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2023 (10) TMI 1361 - AT - Income TaxAddition made u/s 14A and 115JB - Expenditure incurred on earning exempt income - HELD THAT:- We notice that the CIT(A) has followed the decision rendered in the case of Caraf Builders and Constructions P Ltd [2018 (12) TMI 410 - DELHI HIGH COURT] in holding that the disallowance u/s 14A should not exceed exempt income. Addition to be made under clause (f) of Explanation given under sec. 115JB of the Act for computing book profit - Delhi Special Bench of ITAT in VIREET INVESTMENT (P.) LTD. [2017 (6) TMI 1124 - ITAT DELHI] has held that the disallowance computed u/s 14A of the Act cannot be imported into sec. 115JB of the Act. Thus, we notice that both the decisions rendered by Ld CIT(A) is backed by judicial orders of higher forums. The revenue did not show any contrary decision before us. Accordingly, we uphold the order passed by Ld CIT(A) on both these issues. Contention of the assessee that the “average value of investments” to be computed for the purpose of Rule 8D should be computed by considering only those investments, which have yielded dividend income - The above said contention finds support from the decision of Vireet Investments P Ltd [2017 (6) TMI 1124 - ITAT DELHI] - Accordingly, we direct the AO to compute average value of investments by considering only those investments, which have yielded dividend income and then compute the disallowance under Rule 8D. One more principle to be followed is that, if the own funds available with the assessee exceeds the value of investments, then no disallowance of interest expenditure is called for u/r 8D(2)(ii) of I T Rules. If the disallowance so computed by applying above said principles works out to be lower than the value of exempt income, then the disallowance u/s 14A should be restricted to the lower amount so computed. Appeal of the revenue is dismissed and the cross objection filed by the assessee is allowed.
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