Section 94(7) of the Income Tax Act

For attracting Section 14A disallowance, there must be a proximate cause relating the expenditure to actual tax-exempt income, and such disallowance is not automatic but requires positive material. Additionally, Section 94(7) on dividend stripping only ignores losses to the extent of dividend received for assessment years post-April 1, 2002, allowing the remaining loss.

An act that is otherwise valid in law cannot be treated as non-existent or invalid merely because of an underlying motive to reduce tax liability or a perceived economic detriment to national interest; legitimate tax planning is permissible.