Facts of the Case

  • The Revenue filed appeals against a common order passed by the ITAT dated 02.08.2022.
  • The dispute related to Assessment Years:
    • 2014–15
    • 2015–16
    • 2016–17
    • 2017–18
  • The ITAT had deleted disallowance under Section 14A, holding that no exempt income was earned by the assessee during the relevant years.
  • The Revenue challenged this deletion before the High Court.

Issues Involved

  1. Whether disallowance under Section 14A can be made when no exempt income is earned during the relevant assessment year.
  2. Whether the ITAT was correct in deleting such disallowance.

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that:
    • The ITAT erred in deleting the disallowance under Section 14A.
    • Even in absence of exempt income, expenditure related to investments should be disallowed.

Respondent’s Arguments

  • The Respondent (assessee) relied on settled judicial precedents:
    • No disallowance under Section 14A is permissible if no exempt income is earned.
  • The issue was already covered by binding judicial decisions.

Court’s Findings / Order

  • The Delhi High Court held that:
    • The issue is squarely covered by precedents, including:
      • Cheminvest Limited v. Commissioner of Income Tax-VI
      • CIT v. Chettinad Logistics Pvt. Ltd.
      • PCIT Delhi 4 v. IL&FS Energy Development Co. Ltd.
    • The Supreme Court had dismissed the SLP in Chettinad Logistics case, confirming the principle.
  • Therefore:
    • No substantial question of law arises.
    • Appeals filed by the Revenue were dismissed.

Important Clarification

  • Section 14A disallowance cannot be invoked where no exempt income is earned during the relevant financial year.
  • This principle is now well-settled and consistently upheld across courts.
  • The dismissal of SLP by the Supreme Court further strengthens the legal position.

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

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