TMI Blog2015 (3) TMI 1111X X X X Extracts X X X X X X X X Extracts X X X X ..... nd satisfy himself about the assessee’s claim as to whether any expenditure has been incurred for the purpose of earning exempt income and then he has to quantify the expenditure. Here in this case, only clause (iii) of Rule 8D has been invoked by the AO to work out the indirect expenses, without satisfying himself about the assessee’s correctness of the claim. In absence of satisfying the mandatory requirement as given in sub-section (2) of section 14A, the disallowance offered by the assessee under rule 14A cannot be tinkered with and also it appears to be reasonable looking to the overall indirect expenditure incurred by the assessee. - Decided in favour of assessee - ITA no. 7370/Mum/2012 - - - Dated:- 20-3-2015 - SHRI D.KARUNAKARA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 64,21,691/- is solely on account of dividends and hence, it is major source of income. Accordingly, he worked out the disallowance under clause (iii) of Rule 8D at ₹ 26,45,200/- by taking 0.5% of average investment attributable for indirect expenses. 3. In the first appeal Ld. CIT(A) too confirmed the said disallowance on the ground that the rule 8D is mandatory from assessment year 2008-09. However, he agreed with the assessee s contention that the bank deposit of ₹ 9.98 crores with the HDFC Bank in not to be included in opening and closing investment for calculating average the investment for Rule 8D, because the interest from the same is taxable. Similarly, the assessee has claimed an amount of ₹ 10 crore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Thus, looking to the facts and circumstances of the case, no further disallowance over and above the sum offered by the assessee should be disallowed. 5. On the other hand, Ld. DR strongly relied upon the order of the CIT(A) and submitted that disallowance has to be worked out in accordance with the rule 8D, once provisions of 14A comes to play. 6. We have heard the rival submissions and also perused the relevant material placed on record. From the perusal of the profit and loss account, it is seen that the assessee has debited following indirect expenses:- (Rs.) (i) Administrative Expenses - 7,28,722/- (ii) Employee Cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation can be made only when the Assessing Officer having regard to the accounts of the assessee is not satisfied with the correctness of the claim in respect of such expenditure incurred in relation to the exempt income. In other words the AO has to examine the nature of expenditure vis-a-vis the earning of the exempt income. Here in this case the assessee had offered ₹ 2,40,000/- for the purpose of disallowance. However, the AO without examining the same has proceeded to apply rule 8D, as if it is a natural corollary to section 14A. The basic requirement the law is to examine the nature of the expenditure which can be said to attributable for the earning of the exempt income. If the assessee has incurred major expenditure for its co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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