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2016 (1) TMI 309 - AT - Income TaxDisallowance of expenses on account of exempted income - Held that:- We find that assessee has earned income from source of dividend which is exempted under income tax Act. We understand that a company cannot earn dividend without its existence and management. Investment decisions are very complex in nature. It requires substantial market research day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares, mutual funds etc., at the most, appropriate time. The investment requires availability of funds and consequential blocking of funds. It is well known that capital has cost and the element of cost is represented by interest. Besides investment decisions are generally taken in the meeting of Board of Directors for which administrative expenses are incurred. It is therefore, not correct to say that income can be earned by incurring no or nominal expenditure. We further observed that originally at the time of assessment order, assessee did not offer any disallowance at its own but disallowed the expenses to the tune of ₹ 2,74,150/- at its own during the appellate stage. However, we find that the rule 8D is applicable w.e.f 24th day of March 2008 i.e. from the assessment year 2008-09. Hence the provisions of Rule 8D does not apply to the relevant year under consideration i.e. Assessment year 2007-08. So prior to the applicability of Rule 8D, different ITAT benches has considered 1% of dividend income as reasonable disallowance under section 14A of the Act. However, we are finding from the CIT(A) order that the assessee has offered the disallowance of ₹ 274150.00 which is more than 1% of the exempted income. Therefore we are inclined to restrict the disallowance at the same amount. - Decided in favour of assessee
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