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2015 (10) TMI 1488 - ITAT MUMBAI

2015 (10) TMI 1488 - ITAT MUMBAI - TMI - Disallowance under section 14A - expenditure incurred for earning of exempt income - Held that:- The straightway application of rule 8D in the case of the assessee by the lower authorities is not sustainable. Taking into consideration the overall facts and circumstances of the case especially the nature of investments made by the assessee and further that most of the investments were made in earlier years, in our view, the expenses equal to 2% of the exem .....

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which assessee herself has offered. We accordingly restrict the disallowance in relation to motor car expenses and depreciation to the extent of 25% instead of 33.3% made by the lower authorities. - Decided in favour of assessee in part. - ITA No. 7771/M/2011 - Dated:- 8-4-2015 - R. C. Sharma, AM And Sanjay Garg, JM,JJ. For the Petitioner : Shri Sameer G Dalal, AR For the Respondent : Shri N Padmanabhan, DR ORDER Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the asse .....

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e belief, the short delay of 30 days has occurred in preferring the present appeal. 2.1 Considering the submissions of the assessee as well as the shortness of the delay period, we condone the delay in preferring the present appeal and proceed to decide the same on merits. 3. The assessee has raised two effective issues through her grounds of appeal. Ground Nos.1 to 3 relate to the issue of disallowance of ₹ 2,85,860/- under section 14A of the Income Tax Act on account of expenditure incur .....

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earning of the above exempt income was required to be made. The AO observed that no interest expenditure had been incurred by the assessee for making the investments. He, however, worked out the disallowance under Rule 8D2(iii) of the Income Tax Rules, 1962, i.e. at the rate of 0.5% of the average value of investment at ₹ 2,85,860/-. 5. In appeal, the Ld. CIT(A) observed that the claim of the assessee that she had not incurred any expenditure in relation to earning of exempt income could .....

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was reasonable. Aggrieved by the order of the Ld. CIT(A) on this issue, the assessee has come in appeal before us. 6. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the records. The Ld. A.R. of the assessee has stated that for earning of exempt income like interest on tax free bonds, dividend from mutual funds etc., it generally do not require incurring of any expenditure. He has further stated that investment in mutual fund was car .....

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y High Court has held that Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable but can be applied, only, if, the assessee's method is not satisfactory. It has been further held that Rule 8D is not retrospective and applies from A.Y. 2008-09. For the years for which Rule 8D is not applicable and in the event of that the AO is not satisfied with the explanation/working given by the assessee, disallowance under section 14A has to be made on a reasonable basis. Almost similar view has been ex .....

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dinate benches of this Tribunal have observed that in such cases certain percentage of exempt income can constitute a reasonable estimate for making disallowance for the years earlier to assessment year 2008-09. The Hon'ble Bombay High Court in the case of CIT vs. 'Godrej Agrovet Ltd.' (ITA No.934/2011) decided on 08.01.13 has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee. In view o .....

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