INCOME TAX ACT, 1961

Section 14A read with rule 8D

Disallowance under section 14A - Expenditure against exempt income - Disallowance cannot exceed exempt income -

During the assessment in the appellate proceedings, assessee offered restricted disallowance of Rs. 1.30 crores. Tribunal, however, raised two contentions, firstly that the statutory auditors in the report had made disallowance of Rs. 2.53 crores and secondly that in view of the assessee's income which was exempt, the disallowance had to be made in terms of rule 8D of the rules. Held: The present case was not a case where assessee had earned no income which was exempt from tax. Where assessee's income exempt from tax was not NIL but had earned exempt income which was larger than the expenditure incurred by assessee in order to earn such income. In such a situation the disallowance could not exceed the exempt income so earned by assessee during the year under consideration. Assessee had offered voluntary disallowance of expenditure of Rs. 1.30 crores, which had not been disturbed by the Tribunal.

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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