PR. COMMISSIONER OF INCOME TAX, CENTRAL-3, DELHI vs. JINDAL SAW LTD.

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ITA/446/2026HC DelhiDLHC01108689202308 July 2026Author: HON'BLE MR. JUSTICE RAJNEESH KUMAR GUPTA,HON'BLE MR. JUSTICE DINESH MEHTA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. Regarding the disallowance under Section 14A, the Court noted that the assessee's counsel submitted that this issue had already been decided against the Department by the High Court in CIT vs. Caraf Builders & Constructions Pvt. Ltd., with an SLP rejected by the Supreme Court. While the Court did not elaborate on its reasoning for Section 14A in this specific judgment, it implicitly accepted the prior High Court ruling. For the disallowance under Section 40(a)(ia), the Court held that if tax has been deducted, the assessee cannot be held in default or the amount disallowed under Section 40(a)(ia) merely because a different provision was cited for deduction, especially when the Tribunal had set aside the orders holding the assessee in default. Therefore, these grounds were decided against the Revenue. The operative direction was the dismissal of the Revenue's appeal.

What were the facts?

The appeal was filed by the Pr. Commissioner of Income Tax, Central-3, Delhi (Revenue) against the order of the Income Tax Appellate Tribunal (ITAT). The assessment year(s) are not explicitly stated but implied to be related to the disallowances made. The ITAT had deleted disallowances made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, amounting to Rs. 6,77,46,043, and under Section 40(a)(ia) of the Act, amounting to Rs. 1,66,16,422. The disallowance under Section 40(a)(ia) was made because the AO believed the assessee had deducted tax under the wrong section. The ITAT had also set aside orders passed by the ITO(TDS) under Sections 201(1) and 201(1A) concerning this disallowance. The High Court was considering these grounds of appeal.

What were the issues?

1. Whether on the facts and circumstances of the case, the ITAT is justified in deleting the disallowance under Section 14A of the Income Tax Act, 1961, amounting to Rs. 6,77,46,043? (Question of law and fact, concerning Section 14A). This question is further broken down into sub-questions regarding whether earning exempt income is essential for Section 14A, whether 'in relation to' implies a direct nexus, and whether the ITAT was justified in deleting the disallowance by not considering the legislative intent and CBDT circular, and by ignoring the Supreme Court ruling in CIT Vs Rajendra Prasad Moody. 2. Whether on the facts and circumstances of the case, the ITAT is justified in deleting the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961, amounting to Rs. 1,66,16,422? (Question of law and fact, concerning Section 40(a)(ia)). This includes whether the ITAT was justified by ignoring the orders under Sections 201(1) and 201(1A) and the AO's findings. Assessee's Contention: Regarding Section 14A, the assessee argued that this issue was decided against the Department by the High Court in CIT vs. Caraf Builders & Constructions Pvt. Ltd., and an SLP was rejected by the Supreme Court. Regarding Section 40(a)(ia), the assessee contended that the disallowance was based on the AO's view that tax was deducted under the wrong section (Section 194C instead of 194I). However, the Tribunal had set aside the orders under Sections 201(1) and 201(1A), reversing the AO's premise, thus invalidating the disallowance. Revenue's Contention: The Revenue's contentions are implied through the questions of law framed in the appeal, challenging the ITAT's deletion of disallowances under Section 14A and Section 40(a)(ia). No specific arguments for the Revenue were recorded in the provided text.

Which sections of the Income-tax Act were involved?

Section 14A,Section 40(a)(ia),Section 194C,Section 194I,Section 201(1),Section 201(1A)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
$~5 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 446/2026, CM APPL. 36357/2026, CM APPL. 36358/2026 PR. COMMISSIONER OF INCOME TAX, CENTRAL-3, DELHI .....Appellant Through: Mr.Gaurav Gupta, SSC, Mr.Shivendra Singh JSC, Mr.Yojit Pareek JSC and Ms. Aryama Singh Rajput, Adv. versus JINDAL SAW LTD. .....Respondent Through: Mr. Rohit Jain, Mr. Saksham Singhal & Mr. Tavish Venna, Advocates. CORAM: HON'BLE MR. JUSTICE DINESH MEHTA HON'BLE MR. JUSTICE RAJNEESH KUMAR GUPTA

O R D E R %

08.07.

