2009 (11) TMI 33 - HC - Income Tax

Disallowance of expenses u/s 14A - the interest bearing funds have been vested for investments generating tax free dividend income – evidence - It earned dividend income, which is exempted under Section 10 (34) and (35). The Assessing Officer made an inquiry whether any expenditure was incurred for earning this income and as a result of the said inquiry addition was made by way of disallowance under Section 14A (3), which was partly upheld by the CIT (A). The Tribunal held that there was no nexus with the expenditure incurred and the income generated. – held that - deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business - In the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, Section 14A could have no application