Section 14A read with Rule 8D applies only when exempt income is actually received or receivable in that year

HC held that s.14A read with r.8D applies only where exempt income is actually received or receivable in the relevant previous year; absent receipt of exempt income, disallowance under s.14A is not warranted. The court followed the earlier High Court view and concluded no substantial question of law arises.

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Issues:
1. Whether the Income Tax Appellate Tribunal was justified in deleting the addition of Rs. 5,79,95,481 under Section 14A of the Income Tax Act when no exempt income was declaredRs.
2. Whether the Income Tax Appellate Tribunal was correct in confirming the order of the Commissioner of Income Tax to restrict the disallowance to Rs. 1.16 crore without any exempt income earned by the assesseeRs.

Analysis:

Issue 1:
The appellant filed an appeal against the Income Tax Appellate Tribunal's decision to delete the addition of Rs. 5,79,95,481 under Section 14A of the Income Tax Act for the Assessment Year 2008-09. The Tribunal dismissed the appeal of the revenue based on the contention that no disallowance can be made by the revenue if there is no exempt income claimed by the assessee in the return of income. The Tribunal referred to various High Court decisions, including Delhi High Court, Punjab and Haryana High Court, and Allahabad High Court, to support its decision. The Tribunal held that in the absence of exempt income, no disallowance can be made by invoking Section 14A together with Rule 8D(2)(ii) of the Income Tax Rules, 1962.

Issue 2:
The Commissioner of Income Tax (Appeals) had initially affirmed the action of the Assessing Officer in invoking Section 14A of the Act but reduced the quantum of disallowance to Rs. 1,16,03,269. The Tribunal considered the appellant's contention that no exempt income was claimed, and therefore, no disallowance should have been made. The Tribunal relied on previous court decisions to support its stance. The High Court further examined the expression "does not form part of the total income" as per Section 14A(1) and held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. The High Court dismissed the appeal, stating that no substantial question of law arises from the Tribunal's order.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing that in the absence of exempt income, no disallowance can be made under Section 14A of the Income Tax Act. The appeal was deemed devoid of merit and dismissed accordingly.

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