14A

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Dhruvesh Shah

Dhruvesh Shah (Querist)
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29 August 2009 Can you give me explanatuions regarding section 14A for tax audit

CP Ram

CP Ram (Expert)
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29 August 2009 Clause 17(l) of the Form-3CD requires an auditor to disallow expenditure incurred in relation to income which does not form part of the total income in terms of section 14A.

As per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Income Tax Act, 1961.

For e.g. an assessee earns taxable business income and also agricultural income which is exempt u/s 10(1), the expenditure incurred in relation to agricultural income shall not be allowed in computing the taxable business income.

Similarly, interest and salary derived by a partner from a firm is chargeable to tax u/s 28. Any incidental expenditure incurred by the partner to earn income from the firm can be claimed in computing the taxable income. However, expenditure incurred in relation to share of profit from such firm cannot be claimed as deduction since share of profit is exempt u/s 10(2A).