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2014 (9) TMI 791 - ALLAHABAD HIGH COURTPartial disallowance u/s 14A r.w Rule 8D – Held that:- The AO has noted that the assessee had invested a certain amount of its funds in shares and that the dividend which has been received or receivable did not form part of the total income - The AO noted that there were certain expenses on account of interest etc. which were directly attributable to the exempt income - The assessee had debited the entire expenditure to the profit or loss account - The AO noted that since the exempt income does not form part of the total income, the expenditure which is directly related to income which does not form part of the total income could not be debited to the profit or loss account in view of the provisions of Section 14A of the Act – This constituted a clear fulfillment of the requirement in sub-section (2) of Section 14A as well as sub-rule (1) of Rule 8D that the AO was not satisfied with the correctness of the claim of the assessee, on the basis of the accounts of the assessee The order of the Tribunal to the extent to which it confirms the disallowance to the extent of ₹ 96,000/- is unexceptionable - The Tribunal has deleted the disallowance to the extent of ₹ 66.79 lacs on the ground that on this aspect the borrowed funds were used for business purposes and no part thereof was used for making investment and, hence, the interest expenditure could not be considered for proportionate disallowance under Rule 8D - The remaining disallowance of ₹ 96,000/- was on account of other expenditure - In making this allowance, representing 0.5% of the average value of the investment, the AO had applied the provisions of Rule 8D(iii) - The disallowance which was made in the aforesaid terms of ₹ 96,000/- has been confirmed by the Tribunal - the disallowance under Rule 8D(iii) which was made by the AO was entirely in consonance with the prescribed method and correctly affirmed by the Tribunal – Decided against assessee.
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