“Section 2(34)”

Where an assessee claims that investments were made out of own funds, interest disallowance under Section 14A read with Rule 8D may not apply if the assessee demonstrates the availability of sufficient interest-free funds to cover such investments.

Disallowance under Section 14A, for expenditure incurred in relation to exempt income, is not permissible when the assessee has not earned any exempt income, such as dividend income under Section 10(34), during the year under consideration.

Where an assessee has sufficient interest-free funds, investments yielding exempt income are presumed to be made out of such funds, precluding disallowance of related interest expenditure under section 14A.

A provision for doubtful debts cannot be added back while computing book profits under Section 115JB of the Income-tax Act for Minimum Alternate Tax (MAT) purposes.

If an assessee possesses interest-free funds exceeding investments in tax-free securities, it is presumed that investments are made from these own funds, precluding disallowance of interest expenditure under Section 14A read with Rule 8D(2)(ii). Additionally, weighted deduction under Section 35(2AB) is computed on the gross expenditure incurred, not net expenditure after reducing income earned.

The Supreme Court established the foundational test for distinguishing between capital and revenue expenditure, holding that the aim and object of the expenditure and whether it brings into existence an asset or an advantage of an enduring nature determines its character, irrespective of the payment method. An advantage lasting five years or more can be considered enduring.

If an assessee possesses sufficient interest-free funds, it is presumed that investments yielding exempt income were made from these funds, therefore disallowance of interest expenditure under Section 14A is not justified.

No disallowance for investments made out of surplus funds can be made if tax-free dividends are earned on such investments.