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2020 (11) TMI 705 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - Appeal is disposed of by remitting the matter back to the Assessing Officer for deciding the issue regarding disallowance under Section 14A as relying on M/s. Marg Limited 2020 (10) TMI 102 - MADRAS HIGH COURT wherein held that the disallowance under Rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assessee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D.
Issues:
Interpretation of Section 14A of the Income Tax Act, 1961 in relation to disallowance of expenses when no exempt income is earned in the relevant previous year. Analysis: The judgment in question addresses the issue of whether the Appellate Tribunal was justified in applying Section 14A of the Income Tax Act, 1961 along with Rule 8D of the Income Tax Rules, 1962, even when the assessee had not earned any exempt income in the relevant assessment year. The High Court referred to a previous judgment in M/s. Marg Limited Vs. Commissioner of Income Tax, Chennai, where it was held that the disallowance under Rule 8D of the IT Rules combined with Section 14A of the Act cannot exceed the exempted income earned by the assessee during the specific assessment year. Furthermore, the Assessing Authority must be satisfied that the apportionment of disallowable expenditure by the assessee concerning the exempted income is unacceptable before resorting to the computation method under Rule 8D of the Income Tax Rules, 1962. The court, based on the precedent, disposed of the appeal in favor of the assessee and against the revenue. It directed the matter to be sent back to the Assessing Officer for a decision on the disallowance under Section 14A of the Income Tax Act, 1961 for the Assessment Year 2010-2011 in accordance with the legal principles established by the Division Bench of the High Court in the aforementioned case. The Tax Case Appeal was consequently disposed of with no costs imposed on either party.
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