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2015 (7) TMI 278 - AT - Income TaxDisallowance under Section 14A - investments made in the capital account of the partnership firm - CIT(Appeals) accepting the ad hoc expenditure on estimation of 10% of the incomec- Held that:- The assessee itself claimed before the Assessing Officer that it had made a disallowance of ₹ 5,67,277/- being 10% of the income earned from the partnership firm, under Rule 8D. Therefore, it is an admitted position of the assessee that a disallowance has to be made. This Tribunal is of the considered opinion that when the assessee itself admitted that a disallowance has to be made with regard to earning of the income which is exempted from taxation under the Income-tax Act in view of the language employed by the Parliament in Section 14A(2) that an Assessing Officer “shall determine” and the Rule 8D(1), this Tribunal is of the considered opinion that the method prescribed in sub-Rule (2) of Rule 8D has to be adopted. Since the Parliament and Rule making authority employed the language “shall determine”, it is obligatory on the part of the Assessing Officer to determine the expenditure as provided in sub-Rule (2) of Rule 8D. Therefore, estimation of expenditure at 10% may not be in accordance with provisions of sub-Rule (2) of Rule 8D. Also carefully gone through the order of this Tribunal in the assessee's own case this Tribunal found that the assessee has interest-free own funds to the extent of ₹ 42.95 Crores and out of these, the investments were made. Therefore, this Tribunal found that the investments were made from the interest free funds, therefore, no disallowance is required. However, the provisions of Section 14A and Rule 8D and the language employed by the Parliament “shall determine” were not brought to the notice of the earlier Bench. Therefore, this Tribunal confirmed the order of the Assessing Officer wherein 10% of the income from the firm was disallowed. Thus it is mandatory for the Assessing Officer to adopt the method prescribed in Rule 8D(2) of the Act. Therefore, the CIT(Appeals) is not justified in accepting the ad hoc expenditure on estimation of 10% of the income. Thus the entire issue of Rule 14A r.w. Rule 8D is remitted back to the Assessing Officer to determine the expenditure incurred by the assessee as per the method prescribed in the second limb of Rule 8D(2) of the Income-tax Rules, 1962 - Decided in favour of revenue for statistical purposes.
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