If for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand

By TG Team Income Tax Judiciary January 4, 2012

TaxGuru Citation: 2012 taxguru.in 13
Case Name: Commissioner of Income Tax Vs Wimco Seedlings Ltd. (Delhi High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Delhi High Court

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CIT Vs. Wimco Seedlings Ltd. (Delhi HC) – It was held that unless and until there was actual expenditure for earning the exempted income, there could not be any disallowance under section 14A. While we agree that the expression ‘expenditure incurred’ refers to actual expenditure and not to some imagined expenditure, we would like to make it clear that the ‘actual’ expenditure that is in contemplation under section 14A(1) of the said Act is the ‘actual’ expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income, no disallowance can be made under section 14A of the said Act.

ORDER

RAJIV SHAKDHER, J

1. The captioned appeals being three (3) in number are directed against a common judgment of the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal) dated 22.02.2008. ITA No.1367/2008 relates to Assessment Year 1991-1992; ITA No.1368/2008 pertains to Assessment Year 1990-1991, while ITA No.1391/2008 pertains to Assessment Year 1989-1990.

1.1 The short issue involved in these appeals is: whether common expenses incurred by an assessee can be allocated towards taxable and non-taxable income under the provisions of Section 14A of the Income Tax Act, 1961 (hereinafter referred to as the ^„I.T. Act^‟) as it stood at the relevant point in time.