The Tax Publishers2021 TaxPub(DT) 0151 (Chen-Trib)

INCOME TAX ACT, 1961

Section 14A

High Court in the case of Cheminvest Ltd. (2015) 378 ITR 33 (Del-HC) : 2015 TaxPub(DT) 3520 (Del-HC) wherein it was clearly held that disallowance of expenditure under section 14A shall not exceed exempt income earned for the year, therefore, AO was directed to restrict the disallowance computed under section 14A read with rule 8D of IT Rules, 1962 to the extent of exempt income earned for the year.

Disallowance under section 14A - Expenditure incurred on exempted income - Validity -

Assessee was engaged in business of manufacturing of textiles, hand loom and power loom. Case was selected for scrutiny and assessment was completed under section 143(3) read with section 92CA(3) after making addition towards expenditure in relation to exempt income under section 14A read with rule 8D of IT Rules, 1962. CIT(A) upheld the additions made by AO towards disallowance of expenditure incurred in relation to exempt income under section 14A read with rule 8D of IT Rules, 1962, by holding that even in a case where assessee claimed that no expenditure was so incurred, statute had provided for presumptive expenditure which had to be disallowed. Held: It is a well-settled principle of law that disallowance computed under section 14A read with rule 8D shall not swallow entire income earned for the year. This principle is supported by decision of High Court in the case of Cheminvest Ltd. (2015) 378 ITR 33 (Del-HC) : 2015 TaxPub(DT) 3520 (Del-HC) where it was clearly held that disallowance of expenditure under section 14A shall not exceed exempt income earned for year. Thus, AO was directed to restrict disallowance computed under section 14A read with rule 8D of IT Rules, 1962 to the extent of exempt income earned for the year.

Followed:Cheminvest Ltd. (2015) 378 ITR 33 (Del-HC) : 2015 TaxPub(DT) 3520 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15


INCOME TAX ACT, 1961

Section 14A

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