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2021 (10) TMI 573 - HC - Income TaxDisallowance u/s 14A - Addition amount of expenditure incurred in relation to an exempt income - assessee has claimed before the Assessing Officer that it has not incurred any expenditure towards earning exempt income - HELD THAT:- AO can determine the amount of expenditure incurred in relation to an exempt income if the Assessing Officer having regard to accounts of the assessee is not satisfied with the correctness of the claim of the assessee but it has not incurred any expenditure in order to earn exempt income. AO is therefore, required to record its satisfaction that it has not incurred any expenditure in order to earn exempt income. Assessee has claimed before the AO that it has not incurred any expenditure towards earning exempt income, which has been reproduced by the Assessing Officer in para 5 of its order - from scrutiny of the order passed by the Assessing Officer, it is evident that the Assessing Officer has not recorded satisfaction with regard to claim of the assessee that it has not incurred any expenditure in order to earn exempt income. Therefore, the condition precedent for invoking Rule 8D of the Rules as per Section 14A of the Act is not fulfilled. For the aforementioned reasons, the first substantial question of law is answered in favour of the assessee and against the revenue. Assessee not earned any exempt income - In the instant case, the assessee had not received any share or profit from the partnership firm during the year and in fact the partnership firm had incurred the loss and no exempt income was earned by the assessee. In the absence of any exempt income during the year, there could not be any disallowance u/s 14A. Capital contribution in the firm of M/s Lakshmi Estate due to business expediency cannot be treated as investment in accordance with Section 14A - The assessee had made fake advances to M/s Lakshmi Estate and later became a partner to the extent of 75% share in the partnership firm from the year 2003 onwards. It is claimed by the assessee that it had not borrowed funds for the purpose of making original advances to M/s Lakshmi Estate, requires adjudication of facts and therefore, in the facts and circumstances of the case, we deem it appropriate to remit the matter to the Assessing Officer to decide the claim of the assessee whether or not it had used borrowed funds for the purposes of making original advances to M/s Lakshmi Estate for the Assessment Year 2008-09. Therefore, it is not necessary for us to answer the fourth substantial question of law.
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