2021 (3) TMI 1422 - HC - Income Tax

Appeal denied on Section 14A disallowance for AY 2014-15

PR. COMMISSIONER OF INCOME TAX-4, DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6 (1) (2) BANGALORE Versus M/s STERLING DEVELOPERS PVT. LTD.

The High Court dismissed the appeal concerning disallowance under Section 14A of the Income Tax Act for the Assessment Year 2014-15. The Court upheld the ... Disallowance u/s 14A r.w.r. 8D - expenses which are relatable to earnings of exempt income - HELD THAT:- As decided in own case [2021 (2) TMI 588 - KARNATAKA HIGH COURT] no dividend or exempt income was claimed by the assessee during the relevant previous year. It is well settled in law that if no exempt income has accrued to the assessee, the provisions of Section 14A do not apply to the fact situation of the case. See case NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT [2021 (2) TMI 145 - KARNATAKA HIGH COURT] Decided in favour of assessee. Issues involved:1. Disallowance under Section 14A of the Income Tax Act.2. Justification of deleting disallowances under Section 14A read with Rule 8D(2)(ii) of the Income Tax Act.3. Interpretation of Circular No. 05/2014 dated 11.02.2014.4. Applicability of Section 14A in the absence of exempt income.5. Comparison with a previous judgment regarding similar issues.Analysis:1. The case involves an appeal arising from an order passed by the Income-tax Appellate Tribunal regarding the disallowance made under Section 14A of the Income Tax Act for the Assessment Year 2014-15. The appellant, a company engaged in construction activities, challenged the disallowance made by the Assessing Officer, which was subsequently allowed by the Commissioner, Income tax (Appeals). The Tribunal, through its order dated 31.08.2018, allowed the appeals in respect of certain assessment years, leading to the present appeal before the High Court.2. The primary issue before the Court was whether the Tribunal was justified in law in deleting the disallowances under Section 14A read with Rule 8D(2)(ii) of the Income Tax Act. The Court framed a substantial question of law regarding the interpretation of Circular No. 05/2014 dated 11.02.2014, emphasizing the treatment of expenses related to earnings of exempt income for disallowance purposes. The parties referred to a previous judgment regarding a similar question of law for the Assessment Year 2009-10, highlighting the relevance of past decisions in the present case.3. The Court extensively analyzed the facts and submissions made by both parties. The revenue contended that the Tribunal's finding of no exempt income for the relevant assessment year was erroneous, citing a specific order by the Assessing Officer. Conversely, the assessee maintained that it had not earned any income exempt from tax during the previous year, as explicitly stated in a communication to the Assessing Officer. The Court referenced the Tribunal's order acknowledging the absence of exempt income and emphasized that if no exempt income had accrued, Section 14A would not apply, citing precedents from other High Courts to support this position.4. Relying on the established legal principles and precedents, the Court concluded that in the absence of any exempt income claimed by the assessee during the relevant previous year, the provisions of Section 14A did not apply. The Court referenced a previous decision and upheld the Tribunal's order, answering the substantial question of law against the revenue and in favor of the assessee. Consequently, the appeal was dismissed based on the precedents and factual circumstances of the case.5. Drawing parallels with the earlier judgment concerning similar issues, the Court found that the question of law in the present appeal had already been settled against the revenue and in favor of the assessee. Therefore, based on the consistent legal interpretation and application of Section 14A in cases involving exempt income, the Court dismissed the appeal, aligning with the precedents and legal principles established in previous decisions.This comprehensive analysis of the judgment highlights the intricate legal considerations and precedents that influenced the High Court's decision in the case.