TMI Blog2022 (8) TMI 1015X X X X Extracts X X X X X X X X Extracts X X X X ..... OUNTANT MEMBER Appellant by: Shri P. K. Jain , CA Respondent by: Shri Amaresh Singh , CIT - DR ORDER Per Pradip Kumar Kedia , AM The captioned appeals have been filed by the Assessee against the consolidated order of the Commissioner of Income Tax (Appeals)-XXX, New Delhi ('CIT(A)' in short) dated 30.04.2019 arising from the common assessment order dated 29.12.2008 passed by the Assessing Officer under Section 153A/143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2014-15, 2015-16, 2016-17 and 2017-18. 2. As per its grounds of appeal, the assessee has challenged the disallowances made under Section 14A of different amounts which is tabulated year-wise hereunder: Assessment Year Disallowances made u/s. 14A in Rs. Total Investment Investment other than subsidiaries i.e. share of Punjab Sind Bank Total Exempt income in Rs. 2014-15 9,90,90229 473,49,30,273 58,680 2093 2015-16 9,86,94,172 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Chango Yangthang Hydro Power ltd 100% 7. LNJ Power Ventures Ltd. 74% 8. Green Ventures Private Ltd 83.86% 9. Balephi Jalvidyut Co. Ltd 95.86% 2.1 The assessee company's main business is to carry on the business of power which is evident with the copy of Main objects of the company annexed herewith. The main objects consist of power generation and related business and ancillary objects consists of all such activity which are incidental to the main objects of the company. As per para 24 of the ancillary objects which is reproduced as below: 24. To form, incorporate, promote any company or companies whether in India or elsewhere, having amongst its or their objects the acquisition of all or any of the assets or control management or development of the company or any other object or objects which in the opinion of the Company could or might assist the company in the management of its business or the development of its properties or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness deduction in computing the income of the assessee under the head profits and gains of business or profession in terms of section 28 of the Act. 2.9 The above view is supported by the decision of the Supreme Court in the case of SA Builders v. CIT: 288 ITR 1 wherein the apex Court held that in case an assessee has made interest free advances to its sister concern out of the funds borrowed for business purposes on which interest is payable, the real test to determine whether the interest is allowable or not is to judge whether this was done as a measure of commercial expediency or not. 2.10 The apex Court affirmed the decision of the Delhi High Court in CIT Vs. Dalmia Cement: 254 ITR 377, and held that once nexus has been established between the interest paid and the purpose of the business, the Revenue cannot sit in judgment over the reasonableness of the expenditure and the interest paid by the assessee on the borrowed funds advanced to sister concerns is allowable deduction. 2.11. Therefore it is concluded that the assessee company being a holding company which has developed other companies in fulfillment of its main objectives, have raised certain loans, on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (II) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Ltd. TCA No. 24/2017 dated 13/3/2017 that the rule 8D read with Sec. 14A cannot come to the rescue for the department where there is no exempt income, and the judgment has been upheld by the Hon'ble Supreme Court vide SLP No. 15631/2018. Copy of order enclosed. The Abstracts of section 14A is reproduced: Expenditure incurred in relation to income not includible in total income. 14A. (1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at hand. The only exempt income received by the appellant was Rs. 2,093/-. Accordingly, in view of submission of the appellant and in view of position of law, the addition is restricted to Rs. 2,093/- only. 5. In final analysis, the appellant succeeds in appeal for A.Y. 2014-15. 4. The judgment rendered by the Hon'ble Delhi High Court in Joint Investment Pvt. Ltd. vs. CIT in ITA No. 117/2015 order dated 25.02.2015, clinches the issue in favor of assessee. Thus, the CIT(A) has rightly restricted the disallowance to the extent of the exempt income. Significantly, the Hon'ble Delhi High Court in the case of PCIT vs. M/s. ERA Infrastructure (India) Ltd. in ITA No. 204/2022 and CM APPL. 31445/2022 judgment and order dated 20th July, 2022 had the occasion to examine the law on applicability of Section 14A having regard to the newly inserted Explanation to Section 14A as codified by Finance Act, 2022. The Hon'ble High Court held that the aforesaid Explanation cannot be presumed to be retrospective in operation. As a corollary, the law prevailing prior to the insertion of Explanation would continue to apply and shall not be guided by the Explanation being prospective. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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