RANJIT GOBINDRAM MALKANI,MUMBAI vs. DCIT CIR 3(3), MUMBAI

It was contended by learned AR that as per business balance sheet of the assessee there are no investments earning exempt income accordingly it was claimed that provisions of Section 14A are not applicable to the assessee. The exempt income has been earned by the assessee from personal investments, the related expenses are debited to personal capital account and the assessee has not claimed these expenses against this exempt income. The assessee contended that whatever expenses are incurred and claimed are against the taxable income and these expenses have been incurred for the purposes of business having no nexus with investments income from which is exempt. This fact is not disputed by AO.

On the other hand, learned DR relied on the order of the lower authorities.

Ranjit Gobindram Malkani 7. We have considered rival contentions. Disallowance u/s. 14A can be made only in respect of the expenditure claimed in the profit and loss account against income liable to tax meaning thereby if no expenditure of exempt income have been claimed against the income liable to tax, no disallowance is warranted for such expenditure. As per learned AR, the alleged expenditure was debited by the assessee in his personal account and not claimed in the P & L account of business income which was offered for tax. In the interest of justice, we restore the matter back to the file of AO with a direction to verify if the expenditure so disallowed have not been claimed by assessee against the taxable income and have been debited only in the personal capital account, no disallowance is warranted. We therefore, direct the AO to compute the disallowance afresh in terms of our above direction. We direct accordingly.