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2022 (6) TMI 289 - AT - Income TaxAddition u/s 14A r.w.r. 8D - Suo moto disallowance by assessee - AO by applying the method under Rule 8D(2)(iii) made further disallowance - as argued when there is no investments made in the year under consideration the disallowance made by the AO under Rule 8D(2)(iii) is not maintainable - HELD THAT:- Sub-section (2) of section 14 clearly explains that the AO is empowered to determine the expenditure in accordance with such method as contemplated under Rule 8D, if it is satisfied with the correctness of the claim of assessee in respect of such expenditure. In the present case, the assessee made disallowance on its own at 5% of exempt income to an extent of Rs.91,875/-. The AO did not accept the same and proceeded to invoke Rule 8D(2)(iii) of Rules which resulted disallowance of Rs.8,11,416/-. AO has also empowered to determine the amount of expenditure if no claim of expenditure incurred in relation to exempt income under sub-section (3) of section 14. Therefore, the method adopted by the assessee by disallowing at 5% of exempt income has no basis. Therefore, the AO is correct in invoking Rule 8D(2)(iii) which was confirmed by the CIT(A) by holding that the AO is justified in not accepting the disallowance made by the assessee on its own at 0.5% of average investments. There is no such provision in the statute that no disallowance of expenditure could be made on investments made in the earlier years. Admittedly, the exempt income was earned on the investments made in the earlier years and the exempt income was earned in the year under consideration. Therefore, the disallowance made by the AO which was confirmed by the CIT(A) under Rule 8D(2)(iii) is justified. Thus, we find no infirmity in the order of CIT(A). Accordingly, the grounds raised by the assessee are dismissed.
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