Where assessee has not sought any income exemption, there cannot be any expense thereagainst to be disallowed

Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to income not includible in total income (Conditions precedent) - Whether where assessee did not make any claim for exemption of any income from payment of tax, disallowance under section 14A could not be made - Held, yes

Commissioner of income-tax - I

v.

Corrtech Energy (P.) Ltd

■		The assessee invested some money in shares out of the funds available to him. He borrowed funds for his business. The interest expenses claimed by the assessee was disallowed proportionately by the Assessing Officer under section 14A by applying rule 8D.
■		On appeal, the Commissioner (Appeals) confirmed such disallowance by observing that the assessee made investment in shares which would result only in dividends which would be exempt from tax and that not receiving any exempt income during current year would not entitle assessee to claim expenses related to investments.
■		On second appeal, the Tribunal held that the assessee had not claimed any exempt income in this year, in such a situation section 14A could have no application. The Tribunal, deleted the addition made under section 14A.
		held ■   Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.