2018 (11) TMI 1057 - HC - Income Tax

Disallowance u/s 14A - Method for determining amount of expenditure in relation to income not includible in total income - principle of apportionment of expenses - Held that - In view of the ratio in Maxopp Investment Ltd. 2018 (3) TMI 805 - SUPREME COURT OF INDIA Holicim India P.Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) and Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT no substantial question of law that arises for consideration wherein held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 14A of the Income-Tax Act, 1961.
2. Applicability of Section 14A in the absence of exempt income.
3. Interpretation of precedents and Supreme Court judgments on Section 14A.

Issue-wise Detailed Analysis:

1. Disallowance under Section 14A of the Income-Tax Act, 1961:
The primary issue in this case was whether the disallowance of Rs. 1,64,44,211/- made by the Assessing Officer under Section 14A of the Income-Tax Act, 1961, was justified when the respondent-assessee had not earned any exempt income during the assessment year 2008-09. The Tribunal had deleted this disallowance, leading to the Revenue's appeal.

2. Applicability of Section 14A in the absence of exempt income:
The Tribunal relied on the Delhi High Court's judgments in Cheminvest Ltd. vs. CIT (2015) and CIT vs. Holcim India P. Ltd. (2014), which established that no disallowance under Section 14A should be made if there is no exempt income. The Tribunal's decision was supported by similar judgments from other High Courts, including Punjab & Haryana, Gujarat, Allahabad, and Madras, which consistently held that Section 14A could not be invoked in the absence of exempt income.

3. Interpretation of precedents and Supreme Court judgments on Section 14A:
The Revenue argued that the Supreme Court's decisions in Maxopp Investment Ltd. vs. CIT (2018) and CIT vs. Walfort Share & Stock Brokers Pvt. Ltd. (2010) required reconsideration of the Cheminvest and Holcim India judgments. However, the court found no reason to deviate from these precedents. The Supreme Court in Walfort Share & Stock Brokers emphasized that Section 14A applies when income does not form part of the total income, but it did not directly address the issue of disallowance in the absence of exempt income.

In Maxopp Investment Ltd., the Supreme Court clarified that disallowance should be limited to the extent of exempt income. The factual position in State Bank of Patiala, decided along with Maxopp, further supported this view, as the disallowance was restricted to the amount of exempt income.

The Delhi High Court in Holcim India and Cheminvest, and the Madras High Court in Chettinad Logistics, reiterated that Section 14A cannot be applied if no exempt income is earned. The Madras High Court emphasized that Section 14A relates to actual income, not notional or anticipated income, and disallowance under Rule 8D should not be based on assumed income.

The Supreme Court's dismissal of SLPs in related cases, such as DLF Hotels Holdings and D.B. Corp Limited, further reinforced the principle that disallowance under Section 14A cannot exceed the exempt income earned.

Conclusion:
The High Court concluded that there was no substantial question of law warranting consideration, as the Tribunal's decision aligned with established legal principles and precedents. Consequently, the appeal was dismissed with no order as to costs.