Section 14A disallowance fails where no exempt income is earned during the year

Where no exempt income was earned during the relevant assessment year, disallowance of expenditure under section 14A could not be sustained because no expenditure could be attributed to earning exempt income. The first appellate authority noted that section 14A had no application on these facts, and the ITAT upheld that view. The Revenue's challenge was rejected, and the disallowance was held unsustainable.

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Issues: Whether disallowance under section 14A could be sustained when no exempt income was earned during the relevant assessment year.

Analysis: The order of the first appellate authority recorded that section 14A had no application in the facts of the case because the assessee had not earned exempt income during the year under consideration, and therefore no expenditure could be attributed to earning such income.

Conclusion: The disallowance under section 14A was held to be unsustainable, and the Revenue's challenge was rejected.

Ratio Decidendi: Where no exempt income is earned during the relevant year, disallowance of expenditure under section 14A cannot be made for want of expenditure incurred for earning exempt income.

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