Assessee engaged in the business of real estate and construction had filed its return for AY; 2009-10 declaring an income of Rs. 55,45,092/-and for AY: 2010-11 and an income of Rs. 8,07,253/-. During the course of assessment proceedings, it was noted by the AO that the assessee had investments worth Rs. 77,57,63,341/-in the form of shares in various companies and investment of Rs. 12,07,42,035/- in a partnership firm.
These investments which were made during the previous year relevant to AY: 2009-10 continued without change for AY : 2010-11 also. AO sought explanation from the assessee why a dis allowance u/s 14A of the Act should not be made. For AY: 2009-10, the assessment proceedings were selected for monitoring by Addl.CIT, Range-II, Bangalore under powers vested on him u/s 144A of the Act. The Addl. CIT, also had issued a notice on 31-05-2011, proposing a dis allowance u/s 14A of the Act. Reply of the assessee was that the interest expenditure incurred by it was on loans raised from M/s India Bulls which were used for its day today working. As per the assessee it was the holding company of about ten number of companies and as a part of its regular business was taking advance from group companies and giving advances to other group companies, as per the availability and requirement of funds. Argument of the assessee was that nothing out of the loan amount was used for making any investments which attracted Sec.14A of the Act. Assessee also pointed out that it was not having any exempt income at all.
Held : – From the reading of section 14A of the Act, it is clear that before making any dis allowance the following conditions are to exist:-
a) That there must be income taxable under the Act, and
b) That this income must not form part of the total income under the Act, and
c) That there must be an expenditure incurred by the assessee, and
d) That the expenditure must have a relation to the income which does not form part of the total income under the Act.
Therefore, unless and until, there is receipt of exempted income for the concerned assessment years, we are of the view, Section 14A of the Act cannot be invoked.