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2023 (12) TMI 801 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Calculation by taking into consideration only the investments which have yielded exempt income - as argued CIT(A), instead of adopting the average value of investment of which income is not part of the total income i.e., the value of tax- exempt investment, chose to factor in the total investment itself - Assessee argued investments which are not capable of yielding the dividend income need to be excluded while calculating the exact disallowance under section 14A - HELD THAT:- As it is an admitted fact that assessee has earned exempt income of Rs. 3.90 crores. As such, as rightly pointed out by the ld. D.R., the ld. AO has to apply Rule 8D(2)(iii) of the I.T. Rules to compute the disallowance u/s 14A of the Act. However, the investment yielding non-taxable income has to be considered and not all the investment. This proposition has been held correct in the case of ACB India Ltd [2015 (4) TMI 224 - DELHI HIGH COURT] had held that for the purpose of section 14A, instead of taking into account total investment, the investment attributable to dividend (exempt income) was only required to be adopted and thereafter the disallowance was to be arrived. Thus we hold that while calculating disallowance under section 14A of the Act, only investment that have generated exempt income should be taken into consideration. Accordingly, we remit the issue to the file of ld. AO for limited purpose of re- computation of disallowance u/s 14A of the Act r.w. Rule 8D(2)(iii) of the I.T. Rules. It is needless to make it clear that while applying Rule 8D(2)(iii), an amount equal to one half percent of the average of the value of the investment that have generated exempted income should be taken into consideration and not the total investment. Appeal of the assessee is partly allowed for statistical purposes.
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