Supreme Court Refuses To Interfere With Bombay HC Order Dismissing Income Tax Appeal Against Tata Realty

The Supreme Court has dismissed the Income Tax Department's plea challenging the Bombay High Court order dismissing its appeal against Tata Realty & Infrastructure Ltd.

The dispute concerned the applicability of Section 14A disallowance of the Income Tax Act where Tata Realty had earned no exempt income and whether the ₹2.5 crore payment made by Tata Realty to vacate the premises so that it could occupy them under a 60 month leave and licence arrangement was allowable as revenue expenditure.

A Bench of Justices Dipankar Datta and Sheel Nagu while refusing to interfere with the High Court's January 28, 2026 judgment, said that the High Court had followed its earlier decision in Pr. Commissioner of Income Tax-7 v. Morgan Stanley India Securities Pvt. Ltd., against which no appeal had been filed.

"Having regard to the fact that no appeal has been carried from the order dated 21st January, 2020 in Income Tax Appeal No.1701 of 20171, which has been followed by the Division Bench of the High Court of Judicature at Bombay in the impugned order dated 28th January, 2026, we see no reason to interfere with the impugned judgment and order of the High Court; hence, the special leave petition stands dismissed."

The case arose from an income tax dispute between the Principal Commissioner of Income Tax and Tata Realty & Infrastructure Ltd. The Revenue challenged the Income Tax Appellate Tribunal's May 9, 2019 order before the Bombay High Court, raising three questions concerning Section 14A disallowance and the treatment of expenditure on tenancy rights.

The first two issues concerned whether Section 14A could apply when the assessee had earned no exempt income during the relevant assessment year, with the Revenue relying on CBDT Circular No. 5/2014. The High Court noted that these questions were already covered by its decision in Principal CIT v. Morgan Stanley India Securities Pvt. Ltd.

The third issue concerned ₹2.5 crore paid to Brandon and Company Pvt. Ltd. for vacating premises so that Tata Realty could occupy them under a 60 month leave and licence arrangement.

The ITAT had treated this amount as revenue expenditure rather than capital expenditure, relying on the Supreme Court's decision in CIT v. Madras Auto Service (P) Ltd.

The Bombay High Court held that none of the three questions raised a substantial question of law. It upheld the Tribunal's treatment of the ₹2.5 crore payment as revenue expenditure and dismissed the Revenue's appeal without costs.

For Petitioner: Raghavendra P Shankar, A.S.G., Advocates Sudarshan Lamba- 3667, AOR, V Chandrashekhara Bharathi, Medha Pushkarna, Alak Alok Srivastava, Shubhankar Singh

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