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2016 (12) TMI 1701 - AT - Income TaxDisallowance u/s 14A read with Rule 8D(2)(iii) - expenditure related to exempt income - Held that:- The appeal under consideration relates to the AY 2008-09 and therefore, the applicability of the Rule 8D of the Rule is undisputed. However, it is a settled legal proposition at our level that the average investment desires exclusion of the non-dividend yielding investments.Therefore, in our opinion, the assessee is entitled to relief on this argument. Accordingly, the relevant grounds raised by the assessee are required to be allowed in principle. We order accordingly and direct the AO to re-calculate the disallowance under Rule 8D(2)(iii) of the Rules. Thus, grounds raised by the assessee are allowed. Disallowance u/s 8D(2)(ii) of the Rules - Held that:- As in HDFC Bank Limited vs. DCIT (2016 (3) TMI 755 - BOMBAY HIGH COURT) and mentioned that the assessee is having excess interest free funds in such case, no disallowance is called for under clause (ii) of Rule 8D(2) of the Rules. We agree with the said decision of the CIT (A) on this issue and therefore, the conclusions drawn by the CIT (A) are upheld. Further, Ld Counsel for the assessee submitted that for computing the average investment, the investment in stock-in-trade should excluded for the purpose of quantifying the disallowance which are required to be made under clauses (ii) and (iii) of Rule 8D(2) of the Rules. In this regard, Ld Counsel for the assessee relied on the judgment of the CIT vs. India Advantage Securities Ltd [2015 (6) TMI 140 - BOMBAY HIGH COURT]. After hearing both the parties, we find, the order of the CIT (A) on this issue is fair and reasonable Allowability of the provision of mark-to-market loss confirmed Disallowance u/s 14A read with Rule 8D(2) - Held that:- No disallowance under clause (ii) is needed if the own funds are more than the investment. Considering the same, we agree with the conclusions drawn by the CIT (A) on this issue. Similarly, referring to the relief granted by the CIT (A) in excluding the investments in stock-in-trade for the purpose of disallowance under Rule 8D(2)(ii) and (iii) of the Rules, after hearing Representatives of both the parties, we are of the opinion, the said conclusions drawn by the CIT (A) are fair and reasonable and it does not call for any interference. Further, it is relevant to mention that while calculating the average investments, only the dividend yielded investments should alone be considered for quantifying the disallowance under clause (iii) of Rule 8D(2) of the Rules. In our opinion, on this issue also, the conclusions drawn by the CIT (A) are sustainable.
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