Gauhati HC Criticizes ITAT For Inconsistent Views On Applicability Of Explanation To Section 14A Income Tax Act, Says It Applies Prospectively
Kapil Dhyani
3 Oct 2024 12:50 PM IST
The Gauhati High Court recently expressed discontent over the Income Tax Appellate Tribunal for taking inconsistent view on the date of applicability of Explanation to Section 14A of the Act of 1961 inserted by Finance Act, 2022.
“Such a conduct of the members of an authority, which is discharging judicial functions, cannot be appreciated. Any authority discharging judicial functions is expected to maintain consistency in its views in respect of judicial matters because any unjust deviation may affect the credibility of such authority.”
Section 14A of the Income Tax Act provides that no deduction shall be allowed in respect of the expenditure incurred by the assessee in relation to income which does not form part of its total income under the Income Tax Act.
The Explanation clarifies that the provision will apply and will be deemed to have always applied in a case where expenditure has been incurred during the relevant previous year in relation to an exempted income and the said exempted income has not accrued or arisen or has not been received during the said relevant previous year.
In the case at hand, Appellant-assessee, engaged in the business of Lease Financing, had claimed disallowances under Section 14A for the Assessment Year 2013-14, which came to be rejected by the Assessing officer.
Assessee's appeal against this order was partly allowed by CIT by holding that AO had correctly invoked the provisions of Section 14A but, disallowance cannot exceed the income claimed exempt.
Revenue therefore moved ITAT Gauhati, which set aside the orders passed by the CIT and held the Explanation to Section 14A applies retrospectively. It also affirmed the orders passed by the Assessing Officer, leading the assessee to prefer this appeal.
Appellant-assessee relied on Pr. Commissioner of Income Tax (Central)-2 versus M/s Era Infrastructure (India) Ltd. where the Delhi High Court had held that the Explanation cannot be presumed to be retrospective in nature since it is clarificatory in nature and alters the law as it stood earlier.
The appellant also pointed out that the same ITAT bench had, in another case, followed the Delhi High Court's decision. However, when came the Appellant's case, the same bench took a view that Delhi High Court is of a non-jurisdictional High Court and therefore, its decision is not binding upon the Tribunal.
At the outset, the High Court took note of a Memorandum issued by the Union Finance Minister, explaining the provisions in the Finance Bill 2022. The memo clarified that the amendment to Section 14A of Income Tax Act will take effect from 01.04.2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.
Revenue also frankly admitted that in view of the Memo, the Explanation cannot be made effective retrospectively.
Accordingly, the High Court held that ITAT's finding to the effect that Explanation to Section 14A of the Income Tax Act is retrospective, is “contrary to the legislative intention”.
It mentioned that Madhya Pradesh High Court in Principal Commissioner of Income Tax (Central) Vs. Keti Construction Ltd. (2024) and Calcutta High Court in Principal Commissioner of Income-tax (Central) Vs. Avantha Realty Ltd. (2024), have also taken the same view.
Appearance: Advocates NS Saini and Z. Islam for Appellant; Senior Standing Counsel, Income Tax Department S. Chetia for Respondent
Case title: Williamson Financial Services Limited v. Commissioner of Income Tax, Guwahati
Case no.: ITA/4/2024
