2019 (6) TMI 711 - HC - Income Tax

Disallowance u/s 14A - ITAT confirming the Order of the CIT (A) wherein restricting the disallowance on the ground that during period under consideration, the Respondent - Assessee had not earned any exempt income - HELD THAT - This being the position, we do not find any error in the impugned Order passed by the Tribunal. Several High Courts have taken a view that where the assessee had earned exempt income, disallowance of expenditure under Rule 8D of the Income Tax Rules, 1962, would not be permissible. - Decided against revenue

Summary

Issues:
Challenge to Tribunal's order restricting disallowance under Section 14A read with Rule 8D of the Income Tax Act.

Analysis:
The appeal was filed by the Revenue challenging the order passed by the Tribunal regarding the disallowance of expenditure under Section 14A of the Income Tax Act. The Respondent had claimed an expenditure of &8377; 41,85,747, which was initially disallowed by the Assessing Officer. The CIT Appeal then restricted the disallowance to &8377; 5 Lacs. The Respondent did not challenge this order, leading the Revenue to file an appeal before the Tribunal. The Tribunal rejected the Revenue's appeal on the basis that during the relevant period, the Respondent had not earned any exempt income.

The High Court, in its judgment, noted that the Tribunal's decision was in line with the position that disallowance of expenditure under Rule 8D of the Income Tax Rules would not be permissible if the assessee had not earned any exempt income. The court highlighted that various High Courts have taken a similar view in cases where no exempt income was earned by the assessee. Consequently, the High Court found no error in the Tribunal's order and dismissed the appeal filed by the Revenue.