The Gujarat High Court dismissed the Revenue’s appeal in Principal Commissioner of Income Tax-1 v. Adani Infrastructure Services Pvt. Ltd., leaving undisturbed the deletion of a reported ₹23.77 crore interest disallowance under Section 14A read with Rule 8D(2)(ii). The reported basis was specific to the case: interest income exceeded interest expenditure after set-off, and lower appellate authorities had found that borrowed funds were passed onward in an interest-bearing, back-to-back transaction.
What the Gujarat High Court decided
In R/Tax Appeal No. 144 of 2016, arising from the Ahmedabad Income Tax Appellate Tribunal’s decision for Assessment Year 2009-10, the Division Bench of Justice Bhargav D. Karia and Justice Nirzar S. Desai dismissed the Revenue’s appeal. The result was to leave in place the deletion of the ₹23.77 crore disallowance reported in the case. The available account is LiveLawBiz’s report published on 3 October 2026; it does not separately state the judgment date. Read the LiveLawBiz report.
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How the dispute arose
The assessment and disallowance
The Assessing Officer considered exempt dividend income and partnership-firm profit alongside the company’s interest receipts and interest expense. LiveLawBiz reports dividend income of ₹79.20 crore, partnership-firm profit of ₹18.38 lakh, interest income of ₹26.08 crore and interest expenditure of about ₹25.77 crore. These are figures stated in that report, not figures independently checked against the assessment record or judgment.
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Despite the reported interest income exceeding the reported interest expense, the Assessing Officer calculated a proportionate interest disallowance of ₹23.77 crore under Rule 8D(2)(ii), read with Section 14A.
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The appellate findings
The company argued that borrowed money had been advanced onward for interest, linking the interest paid on borrowing with the interest earned on the advance. According to LiveLawBiz, the Commissioner of Income Tax (Appeals) found the interest on the advance identical to the interest paid on the borrowing and deleted the disallowance. The Ahmedabad ITAT upheld that decision, finding that the borrowing had been passed on in a back-to-back transaction.
Before the High Court, the Revenue argued that the company used mixed funds and did not keep separate accounts for borrowed funds and the onward advance. The High Court reportedly relied on the concurrent factual findings of the CIT(A) and the ITAT, as well as its earlier decisions in Nirma Credit & Capital (P.) Ltd. and Shreno Ltd..
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Why the interest figures mattered
Section 14A addresses expenditure incurred in relation to income that does not form part of taxable total income. Rule 8D(2)(ii) prescribes a method for calculating relevant interest expenditure that is not directly attributable to a particular income or receipt. The case concerned the interest component of that calculation—not whether the exempt dividend itself became taxable.
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Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →As reported, the court considered the interest income against the interest expenditure and found no excess interest expenditure of the kind relevant to the challenged disallowance. It also had concurrent findings that the borrowed funds were advanced onward in a back-to-back transaction. On those reported facts, it found no error in the Tribunal’s decision to sustain deletion of the disallowance.
The ruling should not be read as a blanket permission to set off any interest income against any interest expense. Its reported reasoning depends on the figures and the factual connection between the borrowing and the onward interest-bearing advance in this assessment.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What is established—and what remains uncertain
The accessible account is a detailed secondary report, not the full judgment. LiveLawBiz links to an order PDF, but that document was not retrievable for independent verification. The report also gives conflicting names for the recipient of the onward advance: one passage identifies Adani Infrastructure Developers Pvt. Ltd., while its reproduction of the court’s reasoning names Adani Enterprises Limited. The recipient should therefore not be treated as settled on the basis of the report alone.
For the same reason, the court’s reported wording should not be presented as independently verified against the order. The safe account of the outcome is that the High Court dismissed the Revenue’s appeal and left the Tribunal’s deletion undisturbed, on the reported reasoning and facts described above.
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