disallowability u/s 14A of income tax act

[Guest]

sir

we have borrowed funds & invested the same in shares.the dividend income earned is rs.7 lac & amt of interest on borrowed fund is rs.9 lac. the question is whether whole interest re.9 lac is disallowed or only to the extent of rs.7 lac?? are dere supporting case laws where exp. is disallowed only to extent of exempt income earned..

whether there exists any other option to claim the remaining interest exp. in some other way..

plz guide

[Guest]

Hello Dear

Your case is very much clear as section 14A says that expenses are disallowed in relation to income which is purely exempt from tax. Expenses should be very much clear for the purpose of invoking of section 14A  by the Assessing officer if AO is unable to brought out specific expenditure in the perview then AO cant disallow the expeniture on persumtive basis. The expenses are disallowed even thought during the year you have not eaarned any income which is exempted if the purpopse of investment is to earn exepted income.

In my opinion the interest expentirure of Rs. 9 Lacs should be totally disallowed as the purpose behind the investment is to earn income in the form of dividend and capital gain which is purely exempted nature income.

Hope the inform at in will suffice you 

 

AI Summary

Section 14A disallowance applies to expenses incurred for earning exempt income, potentially disallowing related interest. Disallowance under section 14A denies deduction for expenses related to exempt income, including interest on borrowed funds used to buy dividend paying shares. Expenses may be disallowed even if exempt receipts are not realized, provided the purpose of the investment was to earn exempt income. The assessing officer must establish a clear connection and identify specific expenditures attributable to the exempt income purpose; absent such specificity, presumptive disallowance is improper. On the facts, the advisor advises total disallowance of the interest as the investment purpose was to earn exempt income.