9911796707
TMI Blog2016 (6) TMI 1086X X X X Extracts X X X X X X X X Extracts X X X X ..... ious year the assessee received dividend income of Rs. 42,30,536/-. The said dividend income was not chargeable to tax under Chapter III of the Act and therefore u/s 14A of the Act expenditure incurred in earning the expenditure incurred in earning exempt income had to be disallowed as deduction in computing total income of the Assessee. In the course of assessment proceedings u/s 143(3) of the Act, in response to a query by the AO in this regard, the assessee submitted before the AO that it had investments both in quoted and unquoted shares and also filed a statement showing a sum of Rs. 1,57,930/- as expenditure incurred in earning exempt income. The basis on which the same arrived at by the assessee was as follows :- CALCULATION OF DISA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r income or receipt, an amount computed in accordance with the following formula, namely: A x B/C, where, A = amount of expenditure by way' of interest other than the amount of interest included in Point no. (i) incurred during the previous year. B= the average of value of Investment, income from which does not or shall not form part of the total income, as appearing ill the Balance sheet of the assessee, on 'he first day and the last day of tire previous year. C= the average of total Assets as appearing in the Balance sheet of the assessee, on the first day and the last day of the previous year. Here, A = Rs. 8949049/- B= (Rs.90859491+Rs. 71231695) /2= Rs. 8 1045593/- and So the resultant figure of A x B/C = Rs. 4023089/- C= ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f LT. Rules 1962 resulted in under assessment of income of Rs. 400,5263/-. Therefore, the order passed by him is erroneous and prejudicial to the interest of revenue. In view of the above the order passed by the A.O. is set aside with the direction that he should pass the assessment order after examining the issue in the context of provision of Section 14A read with Rule 8D(1) of I. T. Rules 1962. The A.O should pass speaking order after providing reasonable opportunity to the assessee and verifying documents and evidences connected with the issue of disallowances u/s. 14A read with Rule 8D(l) of I. T. Rules 1962. Hence the order passed by the A.O. u/s. 143(3) of the LT. Act, 1961 for the assessment year 2008-09 is set aside to be framed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee and he estimated the disallowance on a different basis. The question is whether it is mandatory for the AO to apply Rule 8D of the Rules, the moment he rejects the basis of disallowance as made by the AO. We are of the view that even in a case where the AO rejects the claim of the assessee that no expenses were incurred to earn the exempt income, it is not mandatory for him to invoke the method of calculation prescribed by Rule 8D(2) of the Rules and is free to make the disallowance on any reasonable basis. If Rule 8D of the Rules is blindly by the AO sometimes it will lead to absurd results. The AO examining the claim of the assessee regarding expenditure incurred in earning the exempt income, is bound to take note of such absu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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