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2012 (7) TMI 235 - AT - Income TaxEstimation of expenditure incurred in earning the exempt income - applicability of Rule 8D by AO disallowing 10% of the income - assessee submitted that no expenditure can be identified which has been incurred for earning the dividend from units - Held that:- The total of the investments when compared at the beginning of the year with the end of the year clearly shows that substantial activity has taken place in purchase / subscription, and sale / redemption of the units. Therefore, it will be naïve to accept that such activities have been undertaken merely at the advice of the bank and without any substantial participation of the managerial personnel in this behalf - Such investments require constant monitoring and undoubtedly expenditure has been incurred for earning income by way of management, establishment and office expenses. As the investments at the beginning of the year stood at about Rs. 14.65 crores, which were reduced to about Rs. 13.01 crores at the end of the year. The assessee has earned dividend income and capital gain, which are tax-free incomes as mentioned earlier. Therefore, these incomes have not been included in the total income - as the assesee’s explanation is not satisfactory, therefore, provisions contained in 14A are applicable r.w.r.8D - CIT(A) erred in estimating the expenditure by ignoring the mandatory provision contained in Rule 8D - against assessee.
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