2020 (1) TMI 1161 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - Section 14A of the Act deals with expenditure incurred in relation to income not includible in total income. As per sub- Section (1) of Section 14A, for the purpose of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. In Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT examined the expression does not form part of the total income as appearing in sub-Section (1) of Section 14A of the Act. Delhi High Court held that the said expression envisages that there should be an actual receipt of income which is not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. It was clarified that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. This view has been followed in several decisions by this Court. No substantial question of law arises

Summary

Issues:
1. Whether the Income Tax Appellate Tribunal was justified in deleting the addition of ?5,79,95,481 under Section 14A of the Income Tax Act when no exempt income was declared?
2. Whether the Income Tax Appellate Tribunal was correct in confirming the order of the Commissioner of Income Tax to restrict the disallowance to ?1.16 crore without any exempt income earned by the assessee?

Analysis:

Issue 1:
The appellant filed an appeal against the Income Tax Appellate Tribunal's decision to delete the addition of ?5,79,95,481 under Section 14A of the Income Tax Act for the Assessment Year 2008-09. The Tribunal dismissed the appeal of the revenue based on the contention that no disallowance can be made by the revenue if there is no exempt income claimed by the assessee in the return of income. The Tribunal referred to various High Court decisions, including Delhi High Court, Punjab and Haryana High Court, and Allahabad High Court, to support its decision. The Tribunal held that in the absence of exempt income, no disallowance can be made by invoking Section 14A together with Rule 8D(2)(ii) of the Income Tax Rules, 1962.

Issue 2:
The Commissioner of Income Tax (Appeals) had initially affirmed the action of the Assessing Officer in invoking Section 14A of the Act but reduced the quantum of disallowance to ?1,16,03,269. The Tribunal considered the appellant's contention that no exempt income was claimed, and therefore, no disallowance should have been made. The Tribunal relied on previous court decisions to support its stance. The High Court further examined the expression "does not form part of the total income" as per Section 14A(1) and held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The High Court dismissed the appeal, stating that no substantial question of law arises from the Tribunal's order.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that in the absence of exempt income, no disallowance can be made under Section 14A of the Income Tax Act. The appeal was deemed devoid of merit and dismissed accordingly.