2026

1.

The instant appeal has been preferred on the following questions:- “2.1 Whether on the facts and the circumstances of the case, ITAT is justified in deleting the disallowance under section 14A of the I.T. Act amounting to Rs.6,77,46,043/-.

2.

2 Whether for application of Section 14A of the Income Tax Act, 1961 the earning of exempt income is an essential legal requirement?

2.

3 Whether the term in relation to' as used in Section 14A of the Act contemplates a direct and proximate nexus between ‟expenditure incurred' and earning of exempt income?

2.

4 Whether ITAT is legally justified in deleting disallowance under section 14A of the Act because the assessee had not earned tax exempt income during the year, under considering the legislative intent of introduction of Section 14A by the Finance Act, 2001 This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/07/2026 at 15:36:37

and subsequent clarification issued by CBDT vide circular No. 5/2014 dated 10/02/2014?

2.

5 Whether the ITAT is legally justified in deleting the disallowance under section 14A of the Act by not considering a legal principle that allowablity/disallowability of expenditure under the Act is not conditional upon the earning of the income as held by Hon'ble Supreme Court in the case of CIT Vs Rajendra Prasad Moody (1978) 15 ITR 519?.

2.

6 Whether on the facts and circumstances of the case ITAT is justified in deleting the disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 amounting to Rs. 1,66,16,422/-?

2.

7 Whether on the facts and circumstances of the case ITAT is justified in deleting the disallowance under section 40(a)(ia) of the Income-tax Act, 1961 amounting to Rs. 1,66,16,422/- by ignoring the order under sections 201(1) and 201(1A) passed by ITO(TDS) on 28.03.2011. 2.8 Whether on the facts and circumstances of the case ITAT is justified in deleting the disallowance u/s 40(a)(ia) of the Income-tax Act, 1961 amounting to Rs. 1,66,16,422/- by ignoring the detailed finding of the Assessing Officer?”

2.

Mr. Jain, learned counsel appearing on behalf of the respondent- assesee, at the outset, submitted that so far as the first issue regarding deletion of disallowance under Section 14A of the Income Tax Act, 1961 (hereinafter referred to as „the Act of 1961‟) is concerned, the same has been decided by this Court against the Department in the case of CIT vs. Caraf Builders & Constructions Pvt. Ltd. 101 Taxmann.com 167 and an SLP filed thereagainst also has been rejected by the Hon’ble the Supreme Court.

3.

While adverting to question Nos. 2.7 and 2.8 in relation to Section 40(a)(ia) of the Act of 1961 whereby the Assessing Officer (hereinafter This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/07/2026 at 15:36:37

referred to as „AO‟) had disallowed the expenditure of Rs. 1,66,16,422/-, Mr. Jain submitted that disallowance was made, as the assessee had deducted tax under Section 194 C of the Act of 1961 whereas according to the AO, it should have been under Section 194I of the Act of 1961. 4. Mr.Jain, further submitted that so far as the order 201(1) and 201(1A) of the Act dated 28.03.2011 relied upon by the AO are concerned, the Tribunal has set aside the same and since the AO’s view that the tax was deducted under the wrong provision itself has been reversed, there cannot be any justification for disallowing the expenditure.

5.

Having heard learned counsel for the parties, we are of the view that when the tax has been deducted and simply because it has been deducted citing a provision, the assessee can neither be held to be in default nor can the amount be disallowed by invoking Section 40(a)(ia) of the Act of 1961. More particularly, when the Tribunal has set aside the order holding the assessee to be in default, these grounds of appeal are, therefore, also decided against the Revenue.

6.

As a result of the discussion aforesaid, the appeal filed by the Revenue is dismissed.

7.

All pending applications, including the application(s) seeking condonation of delay in filing/re-filing also stand disposed of.

DINESH MEHTA, J.

RAJNEESH KUMAR GUPTA, J. JULY 8, 2026/neelam

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 13/07/2026 at 15:36:37

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