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2016 (6) TMI 1082 - AT - Income TaxDisallowance u/s 14A - whether section 14A read with Rule 8D is applicable when the assessee company has neither borrowed any money to be invested in shares nor earned any exempt dividend income during the year under assessment? - Held that:- Merely, on the basis of fact that during the preceding years as well as succeeding years, assessee company has earned the dividend income, the disallowance u/s 14A read with Rule 8D cannot be made because earning of dividend on investment in shares depends upon the company performance etc. AO, without rejecting the books of account, computed the deemed expenses at 0.5% of average investment and also computed the interest expenses in the face of the undisputed facts that assessee has not borrowed any funds for the purpose of investment in shares during the year under assessment. Admittedly, when the AO and ld. CIT (A) have not disputed the books of account as well as tax audit report and computation of income which apparently proved the contention of the assessee that no dividend income has been received during the year under assessment nor it has borrowed any funds to invest in the share to earn the dividend income, the question of making disallowance by invoking provisions u/s 14A read with Rule 8D does not arise. Thus when the assessee company has not incurred any expenditure to earn the exempt income, no disallowance can be made u/s 14A of the Act read with Rule 8D of the Rules, hence the impugned order passed by the ld. CIT (A) is not sustainable in the eyes of law. - Decided in favour of assessee
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