2021 (3) TMI 691 - HC - Income Tax

Disallowance made u/s 14A read with Rule 8D - no exempt income earned by assessee during the current financial year - HELD THAT - Aforesaid substantial question of law has already been answered against the revenue by a Bench of this Court in Commissioner of Income-tax-III Vs. Subhash Kabini Power Corporation Ltd., 2016 (5) TMI 793 - KARNATAKA HIGH COURT The aforesaid statement made by the learned counsel for the assessee could not be disputed by the learned counsel for the revenue. - Decided in favour of assessee.

Summary

Issues:
Challenge to the disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961 based on the decision of the Delhi High Court and the applicability of Board's Circular No.5 of 2014.

Analysis:

1. The appeal before the Karnataka High Court under Section 260-A of the Income Tax Act, 1961 was filed by the revenue against the order of the Income Tax Appellate Tribunal pertaining to the Assessment Year 2012-13. The substantial question of law in this case revolved around the disallowance of ?74.02 lakhs under Section 14A read with Rule 8D of the Act. The main contention was whether the Tribunal was correct in setting aside the disallowance by relying on the decision of the Delhi High Court in the case of M/s Chemnivest Ltd., despite the CIT(A) confirming the disallowance and the existence of Board's Circular No.5 of 2014 which stipulated that Section 14A applies even in the absence of exempt income earned by the assessee during the financial year.

2. During the proceedings, the learned counsel for the assessee pointed out that a similar substantial question of law had already been decided against the revenue by a Bench of the Karnataka High Court in the case of Commissioner of Income-tax-III Vs. Subhash Kabini Power Corporation Ltd. The revenue did not dispute this statement made by the counsel for the assessee.

3. The High Court, considering the precedent set by its Division Bench in the case of Commissioner of Income-tax-III Vs. Subhash Kabini Power Corporation Ltd., held that the substantial question of law framed in the present appeal should be answered against the revenue and in favor of the assessee. Consequently, the appeal was dismissed, affirming the decision of the Income Tax Appellate Tribunal.

In conclusion, the Karnataka High Court upheld the decision of the Tribunal to set aside the disallowance under Section 14A read with Rule 8D of the Income Tax Act, 1961, based on the precedent established by a previous judgment and in consideration of the relevant legal provisions and circulars.