2020 (2) TMI 955 - HC - Income Tax

Disallowance u/s 14A read with Rule 8D - HELD THAT - CIT(A) as well as the Appellate Tribunal rightly applied the dictum as laid by this Court in the case of Corrtech Energy 2014 (3) TMI 856 - GUJARAT HIGH COURT this Court held that the assessee did not make any claim for exemption of any income from payment of tax. The disallowance under Section 14A of the Act cannot be made. To attract the provisions of Section 14A of the Act, 1961, it is necessary that the assessee should have earned any exempt income. If the assessee has not earned an exempt income and has not claimed so in the return of income, then the provision of Section 14A is not applicable. The concurring findings of fact recorded by the two authorities is that in the year under consideration, the assessee company had not earned any exempt income and had not claimed any such exempt income in the return of income. - Decided against revenue.

Summary

Issues:
Disallowance under Section 14A of the Income Tax Act, 1961.

Analysis:
The Tax Appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal. The main issue raised was whether the Tribunal erred in law and on facts in deleting the disallowance of a specific amount made under Section 14A of the Act read with Rule 8D of the Income Tax Rules.

During the assessment proceedings, it was observed that the assessee had made significant investments, but no disallowance was made under Section 14A read with Rule 8D of the Income Tax Rules. The Assessing Officer computed a disallowance amount and added it to the total income of the assessee. The assessee contended that no disallowance was required as interest-free funds were used for investing in equity shares, and no exempt income had been claimed.

The CIT(A) deleted the addition based on a previous court decision. The Tribunal also dismissed the appeal, affirming the CIT(A)'s order. The Tribunal noted that the assessee had not earned any exempt income during the relevant year. It cited judicial pronouncements stating that no disallowance should be made under Section 14A if no exempt income is earned, or the disallowance should be limited to the exempt income.

The High Court upheld the decisions of the lower authorities, emphasizing that to attract the provisions of Section 14A, it is essential for the assessee to have earned exempt income. Since the assessee had not earned any exempt income during the year and had not claimed such income in the return, the provision of Section 14A was deemed inapplicable. The Court found that the disallowance under Section 14A could not be made in this case.

Ultimately, the Court dismissed the Tax Appeal, agreeing with the CIT(A) and the Tribunal that the disallowance under Section 14A was not justified due to the absence of exempt income earned by the assessee during the relevant year.