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Issues involved:
The judgment involves the issue of confirming the disallowance/addition made under section 14A of the Income Tax Act read with Rule 8D, pertaining to the assessment year 2008-09. Summary: Issue 1 - Disallowance under section 14A: The Assessing Officer noted that the assessee earned exempt dividend income but did not offer any disallowance under section 14A. The computation provided by the assessee was used to disallow the amount. The CIT(A) confirmed the disallowance, stating that the onus is on the appellant to establish that borrowed funds were not used for investment in shares. The appellant contended that the disallowance was not justified as the investment was made from own surplus funds. The Tribunal referred to the settled law that there cannot be any estoppel against the statute and upheld the appellant's grievance, following the decision of the Hon'ble jurisdictional High Court. Issue 2 - Net interest expenditure for disallowance under section 14A: The appellant argued that no disallowance could be made under section 14A as there was no net interest expenditure after setting off interest credited to the profit and loss account. The Tribunal agreed, stating that if no net interest expenditure exists, no part of interest debited can be disallowed as attributable to earning tax-free dividends. The Tribunal upheld the decision of the CIT(A) in deleting the interest disallowance, as all expenses incurred by the assessee had been offered for disallowance. In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing that the disallowance under section 14A should be based on the net figure debited or credited to the Profit & Loss A/c, and not the gross figure. The judgment was pronounced on March 6, 2013.
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