This document provides a detailed analysis of the Income Tax Appellate Tribunal’s final decision on the case between AVH Resources India Pvt. Ltd., Gurgaon and ACIT, Circle-1(1), Delhi, concerning the assessment year 2017-18. The case number is ITA 2570/DEL/2022, presided over by Judicial Member Shri C.M. Garg.
The appeal filed by the appellant, AVH Resources India Pvt. Ltd., challenged the order dated 30.07.2022, passed by the National Faceless Appeal Centre (NFAC), Delhi. The case was filed on 2022-10-20, and the final order was pronounced on 2023-02-28. The main issue in this case was the disallowance made under section 14A r.w.r. 8D, amounting to Rs. 43,32,540, which was contested by the assessee on the grounds that no exempt income was earned during the relevant assessment year.
During the hearing on 12.12.2022, the assessee, represented by Shri M.R. Sahu, CA, contended that no exempt income was earned or receivable during the assessment year, and thus, the disallowance under section 14A r.w.r. 8D was not sustainable. The assessee cited the decisions of the Hon’ble jurisdictional High Court of Delhi in the cases of Pr.CIT vs. IL&FS Energy Development Co. Ltd and Pr.CIT vs. Era Infrastructure (India) Ltd, which supported their claim.
The respondent, represented by Senior Departmental Representative (DR) Shri Om Prakash, supported the orders of the authorities below but admitted that the judgments cited by the assessee were relevant and applicable to the case.
The Tribunal carefully considered the rival submissions and reviewed the orders passed by the authorities below. The Tribunal noted that the issue was indeed covered in favor of the assessee by the judgments of the Hon’ble jurisdictional High Court of Delhi.
The Tribunal’s final judgment stated that the appeal filed by the assessee was allowed. The Tribunal directed the Assessing Officer (AO) to delete the addition made under section 14A r.w.r. 8D, amounting to Rs. 43,32,540, as the assessee had not earned any exempt income during the relevant assessment year.
Order pronounced in the open court on 28th February, 2023.
(C.M. GARG)
JUDICIAL MEMBER
This case highlights the importance of adhering to judicial precedents and ensuring that disallowances under section 14A are made only when there is actual exempt income. The Income Tax Appellate Tribunal’s decision underscores the necessity for tax authorities to follow established legal principles and provide fair assessments.
The appellant, AVH Resources India Pvt. Ltd., is a company based in Gurgaon, Haryana, engaged in the business of resources management. For the assessment year 2017-18, the company filed its return of income, declaring total income without claiming any exempt income.
The appellant argued that the disallowance under section 14A r.w.r. 8D was not justified as no exempt income was earned or receivable during the relevant assessment year. The appellant relied on the judgments of the Hon’ble jurisdictional High Court of Delhi in Pr.CIT vs. IL&FS Energy Development Co. Ltd and Pr.CIT vs. Era Infrastructure (India) Ltd, which held that no disallowance under section 14A can be made if the assessee has not earned any exempt income.
The respondent, represented by the Senior Departmental Representative (DR), contended that the amendment to section 14A by the Finance Act, 2022, inserted a non-obstante clause and an explanation that would apply retrospectively. However, the appellant countered that the amendment was prospective, effective from assessment year 2022-23, as explicitly stated in the Finance Bill, 2022.
The Tribunal observed that the Hon’ble jurisdictional High Court of Delhi had clearly held in the cases cited by the appellant that disallowance under section 14A r.w.r. 8D could not be made in the absence of exempt income. The Tribunal also noted that the Finance Act, 2022, explicitly stated that the amendment to section 14A would apply prospectively from assessment year 2022-23 onwards.
The Tribunal concluded that the addition made by the AO under section 14A r.w.r. 8D was not sustainable, as the assessee had not earned any exempt income during the relevant assessment year. The Tribunal directed the AO to delete the disallowance and allowed the appeal filed by the assessee.
This judgment serves as an important precedent for cases involving disallowance under section 14A r.w.r. 8D, reinforcing the principle that such disallowance cannot be made in the absence of exempt income. It also clarifies the prospective application of the amendment to section 14A introduced by the Finance Act, 2022.
The decision in the case of AVH Resources India Pvt. Ltd. vs ACIT, Circle-1(1), Delhi, reaffirms the importance of judicial precedents in tax assessments. The Tribunal’s directive to delete the disallowance made under section 14A r.w.r. 8D underscores the necessity for tax authorities to follow due process and uphold the principles of natural justice in their proceedings.
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