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2016 (12) TMI 1412 - HC - Income TaxDisallowance made under Section 14A of the Act read with Rule 8D cancelled - Held that:- Section 14A(2) prescribes the mode or methodology for the disallowance and the steps for its calculation. Unlike the other part of the statute which decree or enjoin the actual methodology and are substantive, Parliament deemed it appropriate to leave it to the rule making authority to prescribe the methodology, i.e. computation. The question of applying the statutorily prescribed method would arise only and only if the AO expresses an opinion rejecting the assessee’s methodology and the figure offered at the time of assessment. This is material because the jurisdiction to go into the method prescribed in the Rules arise only if the amounts the assessee offers does not have any realistic correlation with the tax exempt income. For instance, in a given case, if a tax exempt income is to the tune of ₹ 5 crores and the assessee is able to satisfy that expenditure relatable to that income or the reasonable nexus to such income is ₹ 25 lakhs, there has to be strong reasons why the said amount of ₹ 25 lakhs are to be rejected. The opinion of the assessing officer in the latter part [of Section 14A(2)] is to be based upon an appraisal of objective material relating to the assessee’s voluntary disallowance of amount/amounts. Not only that, if in the course of assessment, the AO enquires from the assessee about the amounts spent, which are to be disallowed, and the assessee in fact discloses a larger amount (than the one given in the return), it is still incumbent upon the AO to enquire into such larger amounts and determine whether it has nexus with expenditure relatable to exempt income to attract Section 14A(1). Sans this procedure, Section 14A would be reduced to a mere formality which it appears to have become in the circumstances of the case. Consequently, we are of the opinion that there is no infirmity in the reasoning and conclusions of the ITAT. - Decided against revenue
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