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2017 (4) TMI 469 - AT - Income TaxDisallowance of assessee’s claim on depreciation on assets acquired on demerger - Held that:- Tribunal has upheld the order of the departmental authorities in disallowing assessee’s claim of depreciation on assets acquired on demerger in earlier AYs. Addition u/s 14A - Held that:- As regard being had to subsection (2) of section 14A, the provision does not empower the AO to apply Rule 8D straightaway without considering the correctness of assessee’s claim in respect of expenditure incurred in relation to exempt income. If one applies the aforesaid legal principle to the facts of the present case, it emerges that though the assessee along with return of income has furnished a computation of inadmissible expenditure u/s. 14A, the AO has neither examined such claim of the assessee nor has recorded any satisfaction with regard to the correctness or otherwise of assessee’s claim with reference to the books of account. That being the case, the disallowance made by applying Rule 8D is not only against the statutory mandate but contrary to legal principles laid down in the judicial precedents referred to above. In the aforesaid view of the matter, the disallowance made by the AO and partly sustained by the CIT(A) would have no leg to stand. Accordingly, the addition made deserves to be deleted. However, the disallowance made u/s. 14A by the assessee itself is also required to be disallowed while computing the book profit u/s. 115JB in view of the decision of the Tribunal in assessee’s own case for A.Ys. 2005-06 to 2010-11 as referred to above. While deciding the additional ground raised by the assessee in the earlier part of the order, we have deleted the disallowance made by the AO u/s. 14A read with Rule 8D for the reasons discussed therein. That being the case, the issue raised by the department in the present appeal would no more survive. Suffice to say the CIT(A) has deleted the addition made on account of interest expenditure for the reason that the assessee had sufficient interest free surplus fund to make the investment. In fact, the AO himself in assessment order has stated that the assessee had substantial surplus fund available with it. That being the case, the interest expenditure under no circumstances can be disallowed u/s. 14A read with Rule 8D(2)(ii). The ground raised by the department is therefore dismissed.
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