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2014 (9) TMI 358 - AT - Income TaxExpenses disallowed u/s 14A r.w Rule 8D – Fund management fees - Held that:- AO while working out disallowance under rule 8D(2)(i) has taken the total investment irrespective of the fact whether they have yielded income or not during the assessment year under consideration - The reasoning of the AO in this regard is actual earning or receipt of income will not be a condition for disallowance of such expenditure under the provisions of section 14A as it speaks about expenditure in relation to income which does not form part of the total income - even if no income was received, expenditure incurred can be disallowed u/s 14A - investment, which has not resulted in any income cannot be considered for the purpose of disallowance under Rule 8D(2)(i) - while computing disallowance under rule 8D(2)(iii), the average of the total investment of the assessee as appearing in the balance sheet on the first day and last day of the year irrespective of the fact whether it has yielded income or not can be considered for the purpose of disallowance - The use of the words does not or shall not in Rule 8D(2)(iii) connotes that income not only does not form part of total income during the year but it also shall not form part of total income at any time. Had it been the intention of the Rule framing authorities to disallow under rule 8D(2)(i) expenditure relating to total value of investment or income which is not earned during the relevant previous year, then, they would have used the expression 'does not or shall not form part of total income' as appearing in rule 8D(2)(iii) instead of words 'does not form part of total income' - AO cannot disallow expenditure relating to investment which has not yielded any exempt income during the previous year relevant to the AY – thus, the AO is directed to disallow the expenditure relating to investments resulting in income earned/accrued which does not form part of total income of the impugned assessment year – Decided in favour of assessee.
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