2019 (5) TMI 639 - HC - Income Tax

Disallowance u/s 14A read with Rule 8D - disallowance of expenditure even where tax payer in particular year has not earned any exempt income - HELD THAT - Issue 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 was dismissed.

Summary

Issues Involved:
- Appeal under Section 260A of the Income Tax Act, 1961 against the ITAT order for the assessment year 2012-13.
- Disallowance of expenditure under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
- Sustainability of the ITAT order in light of interest expenditure claimed in P&L account and tax-exempt income from investments.

Analysis:

Issue 1: Disallowance under Section 14A of the Income Tax Act:
The appeal was filed by the revenue challenging the ITAT order that deleted the addition of ?32,17,309 made on account of disallowance under Section 14A of the Act. The Assessing Officer had disallowed this amount under Section 14A read with Rule 8D due to exempt income from investments. The CIT(A) allowed the appeal and deleted the addition, relying on previous tribunal judgments. The ITAT upheld the CIT(A) order based on its own previous decision and other High Court judgments. The key contention was whether the disallowance was justified despite the circular issued by the CBDT. The court dismissed the revenue's appeal, affirming the ITAT decision.

Issue 2: Sustainability of ITAT Order Regarding Interest Expenditure and Tax-Exempt Income:
The second issue raised was the sustainability of the ITAT order concerning interest expenditure claimed in the profit and loss account and income from investments not included in taxable income under Section 14A of the Act. The revenue argued that the ITAT order was not maintainable given the circumstances of the case. However, the court noted that a similar matter had been previously decided by the court in a different case, where the revenue's appeal was dismissed. Consequently, the court dismissed the current appeal in line with the previous judgment, thereby upholding the ITAT decision.

In conclusion, the court upheld the ITAT decision in both issues, emphasizing the consistency of its rulings with previous judgments and dismissing the revenue's appeal.