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TMI Blog2011 (6) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... e case. (3) The ld. CIT(A) erred in confirming the disallowance of ₹ 7,75,201/- u/s 14A, considering the same as expenditure incurred for the purpose of earning tax-free dividend income, out of salary, wages, bonus & PF expenses. (4) The ld. CIT(A) erred in enhancement of the disallowance to ₹ 9,17,154/- from ₹ 7,75,201/- u/s 14A by applying Rule 8D of Income-tax Rules. 2. The only issue involved in this appeal is about disallowance of part of administrative expenses u/s 14A by invoking Rule 8D of the IT Rules as according to the AO part of the administrative expenses related to earning of exempted income. In this regard the AO worked out the disallowance as under :- "The assessee has shown dividend income of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enhanced the disallowance to ₹ 9,17,154/- as per the calculation made in the appellate order. 4. The ld. AR submitted that disallowance of administrative expenses cannot be done prior to Asst. Year 2007-08 because Rule 8D has not been accepted as having retrospective effect and, therefore, only those expenses which have direct nexus with the exempted income can only be disallowed. She referred to following judgment in support of her argument: CIT vs. Catholic Syrian Bank Ltd. & Ors. (2011) 237 CTR (Ker) 164 in which Hon. Kerala High Court observed as under :- "So far as the disallowance of administrative expenditure is concerned, considering the fact that there is no precise formula for proportionate disallowance, no disallowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of AO as no determination of any disallowance would be necessary. In the present case we notice that loan funds have decreased this year as compared to earlier years. Even though investments have increased from ₹ 940.32 lacs to ₹ 1008.51 lacs but such increase in investment cannot be linked to any borrowed funds this year as assessee has in fact not borrowed any additional fund this year. Prior to the decision of Hon. Supreme Court in the case of Hon'ble Supreme Court in S.A. Builders vs. CIT 288 ITR 1(SC) onus was considered on the assessee to show the nexus between the interest free funds and investment on which no income is earned. After S.A. Builder's case (supra) onus is considered shifted to the Revenue and AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment was made out of interest bearing funds, disallowance of interest cannot be made. Similarly no disallowance out of administrative expenditure can be made as there is no direct nexus. As a result, this ground is allowed." She submitted, following above decisions, no disallowance on administrative expenses should be made. 5. The ld. DR on the other hand, supported the orders of authorities below and submitted that disallowance on estimate basis can also be done and such estimate can also be applied to administrative expenses. 6. We have heard the rival parties. In our considered view the position of law in relation to disallowance of administrative expenses is now clear. Such disallowance cannot be made prior to Asst. Year 2007-08 un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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