2019 (2) TMI 1457 - HC - Income Tax

Disallowance u/s 14A - expenditure incurred by the assessee for earning exempt income - HELD THAT - The assessee had not earned any exempt income during the year under consideration. The Tribunal therefore followed the decision of Delhi High Court in case of CIT Vs. Holcim India (Pvt.) Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) as ruled that when there is no exempt income earned by the assessee no disallowance under Section 14A of the Act can be made.

Summary

Issues:
1. Depreciation eligibility of distribution network, material supply contract, and brand use under Section 32(1)(ii) of the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act for expenditure incurred for earning exempt income.

Issue 1: Depreciation Eligibility
The High Court admitted the appeal to consider the question of law regarding the eligibility of the distribution network, material supply contract, and brand use for depreciation under Section 32(1)(ii) of the Income Tax Act. The appellant argued that the Tribunal failed to justify how these assets fall within the clause "any other business or commercial rights of a similar nature" and did not explain the applicability of the doctrine of "ejusdem generis." The Registry was directed to communicate the order to the Tribunal for further proceedings.

Issue 2: Disallowance under Section 14A
The Revenue raised an additional question concerning the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act for expenditure incurred by the assessee for earning exempt income. The Tribunal, in the impugned judgment, held that since the assessee had not earned any exempt income during the relevant year, no disallowance under Section 14A could be made. The Tribunal followed the decision of the Delhi High Court in the case of CIT Vs. Holcim India (Pvt.) Ltd., which ruled that when there is no exempt income earned, no disallowance can be made under Section 14A. The High Court, in a previous judgment, adopted the same principle and concurred with the view that if there is no tax-free income earned, the corresponding expenditure incurred cannot be considered for disallowance. The Court dismissed the appeal, stating that no substantial question of law arises. The additional question raised by the Revenue was not entertained, citing a similar view taken by the Supreme Court in a related case.

This detailed analysis covers the two main issues addressed in the judgment, providing a comprehensive overview of the legal reasoning and decisions made by the High Court.