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2012 (10) TMI 857 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - interest paid to ICICI bank on purchase of shares and a further amount being ½% of average investment under Rule 8D(2) - Held that:- From the details of the expenditure it is clear that the expenditure incurred and claimed by the assessee has direct nexus with the professional income of the assessee but is not the case of the revenue that the assessee has used his official machinery and Establishment for earning the exempt income. AO has not pointed out that certain expenditure is not incurred for earning the professional income but are incurred in relation to dividend income or such expenditure is incurred for inseparable and indivisible activities comprising professional as well as the activities on which is exempt income has been earned by the assessee, then in the absence of any such instance of expenditure, finding of AO or any material to show that the expenditure incurred and claimed by the assessee against the taxable income has any relation for earning the exempt income, the provisions of section 14A cannot be applied. From the assessment order it is observed that the AO simply kept the assessee's submissions on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course adopted by the AO - as the disallowance cannot exceed the total actual expenditure incurred and claimed by the assessee the total expenditure claimed by the assessee in the Profit and Loss account is Rs.45,977/- thus the disallowance should be restricted to this amount - partly in favour of assessee.
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