SWELECT ENERGY SYSTEMS LIMITED FORMERLY SWELECT SOLAR ENERGY PRIVATE LIMITED,CHENNAI V. INCOME TAX OFFICER CORP WARD 6 (4), CHENNAI

ITA 472/CHNY/2025

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The case revolves around an appeal by Swelect Energy Systems Limited against the disallowance of Rs. 17,97,827 under Section 14A of the Income Tax Act, 1961, which was confirmed by the First Appellate Authority. The disallowance was initially made by the Assessing Officer during the assessment year 2014-15. The primary legal contention was whether the disallowance under Section 14A could be made in the absence of any exempt income during the relevant assessment year, particularly in light of the retrospective application of the Explanation to Section 14A introduced by the Finance Act, 2022. The Tribunal, referencing decisions from the Delhi and Gauhati High Courts, concluded that the Explanation is prospective, thus disallowance under Section 14A should be limited to the exempt income actually earned during the assessment year in question.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 652693 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Other Referred Cases: PCIT vs. Era Infrastructure (India) Ltd., (2022) 448 ITR 674 (Delhi), Williamson Financial Services vs. CIT & Anr, [2024] 166 taxmann.com 607 (Gauhati), Marg Ltd. vs. CIT, (2020) 16 ITR-OL 217
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITA KRISHNAMOORTHY
• Assessee Lawyers: SUHRITH PARTHASARATHY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

