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2013 (11) TMI 1633 - AT - Income TaxDisallowance under section 14A - Held that:- The objective satisfaction of the AO as to the correctness of the assessee's claim was not recorded in the instant case. However, even if Rule 8D cannot be applied, the AO is obliged to ascertain the expenditure which had been incurred to earn the tax-free income. He must adopt a reasonable basis consistent with the relevant facts and circumstances of the case. The appellant's dividend income during the year is ₹ 3,33,320/- and appellant estimated an expenditure of 2% of dividend income as related to exempt income and disallowed an amount of ₹ 6,666/- in the computation of total income. The expenditure estimated by the appellant appears to be highly inadequate. Appellant has to incur various direct and indirect expenses in as much as the efforts of the employees go in tracking the mutual fund and other investments, purchase and sale of mutual funds and other assets, deposit of the dividend warrants, portfolio management etc. Considering the facts and circumstances of the case and judicial precedents discussed in preceding paras, a sum of ₹ 50,000/- is considered as reasonable expenditure to earn the exempt income. Accordingly, the disallowance is restricted to ₹ 50,000/-. This ground is partly allowed
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