{"id":5080,"date":"2012-06-25T08:03:49","date_gmt":"2012-06-25T08:03:49","guid":{"rendered":"http:\/\/itatonline.org\/archives\/?p=5080"},"modified":"2012-06-25T08:03:49","modified_gmt":"2012-06-25T08:03:49","slug":"cit-vs-ms-delite-enterprises-bombay-high-court-no-s-14a-disallowance-if-there-is-no-tax-free-income","status":"publish","type":"post","link":"https:\/\/itatonline.org\/archives\/cit-vs-ms-delite-enterprises-bombay-high-court-no-s-14a-disallowance-if-there-is-no-tax-free-income\/","title":{"rendered":"CIT vs. M\/s.Delite Enterprises (Bombay High Court)"},"content":{"rendered":"\n\n
Click here to download the judgement (delite_14A_no_tax_free_income_pdf.pdf) <\/strong> <\/a><\/p><\/td>\n<\/tr>\n<\/table>\n


\nNo s. 14A disallowance if there is no tax-free income
\n<\/strong><\/p>\n

The assessee, a partner in a firm, borrowed funds and advanced it to the firm on terms that the firm would pay interest if it made a profit. For one year, the firm paid interest which was offered as income by the assessee while for the second year it did not pay interest as it made a loss. The assessee claimed the interest paid on the borrowing as a deduction u\/s 36(1)(iii). The AO disallowed the claim on the ground that as the borrowings had been invested in the firm and the income from the firm was exempt u\/s 10(2A), the interest expenditure was not allowable u\/s 14A. This was reversed by the CIT (A). On appeal, the Tribunal upheld the CIT (A) on the ground that as there was no exemption claimed u\/s 10(2A) by the assessee and there was no tax-free income, s. 14A could not apply<\/em>. The department filed an appeal in the High Court in which it argued that as the profits derived by the assessee from the firm was exempt u\/s 10(2A), the interest on the borrowed funds used to invest in the firm was disallowable u\/s 14A. HELD by the High Court dismissing the appeal:<\/p>\n

In so far as Question (A) is concerned, on facts we find that there is no (tax-free) profit for the relevant assessment year. Hence the question as framed would not arise.<\/p><\/blockquote>\n

\nNote<\/strong>: Though the judgement is quite old, it is not reported. See also Siva Industries<\/a><\/strong> 59 DTR 182 (Che) and the contrary view in Cheminvest<\/a><\/strong> 121 ITD 318 (Ahd) (SB). See also Vishnu Anant Mahajan<\/a><\/strong> (ITAT Ahd SB)<\/p>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

The assessee, a partner in a firm, borrowed funds and advanced it to the firm on terms that the firm would pay interest if it made a profit. For one year, the firm paid interest which was offered as income by the assessee while for the second year it did not pay interest as it made a loss. The assessee claimed the interest paid on the borrowing as a deduction u\/s 36(1)(iii). The AO disallowed the claim on the ground that as the borrowings had been invested in the firm and the income from the firm was exempt u\/s 10(2A), the interest expenditure was not allowable u\/s 14A. This was reversed by the CIT (A). On appeal, the Tribunal upheld the CIT (A) on the ground that as there was no exemption claimed u\/s 10(2A) by the assessee and there was no tax-free income, s. 14A could not apply<\/em>. The department filed an appeal in the High Court in which it argued that as the profits derived by the assessee from the firm was exempt u\/s 10(2A), the interest on the borrowed funds used to invest in the firm was disallowable u\/s 14A. HELD by the High Court dismissing the appeal<\/p>\n

Read more ›<\/a><\/div>\n

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