Section 14A disallowance cannot exceed exempt income; further addition deleted where voluntary disallowance was already higher.

Under section 14A of the Income-tax Act, disallowance of expenditure relatable to exempt dividend income cannot exceed the exempt income itself. The assessee had already made a voluntary disallowance under section 14A read with rule 8D that was higher than the dividend income claimed exempt under section 10. Applying the settled cap on section 14A disallowance, the ITAT held that the further disallowance was unsustainable and deleted it in favour of the assessee.

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Issues: Whether the further disallowance made under section 14A of the Income-tax Act, 1961 was sustainable when the assessee had already made a disallowance exceeding the exempt dividend income.

Analysis: The assessee earned dividend income exempt under section 10 of the Income-tax Act, 1961 and had itself disallowed Rs. 29,44,969 under section 14A read with rule 8D of the Income-tax Rules, 1962, whereas the exempt income was only Rs. 18,48,394. The Tribunal applied the settled principle that disallowance under section 14A cannot exceed the exempt income and that the expenditure relatable to exempt income must be confined to that limit.

Conclusion: The further disallowance was not sustainable and was deleted in favour of the assessee.

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