2021 (3) TMI 655

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.... not dependent on the exempt income earned during the year? 2. Whether on the facts & circumstances of case, the ld. CIT(A) is correct in deleting the disallowance of expenses claimed against lease rent of Rs. 2,15,51,400/-." Disallowance u/s. 14A: 3. On the facts of the case, the ld. CIT(A) deleted the addition made by the AO u/s. 14A of the Income Tax Act, 1961 on the grounds that the assessee has earned tax free dividend income of Rs. 61,650/- only and the company had sufficient own funds to invest. The revenue filed appeal on the grounds that the disallowance u/s. 14A is not dependent on the exempt income. 4. While making the disallowance, the AO held as under: On going through the simple and plain language, it is abundantly clea....

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....;ble Court has held that even if the appellant had borrowed funds during the year, but otherwise had sufficient interest free funds available to meet, investment it can be presumed that investment were made from interest free funds........ 6. There must be actual incurring of expenditure and the expenditure must have clear relationship with exempt income. Section 14A cannot be invoked to disallow expenditure on the basis of assumption. 7. Where the assessee claims that no part of expenditure was incurred or points out and certain expenditure on having been incurred in relation to income which does not form part of total income, the Assessing Officer has to, before making any disallowance u/s. 14A of the Act, record his satisfaction givi....