Section 14A(2) of the Income Tax Act
Income-tax Act, 2025: s.14
Section 14A(2) falls under section 14A of the Income-tax Act, 1961, which corresponds to section 14 (Income not forming part of total income and expenditure in relation to such income) of the Income-tax Act, 2025.
Read section 14 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 14A(2) is M.M. Aqua Technologies Ltd. v. Commissioner of Income Tax, Delhi (2021 SCC OnLine SC 575), cited in 102 of the 31 judgments on BharatTax that turn on this section.
Leading authorities on Section 14A(2)
A tax provision is retrospective only if legislative intent is explicit or if it is purely clarificatory and does not alter existing law. Provisions framed 'for the removal of doubts' are not presumed to be retrospective if they change the law as it stood.
Where the Assessing Officer performs an elaborate analysis to determine disallowance under Section 14A, the mere absence of a specific record of dissatisfaction with the assessee's calculation does not nullify the disallowance, provided the statutory steps are followed.
When funds are mixed, interest expenditure relatable to investments in tax-free income is to be computed under the provisions of Rule 8D(2)(ii), applying the theory of apportionment.
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.
An activity is considered business if it involves a continuous course of activity and is carried on with a profit motive.
Disallowance of expenditure under Section 14A cannot exceed the income from the relevant exempt investments.
The Assessing Officer's disallowance under Section 14A is not vitiated by the mere absence of an express recital of dissatisfaction if a detailed analysis and statutory procedure were followed in computing the disallowance.
Where an Assessing Officer is not satisfied with the correctness of an assessee's claim for expenditures incurred to earn exempt income, the AO is bound to apply the provisions of Rule 8D.
An assessment order is valid only if it is signed. An unsigned assessment order is a defect that affects the validity of the subsequent demand notice and recovery proceedings.
