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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 ₹23.77 crore interest disallowance under Section 14A read with Rule 8D(2)(ii) for Assessment Year 2009-10. The reported decision turned on the case’s interest figures and concurrent findings that borrowed funds had been advanced onward in a back-to-back, interest-bearing transaction—not on a general rule that any taxpayer may offset any interest income against interest expense.
What did the Gujarat High Court decide?
As reported by LiveLawBiz, the Division Bench of Justices Bhargav D. Karia and Nirzar S. Desai dismissed the Revenue’s appeal, R/Tax Appeal No. 144 of 2016. The result leaves in place the Ahmedabad Income Tax Appellate Tribunal’s order sustaining deletion of the Assessing Officer’s ₹23.77 crore disallowance for AY 2009-10.
The accessible report was published on 3 October 2026 and does not separately give the date of the judgment. The figures and account below are those reported by LiveLawBiz; they have not been independently verified against the full order.
How did the ₹23.77 crore disallowance arise?
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 determining relevant interest expenditure that is not directly attributable to a particular income or receipt.
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According to the report, the Assessing Officer considered the company’s exempt dividend income and partnership-firm profit alongside its interest receipts and interest expenditure, then calculated a ₹23.77 crore proportionate interest disallowance under Rule 8D(2)(ii).
| Reported assessment figure | Amount |
|---|---|
| Dividend income | ₹79.20 crore |
| Partnership-firm profit | ₹18.38 lakh |
| Interest income | ₹26.08 crore |
| Interest expenditure | About ₹25.77 crore |
These amounts are reported in LiveLawBiz’s 2026 account and are not independently confirmed from the assessment record or judgment. The dispute concerned the interest disallowance; the reported ruling did not make the exempt dividend income itself taxable.
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Why was the disallowance deleted?
The interest receipts exceeded the reported interest expense
The High Court reportedly applied its earlier decision in Nirma Credit & Capital (P.) Ltd. when considering interest income in determining the interest expenditure relevant under Rule 8D(2)(ii). In the figures reported for this assessment, interest income exceeded interest expenditure. The court therefore found no excess interest expenditure of the kind relied on for the disallowance.
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The lower authorities found a back-to-back transaction
The company argued that borrowed money had been passed onward as an interest-bearing advance, with a direct connection between the interest paid and interest earned. The report says the Commissioner of Income Tax (Appeals) found the interest on the advance identical to the interest paid on the borrowing. The ITAT upheld that finding and treated the borrowing and onward advance as a back-to-back transaction. The High Court reportedly relied on those concurrent factual findings, along with Shreno Ltd., in finding no error in the ITAT’s decision.
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The Revenue disputed the tracing of funds
Before the High Court, the Revenue argued that the company used mixed funds and maintained no separate accounts for the borrowed funds and the onward advance. The report says the court nevertheless accepted the lower authorities’ concurrent findings on the transaction and the interest position in this case.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What does this mean for Section 14A and Rule 8D?
The decision, as reported, is a fact-specific application of Gujarat High Court precedent. It does not establish that every interest expense can be netted against interest income, or that proof of a direct connection can be skipped. The outcome depended on the reported interest figures, the lower authorities’ findings about the onward interest-bearing advance, and the court’s application of existing precedent.
For a taxpayer assessing a different case, the key questions remain whether the relevant interest is attributable to the exempt-income activity, what the evidence shows about the use of borrowed funds, and whether the governing rule and applicable precedent support the proposed calculation. This case report alone does not determine those questions for other facts or assessment years.
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What remains uncertain in the available account?
- Judgment date: LiveLawBiz’s publication date is 3 October 2026; the accessible report does not identify the order date.
- Recipient of the advance: One part of the report says the CIT(A) recorded an advance to Adani Infrastructure Developers Pvt. Ltd.; its quotation of the High Court refers to Adani Enterprises Limited. The recipient cannot be settled from the accessible report.
- Primary-order verification: The report links to the full-order PDF, but that order was not retrievable for independent transcript checking. Its account is therefore secondary, not a substitute for the judgment.
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