2019 (5) TMI 320 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - no exempt income earned - DR contended that since CBDT Circular No. 5 of 2014 mandates that disallowance u/s. 14A should be made irrespective of earning or not of any exempt income - HELD THAT - The issue involved in the appeal is covered by the judgment of 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 under Section 14A of the Act read with Rule 8D of the Rules, was dismissed.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act, 1961.
2. Interpretation of CBDT Circular No. 5 of 2014.
3. Applicability of Rule 8D of the Income Tax Rules, 1962.
4. Judicial precedent set by a previous judgment.
5. Condonation of delay in filing an appeal.

Analysis:
1. The appeals (ITA Nos. 411 and 424 of 2018) before the High Court pertain to disallowance under Section 14A of the Income Tax Act, 1961. The primary issue revolves around whether the disallowance made by the Assessing Officer on tax-free income was justified. The assessee had declared a loss in the return of income for the assessment year 2012-13, and the Assessing Officer disallowed a specific amount under Section 14A on dividend income earned by the assessee.

2. The key contention in the appeal was the interpretation of CBDT Circular No. 5 of 2014 dated 11.2.2014. The circular clarified that disallowance under Rule 8D read with Section 14A of the Income Tax Act should be made even if the taxpayer has not earned any exempt income in a particular year. The question of whether this circular should be applied in the present case was a crucial aspect of the dispute.

3. The Tribunal, in its order dated 19.3.2018, upheld the decision of the CIT(A) to delete the disallowance made under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. This ruling was a significant factor in the High Court's consideration of the appeals filed by the revenue.

4. The High Court noted that a similar issue had been addressed in a previous judgment (ITA-322-2016) where the revenue's appeal against the deletion of disallowance under Section 14A of the Act was dismissed. The judicial precedent set by this previous judgment played a crucial role in the decision-making process of the High Court in the current appeals.

5. Additionally, a separate application (CM-25089-CII-2018) was filed for the condonation of a 4-day delay in filing ITA-424-2018. Since the appeals were dismissed on merits, the High Court did not find it necessary to pass any further orders on the application for condonation of delay, thereby disposing of it accordingly.