TMI Blog2014 (7) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... & L account, so, it the onus was on the AO to prove that out of the expenditure incurred under various heads were related to earning of exempt income. Not only this he had to give the basis of such calculation. In any manner disallowance of ₹ 16.35 lakhs, as against the total expenditure of ₹ 13 lakhs (app.) claimed by the assessee in P & L account, is not justified. Provisions of Rule 8D cannot and should not be applied in a mechanical way. - AO had not deliberated upon the facts of the case before making the disallowance, whereas the FAA has decided the issue on merits - Decided against Revenue. - ITA No. 877/Mum/2013 - - - Dated:- 30-7-2014 - Sh. Vijay Pal Rao and Rajendra, JJ. For the Appellant : Ms. Garima Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating to exempt income. So, the assessee was asked to explain as to why the provisions of section 14A should not be applied. After considering the submissions of the assessee, the AO held that looking into the fact that part of the expenses on account of salary, telephone and other administrative expenses must have been related to the activities for earning exempt income. Accordingly, invoking the provisions of section 14A read with Rule 8D, he made disallowance of ₹ 16,35,869/-, being 0.5% of average investment of ₹ 32,71,73,884/-. 3. Against the order of the AO assessee preferred an appeal before the First Appeal Authority (FAA). Before him it was submitted that the investment transaction undertaken by the assessee were man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad also not claimed even Demat and PMS account expenditure in the Profit and Loss Account and had debited the same to personnel account, that there was no proximate cause for disallowance in relationship with exempt income. He relied upon the cases of Walfort Shares Stock Brokers Pvt. Ltd. (326 ITR 1) and Godrej Boyce Manufacturing Co. Ltd (328 ITR 81). He deleted the disallowance of ₹ 16,35, 869/- made by the AO. 4. Before us, Departmental Representative(DR) stated that provisions of Rule 8D of the Rules were applicable for the year under consideration, that the assessee had earned exempt income. Authtorised Representative(AR)argued that all the investment transaction undertaken by the assessee were managed by investment advis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of investments. But, the justification for calculating the disallowance is missing.The assessee had not claimed any expenditure in its P L account, so, it the onus was on the AO to prove that out of the expenditure incurred under various heads were related to earning of exempt income. Not only this he had to give the basis of such calculation. In any manner disallowance of ₹ 16.35 lakhs, as against the total expenditure of ₹ 13 lakhs (app.) claimed by the assessee in P L account, is not justified. Provisions of Rule 8D cannot and should not be applied in a mechanical way. Facts of the case have to be ananlysed before invoking them. We are of the opinion that the AO had not deliberated upon the facts of the case be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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