Section 14A disallowance fails without exempt income; enhancement based on an impermissible suo motu disallowance was deleted.

Disallowance under section 14A read with Rule 8D(2) was held unsustainable because no exempt income was earned during the relevant year. The Commissioner (Appeals) could not enhance the assessment under section 37(1) by relying on the assessee's stated suo motu disallowance, since there is no estoppel against law and an impermissible disallowance cannot be fastened on that basis. The enhancement and related disallowance were deleted, with the issue decided in favour of the assessee.

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Issues: Whether the disallowance made under section 14A read with Rule 8D(2) could be sustained and whether the Commissioner (Appeals) could enhance the assessment under section 37(1) by relying on the assessee's alleged suo motu disallowance.

Analysis: The assessee had not earned exempt income during the relevant year, and the disallowance under section 14A read with Rule 8D(2) was therefore not sustainable. The subsequent enhancement under section 37(1) proceeded on the footing that the assessee had itself made a disallowance, but there is no estoppel against law. A disallowance that is not legally permissible cannot be fastened on the assessee merely because it was mentioned by way of concession or working in the proceedings. The enhancement thus rested on an unsustainable basis.

Conclusion: The enhancement and the related disallowance were deleted, and the issue was decided in favour of the assessee.

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