The division bench of the Delhi High Court has held that no retrospective application to explanation to disallowance u/s 14A.
During assessment proceedings, the assessee, M/S Era Infrastructure (India) Ltd the Assessing Officer made a disallowance of Rs.3,61,53,268/- under Rule 8D of Income Tax Rules, 1962 read with Section 14A of the Income Tax Act, 1961. The CIT(A) confirmed the assessment order and the assessee approached the ITAT.
The ITAT on appeal proceedings deleted the disallowance by relying on the decision of the Delhi High Court in the case of PCIT vs. IL & FS Energy Development Company Ltd. held that “no disallowance under Section 14A of the Act can be made if the assessee had not earned any exempt income”. Aggrieved revenue filed an appeal before the High Court.
The counsel for the revenue submitted that the amendment made by the Finance Act, 2022 to Section 14A of the Act by inserting a non-obstante clause and an explanation after the proviso, a change in law has been brought about, and consequently, the judgments relied upon by the authorities below including PCIT vs. IL & FS Energy Development Company Ltd are no longer good law.
The Coram of Mr. Justice Manmohan and Ms. Justice Manmeet Pritam Singh Arora observed that the Memorandum of the Finance Bill, 2022 explicitly stipulates that the amendment made to Section 14A will take effect from 1st April 2022 and will apply to the assessment year 2022-23 and subsequent assessment years.
The High Court while dismissing the appeal further observed that though the challenged judgmentis pending adjudication before the Supreme Court, there is no stay of the said judgment to date and hence it is binding in nature and the order passed in the appeal shall abide by the final decision of the Supreme Court in the SLP filed in the case of PCIT vs. IL & FS Energy Development Company Ltd.
Mr.Sanjay Kumar appeared on behalf of the revenue.
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