TaxTMI 
TaxTMI 
2018 (1) TMI 1323
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....siness of trading of cotton yarn and lint, filed its return of income for the A.Y 2012-13 on 27-09- 2012 declaring a total income of Rs. 37,80,390/-. During the assessment proceedings u/s 143(3) of the IT Act, the A.O observed that the assessee has borrowed secured loans from UCO Bank - CC Limit with closing balance of Rs. 4,95,74,846/- and Kotak Mahindra Bank to the extent of Rs. 10,09,19,392/- and out the same amount had invested in the shares of associate company. The A.O also observed that the income generated from such investment is exempt from tax u/s 115(O) of the IT Act. Holding that there is a direct nexus between the secured loans outstanding and investment made in the associate company M/s Vasantha Spinners Ltd., he proposed to d....
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....he rival contentions and material on record, we find that the Tribunal in the case of M/s Karvy Stock Broking Limited (cited supra) has considered the issue at length and also the CBDT circular No. 5 of 2014 dated 11-02-2014, and the decision of the Hon'ble High Court of Madras in the case of Redington (India) Ltd. Vs. ACIT reported in (2017) 77 taxmann 257 (Mad) to hold that where there is no exempt income earned during the relevant financial year, there cannot be any disallowance u/s 14A of the IT Act. For the sake of ready reference, the relevant para is reproduced hereunder: 6. Having regard to the rival contentions and the material on record, we find that the provisions of section 14A are applicable to expenditure which has been incu....
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....allowance. On appeal to the High Court: Section 14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. The Supreme Court in the judgment in the case of CIT v. Walfort Share & Stock Brokers (P.) Ltd. [2010] 326 ITR 1/192 Taxman 211 has observed that section 14A desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The provision thus is clearly relatable to the earning of actual income and not n....