Section 14A can be invoked only if assessee seeks to square off the expenditure against the income which does not form the part of the total income
Short Overview : Where assessee had not claimed any exempt income during relevant assessment year, disallowance under section 14A was not warranted because in absence of any tax-free income the corresponding expenditure could not be taken into consideration for disallowance.
Assessee earned exempt dividend income during the relevant assessment year. AO had made disallowance under section 14A read writ Rule 8D without appreciating the facts that assessee had not earned any exempt income during the period relevant to assessment year.
it is held that Section 14A can be invoked only if assessee seeks to square off the expenditure against the income which does not form the part of the total income and in such circumstances, section 14A could not have been invoked, more particularly, when no exempt income claim was earned in the relevant assessment years. Therefore, no disallowance under section 14A was to be made in the absence of any exempt income
Decision: In assessee’s favour.
Followed: CIT v. Corrtech Energy (P.) Ltd. (2014) 45 Taxmann.com 116 (Guj) : 2014 TaxPub(DT) 2072 (Guj-HC), CIT v. Winsome Textile Industries Ltd. (2009) 319 ITR 204 (P&H-HC) : 2009 TaxPub(DT) 2012 (P&H-HC), CIT v. Abhishek Industries Ltd. (2006) 286 ITR 1 (P&H-HC) : 2006 TaxPub(DT) 1778 (P&H-HC).
IN THE GUJARAT HIGH COURT
J.B. PARDIWALA AND A.C. RAO, JJ.
Pr. CIT v. Harsha Engineerings Ltd.
R/Tax Appeal No. 547 of 2019
5 August, 2019
Appellant(s) by: Mauna M. Bhatt
Opponent(s) by: None
ORAL ORDER
J.B. Ardiwala, J.
1. This tax appeal under section 260-A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the revenue and is directed against the order passed by the Income Tax Appellate Tribunal, “A” Bench, Ahmedabad, dt. 21-2-2019 in the ITA No.2112/Ahd/2017 for the assessment year 2014-15.
2. The revenue has proposed the following substantial question of law of the consideration of this court :
“Whether the appellate Tribunal has erred in law and on facts in upholding the decision of Commissioner(Appeals) deleting disallowance of Rs. 1,54,01,047 under section 14A of the Act read with Rule 8D ?”
3. The Appellate Tribunal in its impugned order observed as under :
“8. We have considered rival submissions and gone through the record carefully. We find that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon’ble High Court rendered in the case of Correctech Energy (supra). The Hon’ble High Court has observed that if no tax free income was earned by the assessee, then no expenses can be construed as incurred by the assessee, because plain reading of section 14A provides that if an assessee incurred expenditure in relation to earning of tax free income then such expenditure would not be allowed.
The learned Commissioner(Appeals) has recorded a finding that neither interest/other expenses were incurred nor any exempt income was earned by the assessee, and therefore, there is no question of allocating expenditure. The relevant observation of the Hon’ble High Court in this regard reads as under :
“4. Counsel for the revenue submitted that the assessing officer as well as Commissioner(Appeals) had applied formula of rule 8D of the Income Tax Rules, since this case arose after the assessment year 2009-2010. Since in the present case, we are concerned with the assessment year 2009-2010, such formula was correctly applied by the Revenue. We however, notice that sub-section (1) of section 14A provides that for the purpose of computing total income under chapter IV of the Act, 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 under the Act. In the present case, the tribunal has recorded the finding of fact that the assessee did not ijnake any claim for exemption of any income from payment of tax. It was on this basis that the tribunal held that disallowance under section 14A of the Act could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. (2009) 319 ITR 204 (P&H-HC) : 2009 TaxPub(DT) 2012 (P&H-HC) in which also the Court had observed as under :
“7. We do not find any merit in this submission. The judgment of this court in Abhishek Industries Ltd (2006) 286 ITR 1 (P&H-HC) : 2006 TaxPub(DT) 1778 (P&H-HC) was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application.”
5. We do not find any question of law arising, tax appeal is therefore dismissed.”
9. Respectfully following the judgment of the Hon’ble High Court cited (supra), we are of the view that the Commissioner(Appeals) is justified in deleting the disallowance.”
4. Thus it appears that the Tribunal concurred with the findings recorded by the Commissioner(Appeals) that section 14A of the Act can be invoked only if the assessee seeks to square off the expenditure against the income which does not form the part of the total income under the Act and in such circumstances, section 14A of the Act could not have been invoked, more particularly, when no exempt income claim was earned in the relevant assessment years. The Tribunal has relied on various decisions including the decision of this court in the case of Corrtech Energy (P.) Ltd. (2014) 45 Taxmann.com 116 (Guj) : 2014 TaxPub(DT) 2072 (Guj-HC).
5. Having regard to the concurrent findings recorded by the two revenue authorities, we are not inclined to disturb such findings. In our view, there is no substantial question of law involved in the present tax appeal.
6. In view of the above, this tax appeal fails and is hereby dismissed.
