Facts of the Case

The Revenue filed an appeal before the Delhi High Court against the assessee, JBM Auto Ltd., challenging the deletion of disallowance under Section 14A of the Income Tax Act.

During the hearing, the Revenue admitted that the assessee had not earned any exempt income in the relevant assessment years.

The issue arose from disallowance made despite the absence of exempt income.

Issues Involved

  1. Whether disallowance under Section 14A can be made when the assessee has not earned any exempt income during the relevant assessment year?
  2. Whether such a case gives rise to a substantial question of law?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that disallowance under Section 14A was justified.
  • It argued that expenses incurred in relation to investments should be disallowed irrespective of whether exempt income was actually earned.

Respondent’s Arguments (Assessee)

  • The assessee submitted that no exempt income was earned during the relevant assessment years.
  • Therefore, Section 14A could not be invoked.
  • The assessee relied on judicial precedents stating that Section 14A applies only when exempt income exists.

Court’s Findings / Order

  • The Court observed that the Revenue accepted the factual position that no exempt income was earned.
  • It relied on its own decision in:
    PCIT-6 vs McDonald’s India Pvt. Ltd. (ITA 725/2018)
  • The Court held:
    • No disallowance under Section 14A can be made in absence of exempt income.
    • No substantial question of law arises in such circumstances.

Final Order

  • The appeal filed by the Revenue was dismissed.
  • No order as to costs.

Important Clarification

  • The Delhi High Court reaffirmed the settled principle: Section 14A disallowance cannot be made where no exempt income is earned during the relevant assessment year.
  • This judgment strengthens the consistency of judicial interpretation across multiple rulings.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8338-DB/SKN22102018ITA11182018_104526.pdf

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