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Issues involved: Appeal against order of Ld. Commissioner of Income-tax (Appeals)-XIV, Ahmedabad for assessment year 2008-09 regarding disallowance u/s.14A of the Income-tax Act, 1961.
Details of the Judgment: 1. The Assessing Officer (AO) observed that the assessee earned dividend income claimed as exempt u/s. 10(33) of the Act and incurred interest expenditure. The AO called for justification on why disallowance u/s 14A should not be made. The assessee claimed the investment in mutual funds was made from public issue proceeds, hence exempt income. The AO, not satisfied, made a disallowance u/s. 14A. The assessee appealed against this disallowance. 2. Before the Ld. CIT(A), the assessee argued that Rule 8D can only be applied if the AO is convinced of actual expenditure on exempt income. The CIT(A) partly allowed the appeal, stating no interest-bearing funds were invested in mutual funds earning exempt income, thus no disallowance u/s. 14A was justified. However, administrative expenses disallowance was upheld. 3. The Revenue challenged the CIT(A)'s order, arguing for confirmation of the AO's decision. The assessee supported the CIT(A)'s order, citing relevant judicial decisions. 4. The Tribunal noted the assessee's claim of no interest-bearing funds in the exempt income and the application of Rule 8D by the AO. Remanding the issue back to the AO, the Tribunal directed the assessee to establish the lack of nexus between exempt income and interest expenditure for a fresh decision. 5. The appeal by the Revenue was allowed for statistical purposes, setting aside the CIT(A)'s order and remitting the matter back to the AO for fresh consideration.
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