PCIT Vs HCC Concessions Ltd. (Bombay High Court)
Section 14A disallowance cannot be sustained where no exempt income is earned during the relevant year; Bombay High Court refuses to interfere with concurrent factual findings of CIT(A) and ITAT, holding that no substantial question of law arises under Section 260A.
Case Summary
The Bombay High Court considered the Revenue’s appeal against deletion of a disallowance of ₹17.57 crore under Section 14A read with Rule 8D for AY 2012-13. The CIT(A) and ITAT had concurrently found that the assessee had not earned any exempt income during the relevant assessment year and that its own funds exceeded the investments made. The Court held that the Revenue had failed to demonstrate that these findings were unsupported by the record or perverse. It also noted that the issue of disallowance under Section 14A in the absence of exempt income had already been decided in favour of the assessee by the Bombay High Court in Nirved Traders Pvt. Ltd. Accordingly, no substantial question of law arose, and the Revenue’s appeal was dismissed at the admission stage.
Core Issue: Whether disallowance under Section 14A read with Rule 8D can be made when the assessee has not earned any exempt income during the relevant assessment year, and whether deletion of such disallowance on concurrent findings of fact gives rise to a substantial question of law under Section 260A.
Fact
The assessee, a company engaged in infrastructure development directly and through its subsidiaries, was assessed for AY 2012-13. The Assessing Officer, by order dated 13.03.2015, disallowed expenditure of ₹17,57,51,160 under Section 14A read with Rule 8D on the ground that the expenditure related to income not forming part of total income. The CIT(A), by order dated 10.08.2016, held that the disallowance was not justified. The Tribunal, by order dated 03.01.2018, upheld the deletion, noting that no exempt income had been earned during the relevant year and that the assessee’s own funds were higher than the investments made.
AO / CIT(A) Finding
The Assessing Officer disallowed ₹17.57 crore under Section 14A read with Rule 8D and added the amount to the assessee’s total income. The CIT(A) deleted the disallowance, holding that the Assessing Officer was not justified in making the same, particularly when the assessee had not earned any exempt income during the relevant assessment year.
High Court Finding
The High Court held that its jurisdiction under Section 260A is confined to substantial questions of law. The questions raised by the Revenue were essentially factual and did not warrant interference under Section 260A. The Court observed that the concurrent findings of the CIT(A) and ITAT established that no exempt income had been earned during the relevant year and that no disallowance under Section 14A could therefore be made. The Revenue had not demonstrated that these findings were unsupported by the material on record or were perverse.
The Court also considered its earlier decision in Nirved Traders Pvt. Ltd. v. DCIT, Income Tax Appeal No. 149 of 2017, dated 23.04.2019, wherein the issue of Section 14A disallowance in the absence of exempt income had been decided in favour of the assessee. The Court agreed that the legal issue raised by the Revenue was already covered. Accordingly, no substantial question of law arose for consideration.
Outcome
The Bombay High Court dismissed the Revenue’s appeal at the admission stage, holding that no substantial question of law arose under Section 260A. The Tribunal’s deletion of the disallowance of ₹17,57,51,160 under Section 14A was left undisturbed.
Cases Discussed
1. Vijay Kumar Talwar Vs Commissioner of Income Tax (Supreme Court); (2011) 1 SCC 673 — Relied upon for determining when factual findings of the Tribunal may give rise to a substantial question of law under Section 260A and the limited scope of interference where perversity is not established.
2. Sir Chunilal V. Mehta and Sons Ltd. Vs The Century Spinning and Manufacturing Co. Ltd. (Supreme Court); AIR 1962 SC 1314 — Cited for the principles governing the identification of a substantial question of law warranting appellate consideration.
3. Cheminvest Ltd. Vs CIT (Delhi High Court); ITA No. 749/2014; 02/09/2015; (2015) 378 ITR 33 — Relied upon by the ITAT for holding that Section 14A disallowance is not warranted where no exempt income is earned or received during the relevant previous year.
4. Nirved Traders Pvt. Ltd. Vs DCIT, Circle-1(2), Mumbai (Bombay High Court); Income Tax Appeal No. 149 of 2017; 23/04/2019 — Followed by the High Court for the proposition that disallowance under Section 14A cannot be made in the absence of exempt income during the relevant assessment year.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. The matter is heard finally at the stage of admission, with the consent of the parties.
