Facts of the Case

  • The Revenue filed appeals against a common order dated 02.08.2022 passed by the ITAT.
  • The appeals related to Assessment Years:
    • 2014–15
    • 2015–16
    • 2016–17
    • 2017–18
  • The Tribunal had deleted disallowance made under Section 14A.
  • The core issue was whether disallowance under Section 14A can be made when no exempt income is earned.

Issues Involved

  • Whether disallowance under Section 14A of the Income Tax Act, 1961 is sustainable when no exempt income has been earned during the relevant assessment year.

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the ITAT erred in deleting the disallowance under Section 14A.
  • It argued that such disallowance should be sustained irrespective of whether exempt income was earned.

Respondent’s Arguments (Assessee)

  • The Respondent relied on settled judicial precedents.
  • It was contended that in absence of exempt income, Section 14A disallowance cannot be invoked.

Court Order / Findings

  • The Court held that the issue is already covered by binding precedents:
    • Cheminvest Limited v. Commissioner of Income Tax-VI
    • CIT v. Chettinad Logistics (P.) Ltd.
    • PCIT Delhi-4 v. IL & FS Energy Development Co. Ltd.
  • It was noted that the Supreme Court dismissed SLP in Chettinad Logistics on delay as well as merits.
  • The Court concluded that:
    • No substantial question of law arises.
    • Disallowance under Section 14A cannot be made where no exempt income is earned.

Important Clarification

  • Section 14A is not applicable in absence of exempt income.
  • The legal position stands settled by consistent judicial precedents including affirmation by the Supreme Court (via dismissal of SLP).
  • Revenue appeals on this issue are not maintainable where facts show no exempt income.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/60828072023ITA4092023_114451.pdf

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