Facts of the Case

The present appeal was filed by the Revenue challenging the order dated 30.08.2022 passed by the Income Tax Appellate Tribunal. The matter pertains to Assessment Year 2015–16.

The core issue arose from a disallowance made by the Assessing Officer under Section 14A read with Rule 8D of the Income Tax Rules. The disallowance was made despite the fact that the assessee had not earned any exempt income during the relevant assessment year.

Additionally, there was a delay of 60 days in re-filing the appeal by the Revenue, which was condoned by the Court as the same was not opposed by the assessee.

Issues Involved

  1. Whether disallowance under Section 14A read with Rule 8D can be made when no exempt income has been earned by the assessee?
  2. Whether the order of the Tribunal deleting such disallowance suffers from any legal infirmity warranting interference?

Petitioner’s Arguments (Revenue)

The Revenue contended that the Assessing Officer had rightly invoked Section 14A read with Rule 8D for making disallowance of expenditure allegedly incurred in relation to exempt income.

It was argued that the Tribunal erred in deleting the disallowance, and the matter required consideration as a substantial question of law.

 

Respondent’s Arguments (Assessee)

The assessee supported the order of the Tribunal and contended that no disallowance under Section 14A could be made in the absence of any exempt income earned during the relevant assessment year.

It was further submitted that the issue is already settled by binding judicial precedents.

 

Court’s Findings / Order

The Delhi High Court observed that the issue raised by the Revenue is no longer res integra and is covered by earlier judicial precedents, including:

  • Cheminvest Ltd. v. CIT (2015) 378 ITR 33
  • CIT v. M/s Chettinad Logistics Pvt. Ltd. [2017] 80 taxmann.com 221 (Madras)
  • PCIT v. M/s Modern Info Technology Pvt. Ltd. (ITA 250/2023)

The Court also noted that the Special Leave Petition against the decision in Chettinad Logistics Pvt. Ltd. was dismissed by the Supreme Court, thereby affirming the legal position.

In view of the settled law, the Court held that no substantial question of law arises for consideration.

Accordingly, the appeal filed by the Revenue was dismissed.

 

Important Clarification

The judgment reinforces the settled principle that: Disallowance under Section 14A cannot be made where the assessee has not earned any exempt income during the relevant assessment year.

This decision further strengthens consistency in judicial interpretation and reduces unnecessary litigation on settled issues.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS08052023ITA2632023_182054.pdf 

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