High Court criticises ITAT for change in its stand on applicability of amendment to section 14A
In a recent judgment, the Hon’ble Guwahati High Court has criticised ITAT for change in its stand on applicability of amendment to section 14A observing that 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.
ABCAUS Case Law Citation:
4265 (2024) (09) abcaus.in HC
Important Case Laws relied upon:
Joint Investment Private Limited vs. Commissioner of Income Tax
M/S Jas Toll Road Company Ltd.
Principal Commissioner of Income Tax vs. Uniparts India Ltd.
In the instant case, the appellant assessee had challenged the order passed by the Income Tax Appellate Tribunal holding that amendment to section 14A is applicable retrospectively
The appellant company filed its return of income for the Assessment Year 2013-14 showing a loss. The case of the appellant Company was selected for scrutiny through CASS and a notice under Section 143(2) of the Act of 1961 was issued and thereafter, another notice under Section 142(1) of the Act was issued asking the Assessee to file certain details and documents for the relevant period.
The appellant Company furnished the details before the Assessing Officer and the Assessing Officer, after considering the same passed the Assessment Order by invoking provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962. However, the CIT(A) held that the disallowance under Section 14A of the Act cannot exceed the income claimed exempt.
Being aggrieved with the said finding of the CIT(A), the Revenue had preferred appeals before the Tribunal which accepted the said appeals and set aside the orders passed by the CIT(A) relating to different assessment years and affirmed the orders passed by the Assessing Officer.
Before the Hon’ble High Court, the appellant Company argued that the Tribunal had grossly erred in setting aside the orders passed by the CIT(A) while observing that the Explanation to Section 14A of the Act inserted by Finance Act, 2022 being clarificatory in nature has retrospective effect. It was contended that the said finding recorded by the Tribunal was contrary to law because the Ministry of Finance, Union of India, had issued Memorandum Explaining the Provisions in the Finance Bill, 2022 and clarified that the amendment to Section 14A of Income Tax Act whereby explanation is inserted will take effect from 01.04.2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years. It is also contended that the various High Courts have held that the Explanation inserted under Section 14A is prospective in nature.
In support of his submission, the appellant placed reliance on the several decisions of the Delhi High Court and Calcutta High Court.
It was submitted that the Income Tax Department has accepted the proposition that the Explanation inserted to Section 14A through amendment is applicable prospectively before the Delhi High Court and therefore, now it is not open for the Revenue to change its stand in claiming that the Explanation inserted to Section 14A through the Finance Bill, 2022 is retrospective in nature.
It was further pointed out by the appellant that the Bench of the Tribunal which had passed the impugned order, later on, while relying on the decision of the Delhi High Court had passed an order and held that abiding by the principle of judicial hierarchy, the Hon’ble Delhi High Court being a higher Court, the Tribunal is obliged to follow the same. However, subsequently, the same Bench of the Tribunal, had dismissed the Miscellaneous Applications filed on behalf of the appellants while holding that the Delhi High Court is of a non-jurisdictional High Court and therefore, its decision is not binding upon the Tribunal.
The Hon’ble High Court observed that as pointed out by the appellant Division Bench of Delhi High Court had held that the amendment of Section 14A cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. The High Court of Kolkata had also dismissed the appeal filed by the Revenue while relying on the decision of the Delhi High Court.
Accordingly, the Hon’ble High Court held that in view of the Memorandum Explaining the Provisions in the Finance Bill, 2022 and various decisions rendered by the different High Courts, the Explanation inserted to Section 14A vide Finance Act, 2022 is applicable prospectively.
The Hon’ble High Court noted that as pointed out the ITAT following the judgment of the Delhi High Court had held that the Explanation inserted to Section 14A is applicable prospectively. However, the same Bench, while deciding the Miscellaneous Applications preferred on behalf of the appellants subsequently concluded that the decision of the Delhi High Court is not binding the Tribunal.
The Hon’ble High Court criticised the change in stand of the ITAT and stated that 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.
Consequently, the Hon’ble High Court allowed the appeals. The impugned order passed by the Tribunal was set aside and the orders passed by the CIT(A) were affirmed.
Download Full Judgment Click Here >>
- Bulk entries passed in books of accounts cannot be said to be entirely bogus expenses – ITAT
- CIT(A) exceeded his legal brief directing verification of receipts before granting TDS
- Rectification order u/s 154 quashed by High Court, CPC directed to give Foreign Tax Credit
- Prosecution u/s 276B – Trial Court directed to consider Immunity in terms of CBDT circular
- Surrender during survey on account of low GP rate not taxable to higher rate u/s 115BBE
