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2014 (1) TMI 987 - AT - Income TaxDisallowance u/s 14A - Held that:- Following CIT Vs. Hero Cycles Ltd [2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT] - Disallowance under section 14A required finding of incurring of expenditure and where it was found that for earning exempted income no expenditure had been incurred, disallowance under section 14A could not stand - As per section 14A(1) - Incurring of some expenditure by the assessee for earning of exempt income is essential for invoking the provisions of Section 14A. The Assessing Officer is required to record the satisfaction that he is not satisfied with the claim of the assessee with regard to incurring of no expenditure or the amount of the expenditure as specified by the assessee for earning of exempt income before embarking upon the determination of the amount of expenditure incurred in relation to exempt income under Section 14A(2). By using the word "shall" in sub-section (2) of Section 14A, the legislature has made it mandatory for the Assessing Officer to determine the amount of expenditure incurred in relation to exempt income as per the prescribed method i.e. Rule 8D. Before the insertion of Rule 8D, the Assessing Officer had the discretion to determine such expenditure on a reasonable and acceptable method of apportionment of expenditure between the taxable income and exempt income. Following Bharat Hari Singhania Vs. CWT [1994 (2) TMI 55 - SUPREME Court] - once the Assessing Officer records the satisfaction that he is not satisfied with the claim of the assessee of incurring of no expenditure or the amount of expenditure specified by the assessee, he is required to determine the expenditure incurred by the assessee in relation to the exempt income as per Rule 8D - Rule 8D is applicable from A.Y. 2008-09 which is mandatorily be adopted for computing disallowance u/s 14A - The CIT(A) was not justified in reducing the disallowance at a figure which was different than the disallowance determined as per Rule 8D of the Income-tax Rules - Decided in favour of Revenue. Disallowance for A.Y. 2007-08 - Held that:- Following Maxopp Investment Ltd. [2011 (11) TMI 267 - Delhi High Court] - In AY 2007-08, Rule 8D was not applicable, the Assessing Officer is required to compute the disallowance under Section 14A on the basis of reasonable apportionment of the expenditure between the exempt income and other income - The CIT(A) has worked out the disallowance by apportioning the expenditure for earning of exempt income at Rs. 1,59,479/- which is determined at the rate of 0.05% of average investment - Decided against Revenue.
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