S.14A:Business expenditure-Disallowance-Exempt income- Stock in trade-Disallowance under

The assessee availed of an interest-free loan of Rs.14 crores and paid brokerage of Rs.28 lakhs for
purchasing shares. The shares were held as stock-in-trade and the assessee earned dividend of Rs. 46.67
lakhs thereon. The assessee claimed that no expenditure had been incurred to earn the dividend though
the AO made a disallowance of Rs. 27.34 lakhs u/s 14A & Rule 8D. The Tribunal held that the
brokerage on the loan, though incidental to the trading of shares, was indirectly incurred to earn
dividend and had to be disallowed u/s 14A. On appeal by the assessee, Held by the High Court
allowing the appeal:
When no expenditure is incurred by the assessee in earning dividend income, notional expenditure
cannot be disallowed u/s 14A. The assessee had not retained shares with the intention of earning
dividend. The dividend income was incidental to the business of sale of shares, which remained unsold
by the assessee. It cannot be said that the expenditure incurred in acquiring the shares had to be
apportioned to the extent of dividend income and that should be a disallowance u/s 14A.
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