INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - No exempt income earned by assessee -

The issue that arose for consideration in the appeal was as to whether the revenue authorities were justified in disallowing expenses by invoking the provisions of section 14A which provides that any expenditure incurred in earning income which does not form part of the total income shall be disallowed in computing total income. Assessee company was engaged in the business of developing and maintaining real estate properties. Assessee was a company engaged in the business of developing and maintaining real estate properties. The admitted factual position is that though the assessee was a partner in two firms, it did not receive any share income from those firms and therefore, there was no income which does not form part of the total income under Chapter III that was earned by the assessee. The assessee also did not earn any other exempt income, more importantly any dividend income. Revenue authorities, however, disallowed certain expenses under section 14A read with rule 8D.Held: There can be no disallowance of expenses under section 14A, if there was no exempt income earned during the relevant previous year. The disallowance of expenditure under section 14A could not, therefore, be sustained and the same was directed to be deleted.

Followed:Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del) : 2015 TaxPub(DT) 3520 (Del-HC) and UB Infrastructure Projects Ltd. v. Dy. CIT ITA No. 2098/Bang/2016 [asstt. yr. 2012-13], Order dated 22-12-2017].

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15 & 2015-16

INCOME TAX ACT, 1961

Section 14A Section 8D

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