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2013 (11) TMI 1593 - AT - Income TaxAddition u/s 14A - Held that:- We find that as per the provisions of Section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income under this Act. Meaning thereby the basic condition precedent for invoking the provisions of section 14A is that there should be income, which does not form part of the total income under this Act. Thus, wherever the assessee earned the interest free income, the corresponding expenditure incurred in earning that income is to be disallowed. In the absence of any interest free income, there cannot be any disallowance as no corresponding expenditures were incurred to earn a particular tax free income. Therefore, the CIT(A) has rightly held that in the absence of tax free income, no disallowance u/s 14A is permissible. Since we do not find any infirmity in the order of CIT(A), we confirm his order. Claim of interest - Held that:- In the instant case the liability was not statutory liability. Admittedly it was a contractual liability. Though it accrued at the time of execution of first agreement through which loan was obtained by the assessee but that liability was disputed by the assessee by raising a dispute with regard to rate of interest through various correspondences and auditors notes attached to the balance sheet. Finally the dispute was resolved in the impugned assessment year through a supplementary agreement through which the rate of interest was reduced from 12% to 6% per annum besides other terms of payments. Therefore, the contractual liability is finally accrued on its crystallization in the impugned assessment year, and on the basis of the said agreement the assessee has made debit entry to the profit & loss account. Since the contractual liability has been crystallized in the impugned assessment year, the entries passed by the assessee in its accounts is in accordance with law and no disallowance can be made on the ground that the assessee has been following mercantile system of accounting and the debit entries are to made in corresponding assessment years. We have carefully examined the order of CIT(A) and we find that he has adjudicated the issue in right perspective following the judicial pronouncements rendered on the subject. Since we find no infirmity in his order, we confirm the order of CIT(A).
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