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2023 (2) TMI 868 - HC - Income TaxAddition u/s 14A r.w.r. 8D - Disallowance attributable to earning of exempt income - HELD THAT:- There is no discussion by the AO with regard to the computation of inadmissible expenditure made by the assessee forming part of the return of income. AO has not recorded any satisfaction that the working of inadmissible expenditure u/s 14A is incorrect with regard to the books of account of the assessee. The provision u/s 14(2) does not empower the AO to apply Rule 8D straightaway without considering the correctness of the assessee’s claim in respect of expenditure incurred in relation to the exempt income. We agree with the view of the ITAT that in the present case the AO has neither examined the claim in respect of expenditure incurred in relation to exempt income of the assessee nor has recorded any satisfaction with regard to the correctness of assessee’s claim with reference to the books of account. Consequently, the disallowance made by applying the Rule 8D is not only against the statutory mandate but contrary to the legal principles laid down. In our view too, the CIT (A) has rightly deleted the addition made on account of interest expenditure as the assessee had sufficient interest free surplus fund to make the investment and the ITAT has rightly deleted the disallowance made by the AO u/s 14A r.w Rule 8D. Consequently we hold that, the interest expenditure cannot be disallowed u/s14A r.w. Rule 8D(2)(ii) under any circumstances. Decided in favour of assessee.
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