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2011 (7) TMI 1150 - AT - Income TaxDisallowance of expenditure attributable to exempted income u/s 14A r/w Rule 8D - Assessee has claimed exempt income of dividend and offered a sum as expenses attributable to such exempt income and disallowed from its claim u/s 14A - Such computation was certified by statutory auditors - AO observed that such disallowance is not in accordance with rule 8D HELD THAT:- We find that computation made by assessee was certified by its statutory auditors and this fact has been recorded by AO as well as CIT(A). In the present case, the assessee has explained that the share capital and reserves, that is its own funds, were utilised for the purpose of investment in shares for earning dividend income and this has not been negated by lower authorities i.e. neither CIT(A) nor AO. It is an admitted position in law that expenditure can be disallowed under sec. 14A if and only if it is incurred in relation to income which does not form part of total income. From the facts of the present case, it is clear that there is no link with expenditure for earning of dividend income incurred by the assessee and once the facts are clear, no disallowance can be made by invoking rule. 8D. Neither the AO nor CIT(A) has recorded any finding that having regard to the account of the assessee, they are not satisfied with the correctness of the claim of expenditure made by assessee or the claim made by assessee that no expenditure has been incurred in relation to income which does not form part of the total income under the Act for the relevant assessment year. In the absence of any such finding, facts of the present case show that the investment in shares was made out of own capital employed and not from borrowed funds, no disallowance on account of interest expenditure can be made by invoking rule. 8D of the Rules. Accordingly, in the given facts and circumstances, we delete the addition - Decision against Assessee. Deduction u/s 80IA - The AO disallowed deduction under sec. 80IA after deducting proportionate head office expenses on turnover basis - CIT(A), confirmed such order HELD THAT:- We find that the issue is squarely covered in favour of assessee in assessee’s own case for asst. yr. 2007-08, where it was held that It is also an undisputed fact that the authorities have nowhere pointed out that any expenditure which had been incurred by the head office pertained directly to the undertakings for which deduction under sec. 80IA/80IB had been claimed. It is seen that the tax authorities have proceeded on the footing that some expenses must have been incurred by the head office; suspicion cannot supplant evidence. Since there is no shortcoming pointed out in the accounting of the assessee, no effort has been made to show that any specific expenditure incurred under the head office actually pertained to the undertakings for which deduction is being wrongly claimed. This action purely based on suspicion ignoring the facts on record is not in accordance with law. Accordingly, in the peculiar facts on record, we find that the orders of the AO and the CIT(A) deserve to be set aside. Taking a consistent view and respectfully following the same, we allow this issue of the assessee’s appeal.
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