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2021 (3) TMI 813 - AT - Income TaxDisallowance u/s 14A - expenses incurred for the purpose of earning exempt income - CIT(A) who restricted the disallowance to the extent of exempt income earned by way of dividend in all the years - HELD THAT:- As assessee in its appeal filed relating to assessment years 2006-07 and 2007-08 urging that the entire disallowance made u/s. 14A of the Act needed to be deleted since Rule 8D was not applicable in the impugned years, we are not convinced with the same. Merely because the AO had adopted an incorrect method for working out the disallowance does not mean that the entire disallowance was not tenable in law, more particularly when the ITAT had in the first round held that in the light of the fact that the assessee had earned exempt income, section 14A of the Act was attracted and the AO was only required to work out the disallowance as per the provisions of law. Having held so, however, we are of the view that the incorrect application of formula by the AO for the impugned years needs to be looked into and a proper method for working out the disallowance need to be arrived at in the said two years i.e. 2006-07 and 2007-08. This issue, therefore, also needs reconsideration at the end of the Ld. CIT(A). Therefore, all the appeals are restored back to the Ld. CIT(A) with the direction to rework the amount of disallowance of expenses u/s. 14A for all the assessment years in accordance with law, giving a clear finding of the nature of the expenses disallowed. Application of Rule 8D for calculating disallowance of expenses u/s. 14A of the Act, is restored back to the Ld. CIT(A) with the directions to calculate the same as per appropriate method, in accordance with law.
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