No disallowance under s 14 or Rule can be made unless AO records a finding that the assessee’s calculation is wrong — as held by DelHC in Maxopp Investment Ltd v CIT — In favour of: Others.
If the expenditure in question has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise qualifies under the other provisions of the said Act.
If no expenditure is incurred in relation to the exempt income, no disallowance can be made under s 14A.
The AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee.
Decided on: 18 November 2011.
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