Expenditure related to exempt income to be disallowed even if assessee has not earned any tax-free income

Special Bench of the Income Tax Appellate Tribunal, New Delhi  in the case of  holds that expenditure relating to exempt income to be disallowed even if assessee has not earned any tax-free income.

 Background

Section 14A of the Income-tax Act, 1961 (‘Act’), inserted by the Finance Act, 2001 with retrospective effect from 1 April 1962, provides that no deduction shall be allowed in respect of expenditure incurred in relation to exempt income.

Facts

Cheminvest Ltd. (‘assessee’) deals in portfolio investment of shares on capital account as well as trading account. The assessee utilized borrowed funds for the purposes of investment. The assessee did not receive any dividend income during the year.

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