Interest expense not allowed as borrowed funds used for earning exempt income: Bombay HC

Mahesh K. Mehta Vs DCIT (Bombay High Court) Bombay High Court held that as per section 14A of the Income Tax Act any expenditure incurred in relation to any income which is not included in total income would not be allowed as expenditure. Thus, interest on borrowed funds used to earn dividend which is exempt from tax cannot be allowed as expenditure. Facts- Appellant borrowed capital and invested primarily in shares of two companies, viz., MKM Shares and Stock Brokers Ltd. and MKM Finance and Investment Pvt. Ltd. Assessee had allocated amount of Rs.36,88,866/- interest that he had paid on borr...