Case Law Details
PCIT Vs IL&FS Energy Development Company Ltd. (Delhi High Court)
The mere fact that in the audit report for the AY in question, the auditors may have suggested that there should be a disallowance cannot be determinative of the legal position. That would not preclude the Assessee from taking a stand that no disallowance under Section 14 A of the Act was called for in the AY in question because no exempt income was earned.
Assessee-company had made investment in mutual funds in which no interest bearing funds were invested to earn tax free income, therefore, pleaded that no disallowance under section 14A could be made. Revenue contended that section 14A would apply even when exempt income was not earned in a particular assessment year as per Circular No. 5/2014, dt. 11-2-2014. Held: The words “in relation to income which does not form part of the total income under the Act for such previous year” in rule 8D(1) indicates a correlation between the exempt income earned in the assessment year and the expenditure incurred to earn it. This implies that if there is no exempt income earned in assessment year in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of section 14A read with rule 8D would not arise. CBDT’s Circular dated 11-2-2014 does not refer to rule 8D(1) of the Rules at all but only refers to the word “includible” occurring in the title to Rule 8D as well as the title to section 14A.
Decision: In assessee’s favour.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
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