2012 (5) TMI 26 - HC - Income Tax

ITAT deleted the disallowance made under Section 14A - Held that - The matter is no longer res integra - questions of law already been decided against the revenue by the Division Bench of this Court in the case of Commissioner of Income Tax-II v. M/s Hero Cycles Ltd.( 2009 - TMI - 35238 - PUNJAB AND HARYANA HIGH COURT ) stating disallowance under Section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand - against the revenue.

Summary

Issues:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Justification of deleting disallowance under Section 14A.

Issue 1: Disallowance under Section 14A of the Income-tax Act, 1961:
The High Court considered an appeal filed by the revenue against the order of the Income Tax Appellate Tribunal (ITAT) regarding the disallowance of Rs.10,46,067 under Section 14A of the Income-tax Act, 1961. The questions of law raised included whether the ITAT was justified in deleting the disallowance by ignoring evidence and the judgment of the High Court in a previous case. The Court noted that the matter had already been decided against the revenue in a previous case involving M/s Hero Cycles Ltd. The Court emphasized that the disallowance under Section 14A requires a finding of incurring of expenditure, and if it is found that no expenditure has been incurred for earning exempted income, disallowance cannot stand. The Court cited previous judgments to support its conclusion and dismissed the appeal based on the consistent view taken in earlier cases.

Issue 2: Justification of deleting disallowance under Section 14A:
The High Court, after hearing the arguments of the counsel for the appellant, concluded that the matter had already been settled in previous judgments against the revenue. The Court referred to the Division Bench's decision in the case of Commissioner of Income Tax-II v. M/s Hero Cycles Ltd., where it was held that disallowance under Section 14A requires a specific finding of incurring expenditure related to earning exempted income. Since the appellant could not provide any contrary judgment or challenge the established position, the Court dismissed the appeal in line with the consistent view taken in previous cases. The Court upheld the principle that disallowance under Section 14A cannot be made if no expenditure is found to have been incurred for earning exempted income, as per the provisions of the law.

This judgment emphasizes the importance of establishing a clear nexus between expenditure and earning exempted income when considering disallowance under Section 14A of the Income-tax Act, 1961. It highlights the significance of previous judgments in guiding decisions and maintaining consistency in legal interpretations.