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2018 (7) TMI 2187 - ITAT HYDERABADDisallowance u/s. 14A r.w.r. 8D(2)(ii) and under Rule 8D(2)(iii) being administrative expenditure - HELD THAT:- As seen from the order of the AO as well as the CIT(A), there is no finding that assessee has incurred any expenditure for earning the said dividend income. There was finding on diversion of borrowed funds, hence the disallowance of interest under Rule 8D(2)(ii) does not arise. Assessee had own fund more that the investments. Consequently, disallowance under Rule 8D(2)(ii) has to be deleted. Coming to the disallowance of ½% of average value of investment, some proportionate expenditure can be disallowed but in no case, it should exceed the amount earned claiming exemption. Hon'ble High Court of Punjab & Haryana in the case of Pr. Commissioner of Income Tax Vs. Empire Package Pvt. Ltd.,[2016 (2) TMI 505 - PUNJAB AND HARYANA HIGH COURT] answered the question raised by Revenue in negative, wherein the Revenue has raised ‘whether in the facts and circumstances of the case, the Hon'ble Tribunal is justified in law to hold the disallowance made u/s. 14A r.w. Rule 8D cannot exceed the exempt income in the absence of any such restriction being there in the relevant section or rule’. Similar opinion was also expressed by the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd., [2015 (3) TMI 155 - DELHI HIGH COURT] as clearly held that the proportionate or portion of the tax exempt income surely cannot swallow the entire amount as happened in this case. We are of the opinion that the disallowance under Rule 8D cannot exceed the dividend income earned and claimed as exempt. Therefore, the disallowance worked out under Rule 8D(iii) being administrative expenditure is restricted to the amount of dividend earned. AO is directed accordingly. Grounds are partly allowed.
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