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2022 (7) TMI 954 - ITAT RAJKOTDisallowance u/s 14A r.w.r. 8D - As argued interest paid on partner’s capital is not expenses for the purpose of section 14A, indeed, the same is attribution of profit - HELD THAT:- At the outset we find that this issue has been dealt by ITAT Pune Bench in case of Qualities Industries [2016 (10) TMI 56 - ITAT PUNE] held that partnership firm and its partners are seen holistically and in a combined manner with costs towards interest eliminated in contra, the investment in mutual funds generating tax free income bears the characteristic of and attributable to its own capital where no disallowance u/s 14A read with Rule 8D is warranted. Consequently, the plea of the assessee is merited in so far as interest attributable to partners. However, the interest payable to parties other than partners, in our view, would be subjected to provisions of Rule 8D(2)(ii) of the Rules. Similarly, in the absence of any specific plea from assessee towards disallowance under Rule 8D(3), we hold it sustainable in view of express mandate of law. The matter is accordingly remanded back to the file of the Assessing Officer for re-computation of disallowance under Rule 8D r.w.s. 14A of the Act in terms of our opinion expressed hereinabove. Disallowances under rule 8D(2)(iii) r.w.s. 14A - As in the case of Asstt. CIT v. Vireet Investment (P.) Ltd. [2017 (6) TMI 1124 - ITAT DELHI] had considered an identical issue and held that while computing average value of investments only those investments which yield exempt income in the year should be considered. Therefore, we are of the considered view that for computing disallowance under Rule 8D(2)(iii), those investments which yield exempt income only needs to be considered. Therefore, we set aside the issue to the file of the AO and direct him to re-compute disallowance in light of our discussions herein above which comes. Addition cannot exceeds the amount of exempted income - We direct the AO to limit the disallowance under section 14A read with rule 8D of Income Tax Rule, if any, then it should be lower of exempted income or the disallowance made under section 14A r.w.r. 8D of Rules of Income Tax Rules. Thus the grounds of appeal raised by the assessee is partly allowed.
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