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2016 (12) TMI 458 - AT - Income TaxDisallowance of deduction u/s.14A of the Act read with Rule 8D at 2% of exempted income as declared by the assessee - Held that:- The assessment year involved here is 2008-09. Rule-8D of Income Tax Rules, 1962 was introduced with effect from 24.03.2008, which was prospective in operation and cannot be treated as being retrospective as held by the Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (2011 (11) TMI 267 - Delhi High Court ). However, incurring certain administrative expenses cannot be ruled out. Accordingly, we are of the opinion that the Ld.CIT(A) is justified in directing the AO to disallow 2% of the exempt income. Being so, we do not find any infirmity in the order of Ld.CIT(A) and the same is confirmed. Disallowance of expenses relatable to earning the dividend income by applying Rule 8D - Held that:- Admittedly for this assessment year Rule-8D is applicable and there should be disallowance u/s.14A read with Rule 8D. However, while considering the applicability of Sec.14A r.w.Rule 8D, the investment made by the assessee in subsidiary companies are not on account of investments for earning capital gains or dividend income, but such investments have been made by the assessee to promote the subsidiary company on account of commercial expediency and earning of dividend income from such activity is only incidental. Therefore, investment made by the assessee in its subsidiary should not be considered while applying the disallowance u/s.14A r.w.Rule 8D. Being so, we direct the AO to compute the average value of the investment under the provisions of Rule 8D and delete the investments in subsidiary while considering the average investments and recomputed the disallowance u/s.14A r.w. Rules 8D.
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