“disallowance u/s 14A”
The decision most relied on for disallowance u/s 14A is CIT v. Corrtech Energy (P.) Ltd. (223 Taxmann 130), cited in 579 judgments on BharatTax.
Leading authorities on disallowance u/s 14A
Disallowance under Section 14A read with Rule 8D is not warranted if the assessee has not earned any exempt income in the relevant assessment year.
Disallowances made under various sections, such as for PF/ESIC contributions, result in an increase in business profits, and these enhanced profits are eligible for deduction under Sections 10A and 10AA. Similarly, gains from foreign exchange fluctuations directly linked to export sales are also eligible for deduction under Section 10A.
The disallowance under Section 14A read with Rule 8D, particularly Rule 8D(iii) for administrative expenses, should only consider investments that have actually yielded exempt income during the relevant assessment year. Section 14A empowers the Assessing Officer to determine expenditure related to income not forming part of total income.
Disallowance under section 14A is a notional disallowance and cannot be added back while computing Book Profits under section 115JB for Minimum Alternate Tax purposes.
Disallowance under Section 14A cannot exceed the exempt income earned by the assessee. Even if interest expenditure is considered, it cannot be solely attributed to earning exempt dividend income as investors also consider potential capital gains.
Additions made under Section 14A of the Income-tax Act, read with Rule 8D, cannot be considered for computing book profit under Section 115JB of the Act.
Section 14A of the Income-tax Act is not applicable to insurance businesses governed by specific provisions of Section 44 and Schedule 1. Profit on sale of investments by insurance companies is not taxable, especially after the deletion of sub-rule (b) of Rule 5 of the First Schedule.
Disallowance under section 14A cannot be made if the assessee has not earned any exempt income in the relevant assessment year. This applies even if the assessee has made investments in shares or has income from a partnership that is negative.
