2017 (1) TMI 318 - MADRAS HIGH COURT

Disallowance u/s 14A read with Rule 8D - Held that:- The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. (Madras Industrial Investment Corporation Ltd vs. CIT (1997 (4) TMI 5 - SUPREME Court )). The language of s.14A (1) should be read in that context and such that it advances the scheme of the Act rather than distort it.

In conclusion, we are of the view that the provisions of s. 14A read with Rule 8D of the Rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questions of law are answered in favour of the assessee and against the department