TMI Blog2015 (7) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer to determine the expenditure as provided in sub-Rule (2) of Rule 8D. Therefore, estimation of expenditure at 10% may not be in accordance with provisions of sub-Rule (2) of Rule 8D. Also carefully gone through the order of this Tribunal in the assessee's own case this Tribunal found that the assessee has interest-free own funds to the extent of ₹ 42.95 Crores and out of these, the investments were made. Therefore, this Tribunal found that the investments were made from the interest free funds, therefore, no disallowance is required. However, the provisions of Section 14A and Rule 8D and the language employed by the Parliament “shall determine” were not brought to the notice of the earlier Bench. Therefore, this Tribunal confirmed the order of the Assessing Officer wherein 10% of the income from the firm was disallowed. Thus it is mandatory for the Assessing Officer to adopt the method prescribed in Rule 8D(2) of the Act. Therefore, the CIT(Appeals) is not justified in accepting the ad hoc expenditure on estimation of 10% of the income. Thus the entire issue of Rule 14A r.w. Rule 8D is remitted back to the Assessing Officer to determine the expenditure in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount for earning that income. According to the Ld. D.R., in view of Section 14A(2) of the Act read with Rule 8D, the Assessing Officer is expected to disallow the expenditure which is relating to earning of the exempted income. Referring to Section 14A of the Act, the Ld. D.R. submitted that sub-section (2) of Section 14A of the Act mandates the Assessing Officer to determine the amount of expenditure incurred in relation to earning of exempted income in accordance with the method prescribed under Rule 8D. According to the Ld. D.R., the Legislature has used the word shall determine , therefore, the Assessing Officer has no other way except to determine the expenditure incurred for earning the exempt income. 4. Referring to Rule 8D of the Income-tax Rules, 1962, the Ld. D.R. submitted that where the Assessing Officer is not satisfied with regard to the correctness of the claim of the expenditure or the claim made by the assessee that no expenditure was incurred in relation to income which does not form part of total income, then he shall determine the amount of expenditure in relation to such income in accordance with sub-Rule (2) of Rule 8D. Referring to sub-Rule (2) of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the previous year ; C = the average of total assets as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year ; (iii) an amount equal to one-half per cent. of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the total assets shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. Under Rule 8D(1), when the Assessing Officer having regard to the accounts of the assessee of the previous year is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee that no expenditure was incurred in relation to the total income, then he shall determine the amount of expenditure in relation to such income in accordance with provisions of sub-Rule (2) of Rule 8D. Therefore, for the purpose of applying Rule 8D, the satisfaction of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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