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2016 (2) TMI 788 - AT - Income TaxDisallowance u/s 14A - Held that:- The third limb of Rule 8D (2), deals with disallowance an amount equal to 1 ½ of the average of the value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. The language of this sub-section is very clear to hold that only those investments should be considered under this limb from which exempt income has been earned during the year under consideration by the assessee. The argument raised by the assessee that since there has been no direct or indirect interest expenditure, that could be attributable to the earning of exempt income and therefore, no disallowance could be made u/s 14A r/w 8D of the Act, cannot be accepted. Rule 8D (2)(iii) would be applicable and the disallowance u/s 14A r/w Rule 8D has to be made in accordance to sub section (iii) of section (2) of Rule 8D. We, accordingly, on the basis of the above discussion and findings, set aside this issue to the file of the Assessing Officer for re-computing the disallowance u/s 14A r/w Rule 8D(iii), with a specific direction to consider only those investments from which the assessee has earned tax free income for the year under consideration. It is specifically mentioned that the disallowance has to be made in accordance with law under Rule 8D (2)(iii) for the year under consideration.
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