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2022 (10) TMI 571 - HC - Income TaxDisallowance u/s 14A r.w.r. 8D - ITAT confirming the disallowance made under Rule 8D not restricting the disallowance to 0.5% of those investment only where the assessee had earned exempt income - HELD THAT:- While Section 14A is the charging Section, Rule 8D is a method/mechanism to determine the amount of expenditure incurred in relation to income, which does not form part of the total income of the assessee. By virtue of the charging Section, namely, Section 14A, the Assessing Officer has the power only to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act. This Court is further of the view that Rule 8D(2)(iii) clearly postulates that in the calculation of the disallowance amount, "an amount equal to onehalf percent of the value of the investment, income from which does not or shall not form part of the total income" should be taken into consideration. Thus, it is not all investment but only that which is expressly spelt out in Rule 8D(2)(iii) read with Section 14A and Rule 8D(i) which is to be reckoned for the purpose of calculation of average of half percent. Only those investments are to be considered for computing average value of investments which yielded exempt income during the relevant assessment year. The question of law is answered in favour of the appellant-assessee, as this Court is of the view that the ITAT has erred in confirming the disallowance made under Rule 8D by not restricting the disallowance to 0.5% of those investment only where the assessee had earned exempt income.
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