"आयकर अपीलȣय अͬधकरण, ‘ए’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH, CHENNAI Įी जॉज[ जॉज[ क े, उपाÚय¢ एवं Įी एस.आर.रघुनाथा, लेखा सदèय क े सम¢ BEFORE SHRI GEORGE GEORGE K, VICE PRESIDENTAND SHRI S.R. RAGHUNATHA, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.:472/CHNY/2025 िनधाᭅरण वषᭅ/Assessment Year:2014-15 Swelect Energy Systems Limited, Formerly Swelect Solar Energy Pvt. Ltd., ‘Swelect House’, No.5, P.S. Sivasamy Salai, Mylapore, Chennai – 600 004. PAN: AADCN 3843J Vs. The Income Tax Officer, Corporate Ward 6(4) Chennai. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Suhrith Parthasarathy, Advocate (Through Virtual mode) ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Ms. Sita Krishnamoorthy, JCIT सुनवाई कᳱ तारीख/Date of Hearing : 12.06.2025 घोषणा कᳱ तारीख/Date of Pronouncement : 16.06.2025 आदेश /O R D E R PER GEORGE GEORGE K, VICE PRESIDENT: This appeal at the instance of the assessee is directed against the order of Addl/JCIT(A)-3, Delhi dated 18.12.2024, passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2014-15. - 2 - ITA No.472/CHNY/2025 2. The solitary issue raised is whether the First Appellate Authority is justified in confirming the disallowance u/s.14A of the Act amounting to Rs.17,97,827/-. 3. Brief facts of the case are as follows: The assessee is a private limited company carrying on the business in Solar Energy Space. For the assessment year 2014-15, the return of income was filed on 25.09.2014 declaring loss of Rs.8,26,765/-. The assessment was completed u/s.143(3) of the Act vide order dated 10.11.2016. In the said assessment order, the AO made disallowance u/s.14A of the Act amounting to Rs.17,97,827/-. 4. Aggrieved, assessee filed appeal before the First Appellate Authority (FAA). The contentions raised before the FAA against the disallowance u/s.14A r.w.s. 8D of the Income Tax Rules, 1962 are multifarious. One of the contentions was assessee did not earn any exempt income during the relevant assessment year. Consequently, no disallowance u/s.14A of the Act could be made. The FAA however rejected the above contention by stating that Explanation inserted to Section 14A by the Finance Act, 2022, is retrospective, whereby disallowance could be made u/s.14A of the Act even if assessee is not in receipt of exempt income during the relevant assessment year. - 3 - ITA No.472/CHNY/2025 5. Aggrieved by the order of the FAA, the assessee has filed the present appeal before the Tribunal. The Ld.AR submitted that for the relevant assessment year namely 2014-15, the amendment/insertion of Explanation to Section 14A of the Act vide Finance Act, 2022 is not applicable as same is prospective in nature. In support of the contention that the introduction of Explanation is prospective in nature, the Ld.AR relied on the judgments of Hon’ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Ltd., reported in (2022) 448 ITR 674 (Delhi) and Hon’ble Gauhati High Court in the case of Williamson Financial Services vs. CIT & Anr reported in [2024] 166 taxmann.com 607 (Gauhati). 6. The Ld.DR supported the orders of the AO and the FAA. 7. We have heard rival submissions and perused the material on record. Admittedly, assessee for the relevant assessment year had not received any exempt income. Prior to the insertion of Explanation to Section 14A of the Act by the Finance Act, 2022, the Hon’ble Jurisdictional High Court in the case of Marg Ltd., vs. CIT reported in (2020) 16 ITR-OL 217 had categorically held by referring to other judicial precedents that disallowance u/s.14A of the Act should be limited to the exempt income earned / accrued to the - 4 - ITA No.472/CHNY/2025 assessee during the relevant assessment year. Subsequent to the amendment / insertion of Explanation to Section 14A of the Act, it is clear irrespective whether assessee is in receipt of exempt income or not, disallowance can be made by invoking the provisions of section 14A of the Act. 8. We are concerned with assessment year 2014-15. The question is whether insertion of Explanation to Section 14A of the Act vide Finance Act, 2022 has got retrospective operation or not. The First Appellate Authority had dismissed the contention of the assessee by observing the said insertion/amendment to Section 14A vide Finance Act, 2022 has retrospective operation. The Hon’ble Delhi High Court in the case of Era Infrastructure (India) Ltd., (supra) held that amendment/insertion of Explanation to Section 14A of the Act has prospective application. The relevant finding of the Hon’ble Delhi High Court reads as follows:- “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. A similar view has been taken by the Hon’ble Gauhati High Court in the case of Williamson Financial Services Ltd., supra. The relevant finding of the Hon’ble Gauhati high Court read as follows:- - 5 - ITA No.472/CHNY/2025 “20. In view of the Memorandum Explaining the Provisions in the Finance Bill, 2022 and various decisions rendered by the different High Courts, we also hold that the Explanation inserted to Section 14A vide Finance Act, 2022 is applicable prospectively. In view of above discussions, the substantial questions of law framed in these appeals are answered as follows: (i) the order passed by the Tribunal dated 06.07.2022, holding that insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory and thereby retrospective in nature, is erroneous in law. (ii) the findings of the Tribunal to the effect that the insertion of Explanation to Section 14A of the Income Tax Act, 1961 is clarificatory, is contrary to the legislative intention as expressed in Memorandum to the Finance Bill, 2022.” 10. In light of the aforesaid judgments of the Hon’ble Delhi High Court and Hon’ble Gauhati High Court, cited supra, we hold that insertion of Explanation to Section 14A by the Finance Act, 2022 is applicable prospectively and not retrospectively. Since we are concerned with the assessment year 2014-15, we hold that disallowance u/s.14A of the Act had to be limited to the exempt income earned by the assessee for the relevant assessment year. 11. Admittedly in the instant case, for the relevant assessment year since the assessee was not in receipt of any exempt income, the AO cannot make any disallowance u/s.14A of the Act. Accordingly, we delete the disallowance u/s.14A of the Act made by the AO, which was confirmed by the CIT(A). It is ordered accordingly. - 6 - ITA No.472/CHNY/2025 12. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on 16th June, 2025 at Chennai. Sd/- Sd/- (एस.आर. रघुनाथा) (S.R. RAGHUNATHA) लेखा सदèय/ACCOUNTANT MEMBER (जॉज[ जॉज[ क े) (GEORGE GEORGE K) उपाÚय¢ /VICE PRESIDENT चेÛनई/Chennai, Ǒदनांक/Dated, the 16th June, 2025 RSR आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. अपीलाथȸ/Appellant 2. Ĥ×यथȸ/Respondent 3. आयकर आयुÈत /CIT, Chennai 4. ͪवभागीय ĤǓतǓनͬध/DR 5. गाड[ फाईल/GF. "