Facts of the Case

The appeal was filed by the Revenue challenging the order dated 27.09.2021 passed by the Income Tax Appellate Tribunal (ITAT). The dispute pertained to the deletion of disallowance amounting to ₹3,12,87,693 under Section 14A of the Income Tax Act for Assessment Year 2014–15.

The Tribunal held that the assessee had not made any claim of exempt income, and therefore, disallowance under Section 14A was not sustainable.

Additionally, there was a delay of 105 days in filing and 125 days in re-filing the appeal, which was condoned by the Court.

Issues Involved

  1. Whether disallowance under Section 14A can be made when no exempt income has been earned or claimed by the assessee.
  2. Whether the order of the ITAT deleting such disallowance was legally sustainable.

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the deletion of disallowance made under Section 14A.
  • It sought to assail the ITAT’s order which held that no disallowance was warranted in absence of exempt income.
  • It was also brought to the Court’s notice that Special Leave Petitions (SLPs) in similar matters were pending before the Supreme Court.

Respondent’s Arguments (Assessee)

  • The assessee contended that no exempt income was claimed, and hence Section 14A could not be invoked.
  • The respondent relied on settled judicial precedents supporting the proposition that disallowance under Section 14A is not applicable in absence of exempt income.

Court’s Findings / Order

  • The Delhi High Court held that the issue is squarely covered by binding precedents, including:
    • Cheminvest Limited v. Commissioner of Income Tax-VI (Delhi High Court)
    • Commissioner of Income-tax v. Chettinad Logistics (P.) Ltd. (Madras High Court)
  • It was noted that the Supreme Court had dismissed the SLP against Chettinad Logistics (P.) Ltd. on both delay and merits.
  • The Court concluded that:
    • No substantial question of law arises for consideration.
    • The Tribunal’s view was correct that Section 14A disallowance is not applicable where no exempt income is claimed.
  • Accordingly, the appeal filed by the Revenue was dismissed/closed.

Important Clarification

  • The Court recorded that although SLPs in similar matters are pending before the Supreme Court, the existing binding precedents continue to apply.
  • Thus, until overturned, the legal position remains that Section 14A cannot be invoked in absence of exempt income.

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS03052023ITA2502023_131600.pdf

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