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2020 (10) TMI 743 - AT - Income TaxDisallowance u/s 14A r.w.Rule 8D - Mandation of Recording of satisfaction as required u/s 14A(2) - AO has disallowed interest expenditure under Rule 8D(2)(ii) and other expenses @0.5% of average value of investments under Rule 8D(2)(iii) - HELD THAT:- It is very clear from the assessment order that there are no suo- moto disallowances from the assesee and when, this was brought to the notice of the ld. AR for the assessee, the assessee stated that there is no application of section 14A or interest income earned from head office, but not explained how provisions of Rule 8D are not applicable - AO, on the basis of information furnished by the assesse has noted that the explanation furnished by the assessee is not acceptable - findings recorded by the Ld. AO is sufficient and a clear indication of his compliance of the procedure prescribed u/s 14A(2) and hence, we are of the considered view that there is no merit in argument taken by the Ld. AR for the assessee regarding satisfaction as required u/s 14A(2 - Hence, an argument of assessee is rejected. Interest disallowances - It is a settled position of law that only net interest expenditure needs to be considered for computing disallowances u/s 14A. This principle is supported by the decision of CIT vs Jubiliant Enterprises Pvt.Ltd [2017 (2) TMI 1219 - BOMBAY HIGH COURT]. We direct the Ld. AO to consider net interest expenditure for the purpose of working out disallowances of interest under Rule 8D(2)(ii) of I.T.Rules, 1962. Addition of other expenditure - Although the assessee has requested for disallowances of 1% to 2% of exempt income, but from AY 2008-09 onwards disallowances contemplated u/s 14A shall be computed in accordance with Rule 8D, where the procedure has been laid down for determination of disallowances of expenditure and this principle is supported by the decision of CIT vs Godrej and Boyce Manufacturing Co.Ltd. [2010 (8) TMI 77 - BOMBAY HIGH COURT]. Therefore, we are of the considered view that there is no merit in arguments taken by the assesee and hence, we are inclined to uphold the computation of other expenses as per Rule 8D(2)(iii) AO has determined the disallowances of ₹ 88,551/-, which is more than amount of exempt income, which cannot be the case. It is a settled principle of law that disallowances of expenditure u/s 14A shall not shallow entire exempt income of the assessee - we direct the Ld. AO to restrict disallowances of expenditure computed u/s 14A to the extent of exempt income of the assessee for the year under consideration. - Decided partly in favour of assessee.
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