February 5, 2010 :

CIT vs. HERO CYCLES LTD.

P & H HC

Decided on 04 11 2009

AY 2004-05

Gist of decision : Contention that even where the assessee claimed that no expenditure had been incurred, the correctness of such claim could be gone into by the AO and in the present case, the claim of the assessee that no expenditure was incurred was found to be not acceptable by the AO and thus disallowance was justified is not sustainable. In view of finding of the Tribunal, it is clear that the expenditure on interest was set off against the income from interest and the investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under s. 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed under s. 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of s. 14A, cannot be accepted. Disallowance under s. 14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand. In the present case finding on this aspect, against the Revenue, is not shown to be perverse. Consequently, disallowance is not permissible.