Supreme Court Dismisses Revenue SLP In DLF Case, Declines To Interfere With Deletion Of ₹80.66 Crore Income Tax Disallowance

The Supreme Court of India recently dismissed a Special Leave Petition filed by the revenue challenging a judgment of the Delhi High Court which had granted relief to DLF Home Developers Ltd. by deleting a disallowance of Rs 80.66 crore made under Section 14A of the Income-tax Act.

Section 14A of the Income Tax Act disallows deduction of expenditure incurred in relation to income which does not form part of the total taxable income, and Rule 8D of the Income Tax Rules prescribes the method for computing such disallowance.

The matter was heard by a bench comprising Chief Justice Surya Kant and Justices R. Mahadevan and Joymalya Bagchi. The Court held that the view taken by the Income Tax Appellate Tribunal and affirmed by the Delhi High Court warranted no interference.

The dispute relates to a disallowance made by the Assessing Officer under Section 14A read with Rule 8D for Assessment Year 2011-12. The Assessing Officer examined DLF's balance sheets and concluded that expenditure had been incurred in relation to exempt dividend income earned by the company. On this basis, Rule 8D was applied, and a disallowance of Rs 80.66 crore was made, treating it as expenditure attributable to earning tax-exempt income.

In appeal, the Commissioner of Income Tax (Appeals) partly accepted DLF's case by deleting the interest-related disallowance but retained the disallowance of administrative expenditure. The Income Tax Appellate Tribunal thereafter allowed DLF's appeal and deleted the entire disallowance.

The revenue challenged the tribunal's order in the Delhi High Court. The High Court dismissed the appeal, noting that DLF had sufficient interest-free funds available and that the Assessing Officer had not recorded dissatisfaction regarding the correctness of DLF's claim before invoking Rule 8D.

The High Court observed that under Section 14A, the Assessing Officer must first examine the accounts of the assessee and record reasons showing why the computation is incorrect before applying the prescribed method under Rule 8D. It held that since the interest-free funds available with DLF exceeded the investments made, and since no dissatisfaction had been recorded with reference to the accounts, the Tribunal was justified in deleting the disallowance.

Before the Supreme Court, the revenue sought to challenge the High Court ruling. The court noted that there was a delay of 710 days in filing the petition, which it was inclined to condone, but found no merit in the challenge. The Court observed:

“Besides an inordinate delay of 710 days, which we are inclined to condone, we find that, on merits, the view taken by the Income Tax Appellate Tribunal and affirmed by the High Court of Delhi warrants no interference by this Court.”

The Special Leave Petition was accordingly dismissed.

For Petitioner: ASG N. Venkataraman appeared for the revenue along with Advocates Sudarshan Lamba, Venkataraman Chandrashekhara Bharathi, Shambhavi Sharma, Raman Yadav and Seema Patnaha. Senior Advocate Kavita Jha appeared for the respondent along with Advocates Aniket Deepak Agrawal, Aditeya Bali and Akash Shukla.

For Respondent: Senior Advocate Kavita Jha appeared for the respondent along with AOR Aniket Deepak Agrawal, Advocate Aditeya Bali and Advocate Akash Shukla.