2014 (2) TMI 1265

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....ion 260A of the Income Tax Act, 1961 (in short, "the Act") against the order dated 30.5.2008, Annexure A-III passed by the Income Tax Appellate Tribunal, Delhi Bench 'G' New Delhi (in short, "the Tribunal") in ITA No.3783/DEL/2004, for the assessment year 2000-01, proposing to raise following substantial question of law for determination of this Court:- "Whether, on the facts and in the circumstances of the case, the Hon'ble ITAT is right in law in directing the Assessing Officer to restrict the disallowance to the expenditure for earning dividend of Rs. 7200/- instead of Rs. 63,87,408/- made by the Assessing Officer even when the provisions of section 14A of the Income Tax Act are directly applicable in the instant case?" 3. A few facts ....

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....g in view the above facts and circumstances of the case it is held that the AO was not correct in applying section 14A of the IT Act in disallowing the expenditure on account of interest amounting to Rs. 63,87,408/-. It was incumbent on the AO to establish a nexus between the expenditure incurred and the income which was exempt under the Act. Facts clearly do not support the action of the AO. Disallowance is accordingly deleted. The AO is directed to recompute the income accordingly." 6. The Tribunal vide its order dated 30.5.2008, Annexure A.III held as under:- "4. We have considered the facts of the case and the rival submissions. We find that the issue stands squarely covered by the order of Hon'ble ITAT, Delhi Bench 'G' New Delhi in t....

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....bay Bench of the Tribunal is reproduced below:- 'Regarding application of Section 14A of the Act, the contention of the learned Department Representative has to be rejected on the face of it inasmuch as the entire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no disallowance can be made under section 14A of the Act.' 10. Moreover, the AO has not established t....

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....of finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance under section 14A requires finding of i....