2019 (5) TMI 191 - HC - Income Tax

Disallowance of interest u/s 14A - no tax free income has been earned by the assessee - satisfaction of A.O. regarding correctness of the claim of assessee - HELD THAT - Matter is covered by the judgment of this Court in PRINCIPAL COMMISSIONER OF INCOME TAX-I, CHANDIGARH VERSUS 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:
1. Disallowance of interest under Section 14A of the Income Tax Act, 1961.
2. Interpretation of provisions related to disallowance of expenses for earning exempt income.
3. Adherence to CBDT Circular No. 5/2014 regarding disallowance of expenses.
4. Application of judicial precedents and legislative intent in disallowance cases.

Analysis:
1. The appeal pertains to the disallowance of interest under Section 14A of the Income Tax Act, 1961. The Assessing Officer had added an amount to the assessee's income on this account, which was challenged by the assessee before the CIT(A) and subsequently before the Tribunal. The Tribunal, in its order, deleted the addition, leading to the revenue's appeal before the High Court.

2. The substantial questions of law raised in the appeal primarily revolve around the interpretation of provisions related to disallowance of expenses for earning exempt income. The Hon'ble ITAT's decision was questioned on the grounds of misinterpretation of Section 14A and Rule 8D, especially concerning the treatment of expenditure claims by the assessee.

3. The issue of adherence to CBDT Circular No. 5/2014 was also raised in the appeal. The Hon'ble ITAT's decision was challenged for allegedly ignoring the legislative intent expressed in the circular, which emphasizes the consideration of expenses related to earning exempt income for disallowance, regardless of whether such income was earned during the financial year.

4. Furthermore, the appeal involved a discussion on the application of judicial precedents and legislative intent in disallowance cases. The Hon'ble ITAT's reliance on certain High Court decisions was contested by the revenue, citing the Supreme Court's decision in CIT vs. Walfort Share and Stock Brokers P Ltd. The revenue highlighted the pending cases in the Supreme Court on similar issues, urging a different interpretation of the law.

5. During the hearing, it was acknowledged that the matter at hand was covered by a previous judgment of the High Court in a similar case. The judgment in ITA No. 322 of 2016 was referred to, where the appeal filed by the revenue was dismissed. Consequently, the High Court dismissed the present appeals in line with the earlier decision, providing a clear precedent for the resolution of such matters.