Section 253(3) of the Income Tax Act

Disallowance under Section 14A of the Income-tax Act, 1961 is not permissible where the assessee has not earned any exempt income during the relevant assessment year. A CBDT Circular cannot override the express provisions of Section 14A read with Rule 8D to mandate such a disallowance.

Section 14A cannot be invoked to disallow expenditure incurred for earning exempt income if the assessee has not actually earned any exempt income, such as dividend income, during the relevant previous year.

Disallowance of interest expenses under section 14A is not applicable when the assessee possesses sufficient interest-free own funds for investments that yield exempt income.

When an assessee has sufficient own or surplus non-interest-bearing funds to cover investments yielding exempt income, no disallowance of expenditure under Section 14A is warranted, and Rule 8D for estimating such expenditure does not apply.

A case defining 'reasonable cause' as a factor that would compel a person of average intelligence and ordinary prudence, acting without negligence or lack of bona fides, from fulfilling a legal obligation. The term 'reasonable' is not precisely definable but implies rationality and moderation.

When an assessee has mixed funds, investments yielding tax-free income are presumed to be made from interest-free funds, thereby preventing disallowance of interest expenditure under Section 14A.

No disallowance under Section 14A is made when the assessee has not earned or received any exempt income during the relevant assessment year.

Amendments made to Section 14A by the Finance Act, 2022, inserting a non-obstante clause and an explanation, are prospective from April 1, 2022, and cannot be applied retrospectively. Further, where no exempt income is earned, Section 14A read with Rule 8D cannot be applied.

Disallowance under Section 14A of the Income-tax Act cannot be made in the absence of any tax-free income earned by the assessee.

Disallowance under section 14A of the Income-tax Act is not permissible if the assessee has not earned any exempt income in the relevant assessment year. This position is affirmed by the dismissal of a Special Leave Petition by the Supreme Court.