THE PRINCIPAL COMMISSIONER OF INCOME TAX 2 vs. M/S HARSHA ENGINEERINGS LTD.

Facts

This Tax Appeal, filed by the Revenue under Section 260-A of the Income Tax Act, 1961, challenges an order dated February 21, 2019, passed by the Income Tax Appellate Tribunal (ITAT), Ahmedabad. The ITAT's order pertains to Assessment Year 2014-15 and upheld the deletion of a disallowance of Rs. 1,54,01,047 made by the Assessing Officer under Section 14A of the Act read with Rule 8D. The Commissioner of Income Tax (Appeals) had previously deleted this disallowance. The Revenue is aggrieved by the ITAT's decision to uphold the deletion.

Held

The High Court held that the ITAT was justified in deleting the disallowance under Section 14A read with Rule 8D. The Court concurred with the findings of the lower authorities that Section 14A can only be invoked if the assessee seeks to set off expenditure against income that does not form part of the total income. Since the assessee had not earned any exempt income in the relevant assessment years, Section 14A could not be invoked. The Tribunal's reliance on the High Court's decision in Corrtech Energy Private Limited was noted. The Court found no substantial question of law arising from the ITAT's order, as it was based on concurrent findings of fact by the revenue authorities. Consequently, the Tax Appeal was dismissed.

Key Issues

1. Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of the CIT(A) deleting the disallowance of Rs. 1,54,01,047/- under Section 14A of the Act read with Rule 8D? Assessee's Contentions: The judgment does not explicitly record the assessee's contentions. However, it is implied that the assessee argued that Section 14A is not applicable if no tax-free income was earned or claimed as exempt. The ITAT relied on the CIT(A)'s finding that neither interest nor other expenses were incurred in relation to exempt income, and no exempt income was earned by the assessee. Revenue's Contentions: The Revenue argued that the Assessing Officer and CIT(Appeals) had correctly applied the formula of Rule 8D of the Income Tax Rules, as the assessment year was after 2009-2010. The Revenue contended that the disallowance under Section 14A was justified.