No exempt income means no disallowance of expenditure under section 14A read with Rule 8D.

Disallowance of expenditure under section 14A read with Rule 8D cannot be sustained where the assessee has not earned any exempt income during the relevant year. The Tribunal applied the settled principle that section 14A operates only in relation to expenditure incurred to earn income not forming part of total income, and since the absence of exempt income was undisputed, no corresponding disallowance could arise. The deletion of the addition by the Commissioner (Appeals) was therefore upheld.

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Issues: Whether disallowance under section 14A read with Rule 8D could be sustained when the assessee had not earned any exempt income during the relevant year.

Analysis: The assessee had not earned any exempt income in the year under consideration, and this factual position was not in dispute. The Tribunal noted that the disallowance under section 14A is attracted only in relation to expenditure incurred for earning income not forming part of total income. Relying on the consistent view that where no exempt income is earned, no corresponding disallowance can be made under section 14A read with Rule 8D, the Tribunal held that the Commissioner (Appeals) had correctly deleted the addition.

Conclusion: The disallowance under section 14A read with Rule 8D was not warranted and the relief granted to the assessee was upheld.

Ratio Decidendi: In the absence of any exempt income during the relevant year, no disallowance can be made under section 14A read with Rule 8D.

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