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TMI Blog2016 (3) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 By applying the Rule 8D of the Rules blindly sometimes absurd disallowances would result. Therefore while examining the claim of the assessee regarding expenditure incurred in earning the exempt income including a claim that no expenses were incurred, the AO is bound to take note of such absurdities and refrain from invoking the method of disallowance of expenses as prescribed by Rule 8D(2) of the Rules. It is for this reason that the satisfaction of the AO regarding expenses incurred for earning exempt income i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act, 1961 (Act) relating to AY 2008-09. 2. The Assessee is a company. It is engaged in the business of manufacturing and trading of bakery products. For AY 2008-09 the Assessee filed return of income on 29.9.2008 declaring total income of Rs. 99,74,64,581/-. In the course of assessment proceedings u/s. 143(3) of the Act, the AO noticed that the Assessee had on his own disallowed a sum of Rs. 26,07,177/- u/s. 14A of the Act, being expenditure incurred by the Assessee in earning income which does not form part of the total income under the Act. The AO called upon the Assessee to explain the basis on which the aforesaid sum was quantified by the Assessee. The Assessee gave details of the basis of its quantification as below: 3. The AO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt in the case of Malabar Industrial Co. Vs. CIT 243 ITR 83(SC). The Assessee also submitted that even in a case where the AO rejects the basis of disallowance by an Assessee it is not necessary that the AO should mandatorily resort to Rule 8D of the Rules for making disallowance u/s. 14A of the Act. Reference was made to the decision of ITAT Kolkata in the case of Balarampur Chini Mills Ltd. Vs. DCIT ITA No. 504/Kol/11 dated 29.7.2011 for AY 2008-09. 4.2. The CIT however held that if the AO was not satisfied with the method of disallowance u/s. 14A of the Act as done by the Assessee he has no other option but to resort to make disallowance in accordance with Rule 8D of the Rules. He set aside the order of the AO and directed the AO to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined by the AO and only if on an objective satisfaction arrived at by the AO that the claim made by the assessee is not correct, can the AO proceed to apply the computation mode as specified in Rule 8D(2) of the Rules. If the AO comes to the conclusion that claim made by the assessee is not correct, it is only thereafter that the AO can proceed to make the disallowance in terms of Rule 8D of the Rules. 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. By applying the Rule 8D of the Rules blindly sometime ..... X X X X Extracts X X X X X X X X Extracts X X X X
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