Section 14A of the Act provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income that does not part of the total income as per provisions of the Act (Exempt Income). Over the years, disputes have arisen in respect of the issue of whether disallowance u/s 14A of the Act can be made in cases where no exempt income incurred, arisen, or received by the assessee during an assessment year.
CBDT clarified vide circular dated 11.02.2014 that reading rule 8D with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular does not earn any exempt income.
However, still, some courts have taken a view that if there is no exempt income during a year, the disallowance under section 14A of the Act can be made for that year.
A. Effect of Insertion of Explanation to section 14A of the Act:
The Provision of this section (14A) shall apply and shall be deemed to be always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year related relevant to an assessment year and the expenditure has been incurred during the previous year in relation to such exempt income.
B. Amendment in Section 14A(1):
It is also proposed to amend sub-section (1) of section 14A, to include a non-obstante clause in respect of other provisions of the Act and provide that no deduction shall be allowed in relation to exempt income, notwithstanding anything to the contrary contained in the Act.
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