JK Investors (Bombay) Ltd vs. ACIT - Itatonline.org

ITA Nos.7858 & 7851 of 2011 JK Investors (Bombay) Ltd Mumbaiincome, then principle of apportionment embedded insection 14 A has no application. The objective of section14 A is not allowing to reduce tax payable on the normalexempt income by debiting the expenditure incurred toearn the exempt income. Thus, the expenses incurred toearn exempt income cannot be allowed and the expensesshall be allowed only to the extent they are related to theearning of taxable income. If there is expenditure directlyor indirectly incurred in relation to exempt income, thesame cannot be claimed against the income, which istaxable as it is held by the Hon'ble Supreme Court incase of Commissioner of Income-tax v. Walfort Share andStock Brokers P. Ltd. reported in 326 ITR 1 that forattracting the provisions of section 14 A, there should beproximate cause for disallowance which as relationshipwith the tax exempt income.5.1 The expenditure incurred in relation to the incomewhich does not form part of total income has to bedisallowed. However, it should be proximate relationshipbetween the expenditure and the income, which does notform part of total income. Once such proximityrelationships exist, the disallowance is to be effected. Incase the assessee had claimed that no expenditure hasbeen incurred for earning the exempt income, it was forthe assessing officer to determine as to whether theassessee had incurred any expenditure in relation toincome which did not form part of total income and if soto quantify the extent of disallowance. Thus, in order todisallow the expenditure under section 14A, there mustbe a live nexus between the expenditure incurred andthe income not forming part of total income. No notionalexpenditure can be apportioned for the purpose ofearning exempt income unless there is an actualexpenditure in relation to earning the income not formingpart of total income. If the expenditure is incurred with aview to earn taxable income and there is apparentdominant and immediate connection between theexpenditure incurred and taxable income, then nodisallowance can be made under section 14A merelybecause some tax exempt income is received by theassessee.5.2 Averting to the facts of the case in hand, theassessee had made a claim that no expenditure hasbeen incurred or claimed for earning the exempt income.From the details of the expenditure, it is clear that theexpenditure incurred and claimed by the assessee hasdirect nexus with the professional income of theassessee. It is not the case of the revenue that theassessee has used his official machinery andEstablishment for earning the exempt income. ThePage 10 of 21http://www.itatonline.org