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Section 14a disallowance

Avinash Kumar (CA Final Student & Working as Deputy Manager Accounts) (79 Points)

23 September 2015

Dear All,

Good Day!!

Very Urgent

Our compnay has earned Rs. 15 Lacs(STT Paid) long term capital gain which is exempt and we have a wholly owned subsidiary (around 97% share). Our subsidiary has neither declared any dividend nor has paid. Both the Holding and subsidiary are closely held public compnay.

Please advice in this case we would disallow expenditure or not? If yes, will investment in subsidiary be base to disallow any expenditure?

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4 Replies

Rashi Bajaj (CA) (752 Points)
Replied 23 September 2015

Expenditure will be disallowed only if nexus is proved to earning of exempt income. Merely earning income from investments does not give base to disallow expenses. However, costs such as any brokerage paid to transact in shares, holding costs, etc. may be disallowed. Further, Investment in subsidiary is no base to disallow expenses.

sagar (Student) (49 Points)
Replied 24 September 2015

As per Circular No. 5/2014 the CBDT through this circular clarified that the legislative intent is to allow only that expenditure which is relatable to earning of income. Therefore it follows that the expenses which are relatable to earning of exempt income have to be considered for DISALLOWANCE, irrespective of that fact whether such income has been earned during F.Y or not