SECTION 14A l
expenditure incurred in relation to
income not includible in total income
178.
Clarification regarding restriction on re-opening of completed assessments on
account of provisions of section 14A
1.
The Finance Act, 2001 has inserted section 14A in the Income-tax Act, 1961
wherein it was specifically provided that no deduction shall be allowed in
respect of expenditure incurred by the assessee in relation to income which
does not form part of total income under the Act. The amendment takes effect
from 1-4-1962.
2.
Section 14A was introduced retrospectively in order to clarify and state the
position of law that any expenditure relatable to income which does not form
part of total income cannot be set off against other taxable income. This
section was not introduced with prospective effect, as that would have implied
that before the introduction of the said provisions, expenditure incurred to
earn exempt income was allowable.
3.
Instances of reopening of old assessments, which had attained finality, after
insertion of section 14A in the Act, have come to the notice of the Board. Reopening
of past completed assessments, having attained finality, on the basis of newly
inserted provisions of section 14A is likely to cause hardship to a large
number of taxpayers and would result in increasing avoidable litigation.
4.
The Board have considered this matter and hereby directs that the
assessments where the proceedings have become final before the first day of
April, 2001 should not be re-opened under section 147 of the Act to disallow
expenditure incurred to earn exempt income by applying the provisions of newly
inserted section 14A of the Act.
Circular : No. 11/2001, dated 23-7-2001.