Section 14A disallowance cannot exceed exempt income earned; Rule 8D addition restricted accordingly.

Disallowance under section 14A read with Rule 8D was held not to exceed the exempt income earned during the relevant year. Following binding jurisdictional precedent, the Tribunal held that expenditure relatable to exempt income can be disallowed only up to the amount of that exempt income, and any further addition made by applying Rule 8D beyond that limit was unsustainable. The disallowance was therefore restricted to the exempt income actually received, and the assessee obtained relief to that extent.

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Issues: Whether the disallowance under section 14A read with Rule 8D could exceed the exempt income earned by the assessee.

Analysis: The exempt income during the year was only Rs. 1,615. The Tribunal followed the binding jurisdictional precedent that disallowance of expenditure relatable to exempt income cannot go beyond the amount of exempt income. On that basis, the further addition made by applying Rule 8D was not sustainable beyond the exempt income actually earned.

Conclusion: The disallowance was restricted to Rs. 1,615, and the assessee obtained relief to that extent.

Ratio Decidendi: Disallowance under section 14A read with Rule 8D cannot exceed the exempt income earned during the relevant assessment year.

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