Where expenditure incurred by the assessee was not attributable for earning the exempt income disallowance u/s 14A was not warranted. Further, for lawyers and law firms, categorization of a receipt can take place only when the matter was over or as when the assessee decides on the quantum of fees and not before that.
- Assessee a legal professional
- Assessee received advances from the clients and are kept in a separate ledger account in the name of the client and debited for the expenses
- After the matter is settled the credit balance lying in the client’s account tarnasferred to P & L A/c
- Where the matter is pending the credit balances are carried forward
- AO made addition on the ground that assessee adopted cash system of accounting and should be taxed in the year of receipt
- CIT (A) partly allowed
- Department moved to the Tribunal
- Tribunal held that the view taken by the ITAT earlier in AY 2001-02 and 2003-04 under similar circumstances must be followed.
- Addition u/s 14A deleted by the Tribunal on the ground that the AO had not recorded any finding that any expenditure incurred by the Assessee was attributable for earning the exempt income. In order to disallow the expenditure there must be a nexus between the expenditure incurred and the income not forming part of the total income
- Department moved to the High Court
- Revenue’s appeal dismissed by the High Court
The Court finds that no substantial question of law arises for determination by the Court from the impugned order of the ITAT
Cases Referred to
Jitender Sharma vs. DCI ITA No.1765/Del/2002
M/s. Anand & Anand ITA No.3820/Del/2004