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2015 (9) TMI 1113 - AT - Income TaxDisallowance u/s 14A read with rule 8D - Held that:- AO has made the disallowance u/s 14A and has mechanically followed Rule 8D without pinpointing any expenditure relatable to earning of exempt income. From the details of disallowance made by AO, we find that AO has not made any disallowance on account of interest. We find that Hon’ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT) has held that disallowance u/s 14A requires finding of incurring of expenditure and where it is found that for earning exempt income no expenditure was incurred disallowance cannot be made. We find that assessee had debited all expenses related to project under the head “work in progress” and had reduced dividend income from work in progress which means that assessee had not claimed in the P & L account any expenditure for earning of exempt income. The profit and loss account as placed in paper book page 8 do not reflect any expenditure relatable to earning of exempt income. Moreover, we find that assessee had deployed its surplus funds in mutual funds and for investment in mutual funds advisors do not charge any fee and, whatever fee or charges are charged they are deducted from the amount of investment itself. Therefore, also the assessee cannot be said to have incurred any expenditure directly or indirectly for earning of exempt income. Thus we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) to Section 14A of the Act read with sub Rule (1) to Rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub Rule (2) , without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re-computation. Therefore, the respondent assessee would succeed and the appeal should be dismissed. - Decided in favour of assessee.
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