Bombay HC Leaves ₹17.57-Crore Section 14A Relief Intact, Citing No Exempt Income For The Year

For Assessment Year 2012–13, the Assessing Officer disallowed ₹17,57,51,160 under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962.

The CIT(A) partly allowed the assessee’s appeal, finding the disallowance unjustified; the Tribunal dismissed the Revenue’s appeal after noting that the assessee had earned no exempt income during the relevant year and that its own funds exceeded its investments.

The Revenue appealed under Section 260A, contending that the Tribunal had erred in deleting the disallowance, including in light of CBDT Circular No. 5/2014.

Section 260A of the Income Tax Act permits an appeal to the High Court only where a substantial question of law arises from the Tribunal’s order; the principles for identifying such a question were drawn from Sir Chunilal V. Mehta and Sons Ltd. v. The Century Spinning and Manufacturing Co. Ltd. and Vijay Kumar Talwar v. Commissioner of Income Tax, Delhi.

Section 14A, read with Rule 8D, concerns expenditure relating to income not forming part of total income.

The Court also considered Cheminvest Ltd. v. Commissioner of Income Tax and this Court’s decision in M/s. Nirved Traders Pvt. Ltd. v. Deputy Commissioner of Income Tax, cited in support of the position that Section 14A disallowance cannot be made where no exempt income was earned during the relevant year.

The Court held that the Revenue’s formulated questions were fact-based and did not raise a substantial question of law under Section 260A.

The CIT(A) and Tribunal had concurrently found that the assessee earned no exempt income during the year, and the Revenue did not show that those findings lacked evidentiary support or were perverse; accordingly, they did not warrant appellate interference.

The Court also agreed that its decision in Nirved Traders had addressed the legal issue concerning Section 14A in the absence of exempt income.

The Revenue’s appeal was dismissed.