2019 (6) TMI 1490 - HC - Income Tax

Disallowance u/s. 14A r.w.r. 8D - if exempt income had not been earned for the year under scrutiny - HELD THAT - The question is self-explanatory and the issue involved is squarely covered by the decision of the Division Bench of this Court in HUNTSMAN INTERNATIONAL (INDIA) PVT. LTD. 2019 (2) TMI 1457 - BOMBAY HIGH COURT ruled that when there is no exempt income earned by the assessee no disallowance under Section 14A of the Act can be made. - Decided against revenue.

Summary

Issues:
Challenge to the Judgment of the Income Tax Appellate Tribunal regarding disallowance under Section 14A of the Income Tax Act when no exempt income is earned.

Analysis:
The High Court considered the appeal challenging the Tribunal's decision on the disallowance under Section 14A of the Income Tax Act. The main issue was whether disallowance should be made under Section 14A r.w.r. 8D if no exempt income was earned during the relevant year. The Court referred to a Division Bench decision and observed that when there is no exempt income earned by the assessee, no disallowance under Section 14A can be made. This principle was supported by the Delhi High Court's ruling in the case of CIT Vs. Holcim India (Pvt.) Ltd. The Court reiterated that Section 14A prohibits deductions for expenditure incurred in relation to income not forming part of the total income. Therefore, if no tax-free income was earned during the relevant year, the corresponding expenditure cannot be considered for disallowance.

The High Court concurred with the view taken by the Delhi High Court and held that no fault could be found with the Tribunal's decision to delete the disallowance under Section 14A. The Court also mentioned that the Allahabad High Court had taken a similar view in a related case. The Counsel for the assessee highlighted that the Supreme Court had dismissed the Revenue's SLP against the Delhi High Court's decision in a similar case, further supporting the position that no disallowance should be made under Section 14A when no exempt income is earned. The additional question raised was not entertained by the Court, and the Income Tax Appeal was ultimately dismissed.

In conclusion, the High Court upheld the principle that if an assessee has not earned any tax-free income during the relevant year, the corresponding expenditure incurred cannot be considered for disallowance under Section 14A of the Income Tax Act. The Court relied on previous decisions and rulings to support this interpretation, ultimately dismissing the Income Tax Appeal challenging the Tribunal's decision.