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TMI Blog2015 (6) TMI 994X X X X Extracts X X X X X X X X Extracts X X X X ..... extent of disallowing expenditure “ incurred by he assessee in relation to the tax exempt income”. The disallowance under section 14 A read with Rule 8 D as worked out by the AO is not in accordance with law and as such working is not sustainable. In view of the above observations, think it is appropriate to set aside the order of the Ld. CIT(A) on this issue and remit the matter to the file of AO with a direction to decide the issue a fresh in accordance with law after affording due and reasonable opportunity of being heard to the assessee. - Decided partly in favour of assessee for Statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... of the appeal is general in nature and hence no comments are being given. 4. Ground No. 2 of the appeal relates to disallowance of ₹ 4,09,675/- made under section 14 A of the Income Tax Act (in short 'the Act'), read with Rule 8 D of Income Tax Rules 1962 (in short 'the Rule'). The assessee company is in the business of manufacturing and sale of corrugated boxes and sheets. During the year under consideration, the total turnover of the assessee was at ₹ 29,38,26,526/- as against turnover of ₹ 24,15,15,000/- in the immediately preceding year. The AO disallowed the sum of ₹ 4,09,675/- under section 14 A read with Rule 8 D and added back the same to the income of the assessee. The AO observed that the assessee has mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricultural income. As regards, dividend income from mutual funds, the assessee stated in the reply that no interest bearing loans have been transferred for investment in the mutual funds. The AO concluded that the contention of the assessee on both counts is not acceptable. After examining the various details on record the AO worked out the disallowance under section 14 A read with Rule 8 D and as per the said working an amount of ₹ 4,09,675/- was disallowed. 5. On appeal the Ld. CIT(A) upheld the order of the AO, and hence the assessee in appeal before the Tribunal. 6. I have heard Shri. Mohit Dhiman Ld. Counsel for the assessee and Shri. R.K. Gupta Ld. DR at length and have also perused the materials available on record. It is app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial or evidence on record in order to determine expenditure, if any, incurred by the assessee. The AO has worked out the disallowance relying on Rule 8 D mechanically which is not the correct way. Further the case of the assessee was that no interest bearing loans had been diverted for making the investment in shares and mutual funds however, both the Authorities below have not given any findings whether the above contention of the assessee was correct or wrong. The Ld. CIT(A) has observed that the contention of the assessee that no interest bearing loans had been diverted for making the impugned investment does not hold order because the disallowance is to be made under section 14 A read with Rule 8 D of the Income Tax Rule and it is immat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ha Engineering (supra) pertinently observed:- " Thus, Section 14 A (2) of the Act and Rule 8 D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income must be examined with reference to the accounts, and only and when the explanation / claim of the assessee is not satisfactory, computation under sub Rule(2) to Rule 8 D of the Rules is to be made. 13. We need not, therefore, go on to sub Rule (2) to Rule 8D of the Rules until and unless the Assessing Officer has first recorded the satisfaction, which is mandated by sub Section(2) to Section 14 A of the Act and sub Rule (1) to Rule 8 D of the Rules." 9. In the present case, the AO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above directions. The appeal is partly allowed. 7. In the instant case, the income from dividend has been shown at ₹ 1,11,564, the disallowance under section 14 A read with Rule 8 D worked out by the Assessing officer comes to ₹ 4,09,675/-. Thus it is clear that the AO has disallowed the entire 'tax exempt income' which is not permissible in view of the judgment of the Hon'ble Delhi High Court referred to above. The Hon'ble Delhi High Court held that the window for disallowance is indicated in section14 A, and is only to the extent of disallowing expenditure " incurred by he assessee in relation to the tax exempt income". The disallowance under section 14 A read with Rule 8 D as worked out by the AO is not in accordance wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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