2019 (4) TMI 970 - HC - Income Tax

Disallowance u/s 14A read with Rule 8D - income earned from the investments by way of dividend etc. - HELD THAT - It could not be disputed by the learned counsel for the revenue that the aforesaid matter is covered by the judgment of this Court in Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh - 2018 (10) TMI 1037 - PUNJAB AND HARYANA HIGH COURT wherein the appeal filed by the revenue against the deletion of disallowance of ₹ 40,28,526/- under Section 14A of the Act read with Rule 8D of the Rules, was dismissed.

Summary

Issues:
1. Interpretation of Section 14A of the Income Tax Act, 1961 regarding disallowance of expenses for earning exempt income.
2. Validity of the order passed by the Income Tax Appellate Tribunal and its sustainability in law.

Issue 1: Interpretation of Section 14A of the Income Tax Act, 1961

The appeal involved a dispute regarding the disallowance of expenses under Section 14A of the Income Tax Act, 1961. The Assessing Officer disallowed an expenditure of &8377; 2,07,14,800/- incurred by the assessee on investments in shares, as the income earned from these investments was exempt from taxation. The Commissioner of Income Tax (Appeals) allowed the appeal and deleted the addition under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. The Tribunal, in its order dated 31.10.2017, upheld the decision of the CIT(A) and dismissed the revenue's appeal. The revenue contended that disallowance under Section 14A should be made even if no tax-free income was earned during the year, citing a circular issued by the CBDT. However, the Tribunal's decision was consistent with a previous judgment of the High Court in a similar case, where the appeal by the revenue was dismissed.

Issue 2: Validity of the Tribunal's Order

The High Court considered the argument put forth by the revenue challenging the Tribunal's order. The revenue contended that the Tribunal's decision was not in line with the Circular No. 5/2014 issued by the CBDT, which stated that disallowance under Section 14A should be attracted even if corresponding income was not earned during the year. However, the High Court noted that a previous judgment of the Court in a similar case had dismissed the revenue's appeal, upholding the deletion of disallowance under Section 14A. Consequently, the High Court found that the present appeal was covered by the earlier judgment and, therefore, dismissed the revenue's appeal in accordance with the precedent set by the Court.

This detailed analysis of the judgment highlights the interpretation of Section 14A of the Income Tax Act, 1961, in the context of disallowance of expenses for earning exempt income. It also addresses the validity of the Tribunal's order in light of legal precedents established by previous judgments of the High Court.