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TMI Blog2024 (12) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In the aforesaid circumstances, it was not permissible for the AO to proceed to compute disallowance under Rule 8D of the Rules. It is well settled that recourse to Rule 8D of the Rules for computing the disallowance under Section 14A of the Act is available only if the Assessee s computation of expenses attributable to earning exempt income, is found to be inadequate. In the present case, it is clear that the AO had not found fault with the Assessee s computation of expenditure allocable to exempt income and, therefore, recourse to Rule 8D of the Rules for determining the expenditure incurred for earning exempt income, was not available. It is also relevant to highlight that the learned CIT(A) had also noted that the AO had not found th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ronically on 30.09.2008, declaring a total income of Rs. 10,43,43,498/-. The same was picked up for scrutiny and culminated in an assessment order dated 31.12.2010 passed under Section 143 (3) of the Act. 4. The Assessee had, during the previous year relevant to AY 2008-09, earned income by way of dividend amounting to Rs. 8,55,88,493/-, which was exempt under Section 10 (34) of the Act. The Assessee had suo moto attributed expenses amounting to Rs. 7,50,000/- as incurred towards earning the said exempt income, and had accordingly not claimed the same as a deduction from its taxable income. 5. During the course of the assessment proceedings, the Assessee provided the justification for confining the expenditure attributable to dividend incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inder Singh (Administrative staff who look after banking work) Rs. 1,00,000 (iii) Other administrative expenses Rs. 1,50,000 Total Rs. 7,50,000 8. The Assessing Officer (hereafter the AO) computed the disallowance under Section 14A of the Act by applying Rule 8D of the Income Tax Rules, 1962 (hereafter the Rules), at Rs. 93,62,120/-. After adjusting the amount of Rs. 7,50,000/- allocated by the Assessee, the net disallowance was computed at Rs. 86,12,120/-. 9. The Assessee also contested the computation of the amount of expenditure attributable to earning exempt income as computed under Rule 8D of the Rules. The Assessee claimed that the correct computation under Rule 8D of the Rules amounted to Rs. 44,00,176/-. However, the said contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Thus, AO is directed to recompute the disallowance keeping the total disallowance u/s 14A read with rule 8D at Rs. 20,00,000 in which disallowance already made by assessee shall be reduced (Rs. 750,000). Rest of the addition is directed to be deleted. In view of the above discussion, grounds No. 4 is partly allowed. [emphasis added] 11. Aggrieved by the decision of the learned CIT(A), the Revenue filed an appeal being ITA No. 4115/Del/2013. The Assessee also filed cross objections being CO No. 244/Del/2013. The learned ITAT concurred with the decision of the learned CIT(A) that the AO had not recorded its dissatisfaction in regard to the Assessee s computation before proceeding to compute the disallowance under Rule 8D of the Rules. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ground of assessee in CO is allowed. 12. It is clear from the above that neither the AO nor any of the appellate authorities CIT(A) or ITAT had found that the Assessee s computation of expenditure, which was allocable to earning exempt income, was erroneous or inadequate. None of the authorities had determined that the Assessee s computation of expenditure attributable to the exempt income was erroneous or had faulted the same. In the aforesaid circumstances, it was not permissible for the AO to proceed to compute disallowance under Rule 8D of the Rules. It is well settled that recourse to Rule 8D of the Rules for computing the disallowance under Section 14A of the Act is available only if the Assessee s computation of expenses attributa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee s accounts and not otherwise. Concededly, there is nothing in the record to suggest that the Assessing Officer examined the accounts from this perspective. 13.3. Furthermore, in our view, because the appellant/assessee had itself offered an amount which could be disallowed under Section 14A of the Act, the onus shifted onto the Revenue to ascertain, after examination of the accounts, as to whether or not the appellant's/assessee's claim was correct. It is only after the aforesaid exercise was conducted, could the Assessing Officer have taken recourse to the prescribed method i.e. Rule 8D of the Rules, for determining the expenditure, which, according to him, needed to be disallowed under Section 14A of the Act. 13. It is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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