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2022 (12) TMI 873 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - determination of expenditure incurred in relation to exempt income - HELD THAT:- Hon’ble Apex Court in the case of Godrej & Boyce Manufacturing Co. Ltd. [2017 (5) TMI 403 - SUPREME COURT] held that subsections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the AO is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the AO, what the law postulates is the requirement of a satisfaction in the AO that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable. The said principle has been reiterated in the case of Marg Limited [2020 (10) TMI 102 - MADRAS HIGH COURT] - Further in Maxopp Investment Limited [2018 (3) TMI 805 - SUPREME COURT] observed that it is that expenditure alone which has been incurred in relation to the income which is not includible in total income, is to be disallowed. If expenditure has no casual connection with the exempt income, such expenditure would be an allowable expenditure. Applying the ratio of aforesaid principles as well as the consistent view of Tribunal in assessee’s own case as cited before us, we would hold that since AO has mechanically applied the provisions of Rule 8D while making the aforesaid disallowance without establishing any nexus of expenditure claimed by the assessee with that of exempt income earned during the year, such disallowance is not sustainable in law. Accordingly, Ld. AO is directed to delete the additional disallowance while computing income under normal provisions as well as while computing Book profits u/s 115JB.
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