2014 (12) TMI 482 - DELHI HIGH COURT

Disallowance of expenses on exempt income u/s 14A r.w Rule 8D – investments in shares and mutual funds - Held that:- In Maxopp Investment Ltd. vs. Commissioner of Income Tax [2011 (11) TMI 267 - Delhi High Court] it has been held that it is only when the AO is not satisfied with the claim of the assessee, that the Legislature directs him to follow the method that may be prescribed - the findings recorded by the CIT(A) and the Tribunal are appropriate and relevant - the assessee had sufficient funds for making investments in shares and mutual funds - The self or voluntary deductions made by the assessee were not rejected and held to be unsatisfactory, on examination of accounts - the Rule in sub Rule (2) specifically prescribes the mode and method for computing the disallowance under Section 14A of the Act - under clause (ii) to Rule 8D(2) of the Rules, the AO is required to examine whether the assessee has incurred expenditure by way of interest in the previous year and secondly whether the interest paid was directly attributable to particular income or receipt - the amount to be disallowed as expenditure relatable to exempt income, under sub Rule (2) is the aggregate of the amount under clause (i), clause (ii) and clause (iii) - Clause (i) relates to direct expenditure relating to income forming part of the total income and under clause (iii) an amount equal to 0.5% of the average amount of value of investment, appearing in the balance sheet on the first day and the last day of the assessee has to be disallowed – thus, the order of the Tribunal is upheld – Decided against revenue.