issued by the Boards. Accordingly, the Counsel for the assessee submitted that in the instant facts in view of the above decisions, it is not a fit case for initiating 263 proceedings, since the Assessing Officer took a legally plausible view as duly supported by decision rendered by Hon’ble Supreme Court of India and accordingly, the aforesaid order is neither erroneous nor prejudicial to the interest of the Revenue. 5. In response, the Ld. D.R. placed reliance in the case of ACIT vs. Williamson Financial Services Ltd. 140 taxmann.com 164 (Guwahati Tribunal) in which the ITAT has held that Explanation inserted by Finance Act, 2022 to Section 14A w.e.f. 01.04.2022 providing that provisions shall apply whether or not exempt income has accrued, arisen or received, is clarificatory in nature and thus, applicable retrospectively. The Ld. D.R. ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 5 - submitted that in this case the ITAT has correctly observed that whether Parliament has brought in Explanation to Section 14A of the act to remove prevailing doubts about interpretation of provisions of Section 14A and to overcome interpretation given by various High Courts regarding applicability of provisions of Section 14A and to make the intention of legislation clear and to make it free from any misinterpretation. Accordingly, the Ld. D.R. submitted that the amendment to Section 14A of the Act inserted by Finance Act, 2022 though it is stated to be effective from 01.04.2022, but the observations of ITAT, Guwahati Bench in the case of Williamson Financial Services Ltd. (supra) shall apply and accordingly these provisions, being clarificatory in nature would apply for the instant year as well. Accordingly, as per the D.R. in light of the aforesaid decision, the assessment order is erroneous and prejudicial to the interest of the Revenue. 6. We have heard the rival contentions and perused the material on record. 7. We observe that various Courts have consistently taken a position that no disallowance can be made under Section 14A in case the assessee has not earned any exempt income. The Hon’ble Supreme Court in the case of State Bank of Patiala (2018) 99 taxmann.com 286 (SC) held that where High Court took a view that amount of disallowance under Section 14A could be restricted to amount of exempt income only, SLP filed against said order was to be dismissed. The Hon’ble Supreme Court in the case of Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC) dismissed SLP against High Court ruling that Section 14A cannot be invoked where ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 6 - no exempt income was earned by assessee in relevant assessment year. The Gujarat High Court in the case of Dipesh Lalchand Shah (2022) 143 taxmann.com 419 (Gujarat) held that where in relevant assessment year, assessee individual earned profits from partnership firm and made investments in shares of a company, since its income from partnership was negative and no exempt income was earned, in such case disallowance under Section 14A could not be made. In the case of Corrtech Energy (P.) Ltd. (2014) 45 taxmann.com 116 (Gujarat), the Gujarat High Court held that where assessee did not make any claim for exemption of any income from payment of tax, disallowance under Section 14A could not be made. The Delhi High Court in the case of Delhi International Airport (P.) Ltd. (2022) 144 taxmann.com 80 (Delhi) held that Section 14A would not be applicable if no exempt income was received or receivable during relevant previous year. The Delhi High Court in the case of Amadeus India (P.) Ltd. (2022) 145 taxmann.com 311 (Delhi), held that Section 14A envisages that there should be an actual receipt of income which is not includible in total income; hence, Section 14A will not apply where no exempt income is received or receivable during relevant previous year. The Ahmedabad ITAT in the case of Edelweiss Financial Advisors Ltd. (2021) 124 taxmann.com 361 (Ahmedabad - Trib.) held that disallowance of expenses under Section 14A r.w.r 8D could not exceed amount of exempted income. The Ahmedabad ITAT in the case of Addlife Investments (P.) Ltd. (2021) 124 taxmann.com 572 (Ahmedabad - Trib.) held that disallowances made under Section 14A r.w.r 8D could not exceed amount of exempt income earned by assessee during year. In the case of Asian Grantio India Ltd (2020) 113 taxmann.com 445 (Ahmedabad - Trib.), ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 7 - the Ahmedabad ITAT held that Disallowance of expenses under Section 14A r.w.r. 8D of 1962 Rules cannot be made in absence of exempt income. 8. We further observe that the Delhi High Court in the case of Era Infrastructure India Ltd. 141 taxman.com 289 (Delhi High Court) has held that the amendment brought in by the Finance Act, 2022, to Section 14A by inserting a non-obstante clause and Explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effect. The Delhi High Court in the case of Delhi International Airport (P.) Ltd 144 taxmann.com 80 (Delhi) has also made the following relevant observations in this regard: “Furthermore, this Court in Pr. CIT v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384 (Delhi) has dealt with the issue of amendment made by the Finance Act, 2022 to Section 14A of the Act. The relevant portion of the said judgment is reproduced hereinbelow: “8. Consequently, this Court is of the view that the amendment of Section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.”” 9. Notably, in another subsequent decision, the Guwahati ITAT in the case of ABCI Infrastructure (P.) Ltd. 154 taxmann.com 397 (Guwahati - Trib.) has held that Disallowance under Section 14A cannot exceed exempt income earned by assessee; thus where assessee had suo motu disallowed total exempt income under Section 14A, no further disallowance could be made by invoking Section 14A of the Act. 10. Accordingly, in light of the aforesaid decisions, and the plain language of the Finance Act, 2022, which has held that the amendment shall apply from 01.04.2022, in our view, it cannot be held that while passing the ITA No.45/Rjt/2022 Gujarat Sidhee Cement Ltd. vs. PCIT Asst.Year –2017-18 - 8 - assessment order, the Assessing Officer took a view which is contrary to the law thereby making the order erroneous and prejudicial to the interest of the Revenue. Further, notably, the decision of Williamson Financial Services Ltd. (supra) on which reliance has sought to be placed by the Ld. D.R. had not been passed even on the date of passing of assessment order (30.12.2019) and also on the date passing of 263 order (02.02.2022). Further, the view taken by the Assessing Officer finds direct support from the decisions rendered by Hon’ble Supreme Court on this issue and therefore, in our considered view, the assessment order cannot be held to be erroneous and prejudicial to the interest of the Revenue. Accordingly, we direct that the order passed under Section 263 of the Act may be set-aside. 11. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 08/03/2024 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 08/03/2024 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, राजोकट / DR, ITAT, Rajkot 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार Dy./Asstt.Registrar) आयकर अपील य अ धकरण, राजोकट / ITAT, Rajkot