2016 (2) TMI 505

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.... Advocate Ajay Kumar Mittal,J. 1. This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 18.6.2015, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Benches - 'SMC' in ITA No.978/Chd/2013 for the assessment year 2009-10, claiming following substantial question of law:- "Wh....

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....e and dividend income are exempt incomes, the Assessing Officer made disallowance of Rs. 4,09,675/- by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules,1962 (in short, "the Rules"). Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. Vide order dated 18.7.2013, Annexure A.2, the CIT(A) partly allowed....

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....d that for earning exempted income, no expenditure has been incurred, disallowance under section 14A of the Act cannot stand. In the present case, when the assessee claimed that it had not made any expenditure on earning exempt income, the Assessing Officer in terms of sub section (2) of Section 14A of the Act was required to collect such material evidence to determine expenditure if any incurred ....

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....out by the Assessing Officer comes to Rs. 4,09,675/-. Thus, it is clear that the AO has disallowed the entire tax exempt income which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section 14A, and is only to the extent of disallowing expenditure "incurred by th....