INCOME TAX ACT, 1961

--Disallowance undr section 14A--Expenditure against exempt incomeDuividend income--Assessee was a distributor of State lotteries and a dealer in shares and securities. It had purchased certainf ull paid shares from 'K Ltd.' and converted its stock of partly paid shareds into fll paid shares. To pay for the conversion cost, it availed a loan from a certain company and paid a brokerage to a person for brokering tis loan. Assessee had earned dividend from shares of K Ltd. company and from shares of other companies also. AO was of the view that brokerage exependiture was directly attributable to the dividend income. He further considered the business expenditure claimed by the assessee and estimated the expenditure incurred by the assessee on earning of the dividend income under rule 8D of the IT Rules and disallowed the same as relatable to earning of the exempt income. Accordingly, he made disallowance of above expenditure udner section 14A. Assessee contended that it had incurred expenditure for purchasing shares, 63 per cent of shares so purchased were sold and the income derived therefrom was offered to tax as businss income and it was those remaining unsold shares which had yielded dividend, for which the it had not incurred any expenditure at all. Therefore, no expenditure could be attributed to the said dividend income. Held: When no expenditure is incurred by the assessee in earning the dividend income, no notional expenditure could be deducted from the said income. It is not the case of the assessee retaining any shares so as to have the benefit of dividend. 63% of the shares, which were purchased, are sold and the income derived thereform is offered to tax as business income. When the assessee had not retained shares with the intention of earning dividend income and the dividend income was incidental to his business of sale of shares, which remained unsold by the assessee, it could not be said that the expenditure incurred in acquiring the shares had to be apportioned to the extent of dividend income and that should be disallowed under section 14A from deductions.