2. The Appellant-Revenue has preferred this Appeal under Section 260A of the Income Tax Act, 1961 (“the Act”), challenging the order dated 3rd January, 2018 passed by the Income Tax Appellate Tribunal, Mumbai (“the Tribunal”), in relation to Assessment Year 2012-13.
3. The Respondent-Assessee is a company engaged in the business of infrastructure development, which it carries on both directly and through its subsidiaries. By an assessment order dated 13th March, 2015, the Assessing Officer disallowed expenditure of Rs. 17.57 crores under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, on the ground that the expenditure was incurred in relation to income which did not form part of the total income. The amount so disallowed was added to the total income of the Assessee.
4. The Assessee challenged the assessment order and the Commissioner of Income Tax (Appeals) [“CIT(A)”] by its order dated 10th August, 2016 partly allowed the Appeal and held that Assessing Officer was not justified in making the disallowance. Aggrieved by the said order, the Appellant filed an Appeal before the Tribunal.
5. After considering the record, the Tribunal noted the factual findings of the CIT(A) that the Assessee had not earned any exempt income during the relevant Assessment Year. It also took note of the finding that the Assessee’s own funds were in excess of the investments made. The Tribunal held that, in the absence of exempt income during the relevant Assessment Year and claim of expenditure made against such income, no disallowance could be made under Section 14A of the Act. In reaching this conclusion, the Tribunal relied upon the decision of the Delhi High Court in Cheminvest Ltd. v/s. Commissioner of Income Tax (2015) 378 ITR 33. The Tribunal accordingly dismissed the Revenue’s Appeal by the impugned order dated 3rd January, 2018.
6. Mr. Sharma, learned counsel for the Appellant, referred to the following substantial questions of law framed in the Appeal paper-book and submitted that the same ought to be considered by this Court :
I. Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was correct in law, in deleting the addition of Rs. 17,57,51,160/- made on account of disallowance of expenses u/s 14A of the Income Tax Act, holding that no disallowance u/s 14A is called for, when there is no exempt income received by the assessee during the year under consideration?
II. Whether on the facts and in the circumstances of the case, the Hon’ble Tribunal was correct in law, in deleting the addition of Rs. 17,57,51,160/- made on account of disallowance of expenses u/s 14A of the Income Tax Act, ignoring the CBDT Circular No. 5/2014 dated 11.02.2014, wherein it is clarified that even if there is no exempt income earned by the assessee in the year under consideration, disallowance under Rule 8D of the Income Tax Rules read with Section 14A of the Income Tax Act is required to be made?
7. We are unable to agree with the submissions of Mr. Sharma. The jurisdiction of this Court under Section 260A of the Act is confined to substantial questions of law arising from the orders of the Tribunal. The principles governing the determination of what constitutes a substantial question of law has been stated by the Hon’ble Supreme Court in several judgments including in Sir Chunilal V. Mehta and Sons Ltd. v/s. The Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314 and Vijay Kumar Talwar v/s. Commissioner of Income Tax, Delhi 2011 (1) SCC 673. In our view, the questions formulated by the Appellant are based on facts and do not give rise to a substantial question of law warranting the exercise of jurisdiction under Section 260A of the said Act.
8. Secondly, in the present case, the concurrent findings recorded by the CIT(A) and the Tribunal is that the Assessee did not earn any exempt income during the relevant Assessment Year and the disallowance under Section 14A could not have been made by the Assessing Officer. The Appellant has not demonstrated that these findings are unsupported by the material on record or perverse. In the absence of any such infirmity, the concurrent findings of fact does not warrant interference in an Appeal under Section 260A of the Act.
9. In addition, Mr. Shah, learned counsel for the Respondent, has tendered a copy of the order dated 23rd April, 2019 passed in M/s. Nirved Traders Pvt. Ltd. v/s. Deputy Commissioner of Income Tax, Circle -1(2), Mumbai Income Tax Appeal No. 149 of 2017 and submits that this Court has considered the question concerning disallowance under Section 14A of the said Act in the absence of exempt income and has decided the same in favour of the Assessee. Therefore, the legal issue sought to be raised by the Revenue does not survive for consideration by this Court. After examining the said decision of this Court, we find ourselves in agreement with such submission of Mr. Shah.
10. The Appeal, therefore, does not merit admission and is accordingly dismissed.
Notes:
1 (2015) 378 ITR 33 ↩
2 AIR 1962 SC 1314 ↩
3 2011 (1) SCC 673 ↩
4 Income Tax Appeal No.149 of 2017 ↩
