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TMI Blog2022 (6) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... n at 5% of exempt income to an extent of Rs.91,875/-. The AO did not accept the same and proceeded to invoke Rule 8D(2)(iii) of Rules which resulted disallowance of Rs.8,11,416/-. AO has also empowered to determine the amount of expenditure if no claim of expenditure incurred in relation to exempt income under sub-section (3) of section 14. Therefore, the method adopted by the assessee by disallowing at 5% of exempt income has no basis. Therefore, the AO is correct in invoking Rule 8D(2)(iii) which was confirmed by the CIT(A) by holding that the AO is justified in not accepting the disallowance made by the assessee on its own at 0.5% of average investments. There is no such provision in the statute that no disallowance of expenditure cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act. The CIT(A) confirmed the addition made by the AO. 4. The ld. AR submits that the assessee derived exempt income of Rs.18,37,500/- and on its own disallowed Rs.91,875/- being 5% of the exempt income. The AO by applying the method under Rule 8D(2)(iii) made further disallowance of Rs.8,11,416/-. She submits that the assessee did not make investments in the year under consideration and earned dividend income from the investments made in earlier years. She argued when there is no investments made in the year under consideration the disallowance made by the AO under Rule 8D(2)(iii) is not maintainable. She placed on record order of this Tribunal in assessee s own case for A.Y. 2012-13 in ITA No. 3088/PUN/2017 and argued that b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the considered opinion that no further disallowance u/s 14A of the Act is warranted. Accordingly, we direct the Assessing Officer to delete the addition of Rs.11,34,302/- made u/s 14A of the Act. 5. On perusal of the above finding concerning A.Y. 2012-13, we note that the AO made disallowance under Rule 8D(2) which was deleted by the Tribunal in view of the fact that the reserves and surplus fund held by the assessee are more than the investments made by assuming that the said investments made out of own funds but not from borrowed funds. In the present case, the AO made disallowance only under Rule 8D(2)(iii) being 0.5% of average investments. Admittedly, the said investments were not made in the year under consideration. Thus, the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ule 8D(2)(iii) but not only Rule 8D(2)(ii). Therefore, the finding of Tribunal in assessee s own case for A.Y. 2012-13 is not applicable to the year under consideration for the reason that the Co-ordinate Bench of Tribunal deleted the disallowance made under Rule 8D(2)(ii) by assuming that the investments made from own funds but not from borrowed funds thereby, deleted the disallowance under Rule 8D(2). Sub-section (2) of section 14 clearly explains that the AO is empowered to determine the expenditure in accordance with such method as contemplated under Rule 8D, if it is satisfied with the correctness of the claim of assessee in respect of such expenditure. In the present case, the assessee made disallowance on its own at 5% of exempt inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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