ACIT Vs Harsha Engineers Ltd. (ITAT Ahmedabad)
The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) adjudicated three appeals filed by the Income Tax Department against the orders of the Commissioner of Income Tax (Appeals) [CIT(A)] passed through the National Faceless Appeal Centre (NFAC), Delhi for Assessment Years (AYs) 2014–15, 2015–16, and 2017–18. Since the issues involved were common across the assessment years, the Tribunal disposed of all the appeals through a common order.
Issue 1: Disallowance under Section 14A read with Rule 8D
For AY 2016–17, the Assessing Officer (AO) had disallowed ₹25,02,096 under Section 14A read with Rule 8D on the ground that the assessee had investments in shares of different companies. The assessee challenged the disallowance before the CIT(A). The CIT(A) deleted the addition on the basis that the assessee had not earned any exempt income during the relevant year. It was also noted that similar relief had been granted to the assessee in earlier assessment years 2013–14 and 2014–15 by the predecessor CIT(A). Accordingly, following those earlier appellate orders, the disallowance was deleted.
The CIT(A) relied on judicial precedents which held that Section 14A is applicable only where expenditure is incurred in relation to income that does not form part of the total income. Since the assessee had not earned any exempt income during the relevant year, the provisions of Section 14A were held to be inapplicable. The CIT(A) also observed that the Assessing Officer had not established any nexus between interest-bearing borrowed funds and investments in shares.
