IN THE HIGH COURT OF GUJARAT
R/Tax Appeal No. 547 Of 2019
PRINCIPAL COMMISSIONER OF INCOME TAX-2
M/s HARSHA ENGINEERS LTD
J B Pardiwala & A C Rao, JJ
Dated: August 05, 2019
Appellant Rep by: Mrs Mauna M Bhatt(174)
Respondent Rep by: None
Income tax – Section 14A & Rule 8D
Keywords – exempt income – investment expenditure
THE Revenue Department preferred the present appeal challenging the action of ITAT in upholding the decision of CIT(A) deleting disallowance of Rs.1,54,01,047/- u/s 14A r.w. Rule 8D.
On appeal, the HC held that,
Whether Section 14A can be invoked, only if taxpayer seeks to square off the expenditure against the income which does not form part of total income – YES: HC
++ it appears that the Tribunal concurred with the findings recorded by the CIT(A) that Section 14A 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 could not have been invoked, more particularly, when no exempt income claim was earned in the relevant assessment years. Therefore, there is no reason to interfere.
Revenue’s appeal dismissed
Per: J B Pardiwala:
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, dated 21.02.2019 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 CIT(A) deleting disallowance of Rs.1,54,01,047/- under section 14A of the Act r.w. 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 ld.CIT(A) 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 CIT(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.  319 ITR 204 in which also the Court had observed as under :
“7. We do not find any merit in this submission. The judgement of this court in Abhishek Industries Ltd (2006) 286 ITR 1 = 2006-TIOL-314-HC-P&H-IT 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 CIT(A) is justified in deleting the disallowance.”
4. Thus it appears that the Tribunal concurred with the findings recorded by the CIT(A) 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 Private Limited, (2014) 45 Taxmann.com 116 (Gujarat) = 2014-TIOL-661-HC-AHM-IT.
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.