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2019 (7) TMI 1206 - AT - Income TaxDisallowance of expenses u/s 14A r.w. rule 8D - HELD THAT:- Assessee had own surplus funds which were more than investments in dividend yielding shares. The law by now is well-settled that if available interest-free funds are much more than investments in dividend yielding shares, then there can be no disallowance under rule 8D(2)(ii) of the Act. In the case of CIT Vs. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT] it was held where assessee's own funds and other non interest bearing funds were more than investment in tax free securities, no disallowance of part of interest payments under section 14A of the Act can be made. In light of the above factual and legal position, we are of the view that disallowance of interest under rule 8D(2)(ii) cannot be sustained and the same is directed to be deleted. Disallowance under rule 8D(2)(iii) - We have considered the expenditure debited in the profit & loss account and we find that only bank charges of ₹ 35,676/-, remuneration to auditors of ₹ 8500/-, salary and wages of ₹ 2,46,000, travelling and conveyance of ₹ 60,000/-, vehicle maintenance of ₹ 1,81,816- are expenses which are general in nature and all other expenses are attributable to the activities other than activity of investment in shares which are likely to yield exempt income. Therefore, only the aforesaid expenses can be considered for disallowance under rule 8D(2)(iii). We may also mention here that the mandate of section 14A of the Act is that the expenditure incurred in relation to income which does not, form part of total income has to be determined having regard to the account of the assessee. Therefore, nexus between expenses sought to be disallowed and earning of dividend income has to be seen before applying the provisions of rule 8D of the IT Rules. In that view of the matter, we direct that disallowance of expenses should be restricted to the items as set out above. There is no merit in the appeal because the law, by now is well settled that disallowance u/s 14A of the Act cannot exceed exempt income earned by the assessee
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