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TMI Blog2016 (4) TMI 463X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter 'the Rules') made by the AO and sustained by the ld. CIT (A). 3. During the year under consideration, the assessee company was engaged in the business of sale and purchase of shares and securities. The assessee filed a return on 15.10.2010 declaring NIL income with a loss of Rs. 14,18,360/-. The assessee has earned exempt income in the form of dividend of Rs. 17,56,369/- on the investment of shares and the same was claimed as exempt u/s 10(34) of the Act. The AO observed that Rule 14A is applicable in assessee's case and has also observed that the assessee has incurred direct expenses on account of interest to the extent of Rs. 2,35,16,782/-. Thus, the AO computed disallowance @ 0.5% of average value of investment and worked o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent in shares and securities for earning capital appreciation and earning dividend income is incidental to such activities. He submitted that the assessee has incurred interest expenses to earn taxable income such as trading profit and capital gains. He submitted that the dividend income was not arising on all investment held by the assessee and earning of dividend income was due to holding of investments. He further submitted that the assessee has filed a revised computation claiming expenditure of Rs. 61,666/- being incurred for earning income as exempt income. He submitted that assessee had paid salary of Rs. 1,20,000/- to one person and DMAT charges of Rs. 3,332/- and claimed that 50% of such expenses i.e. Rs. 61,666/- (0.50% of Rs. 1,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve heard both the sides and perused the records. We find that the assessee had earned exempt income by way of dividend of Rs. 17,56,369/- on investment in shares and has claimed it as exempt u/s 10(34) of the Act. The assessee had claimed expenditure to the tune of Rs. 61,666/- being incurred for earning the exempt income by filing a revised computation of income. According to the assessee, it had paid a salary of Rs. 1,20,000/- to one person and DMAT charges of Rs. 3,332/- and claimed 50% of such expenses i.e. Rs. 61,666/- incurred for earning the exempt income. However, we find that the AO did not agree with the expenditure shown by the assessee and has stated in the order that, "the contention of the assessee is gone through and it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure which should be disallowed in accordance with such method as prescribed, i.e. Rule 80 of the Rules (quoted and elucidated below). Therefore, the Assessing Officer at the first instance must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, that he is entitled to adopt the method as prescribed i. e. Rule 80 of the Rules. Thus, Rule 80 is not attracted and applicable to all assessee who have exempt income and it is not compulsory and necessary that an assessee must voluntarily compute disallowance as per Rule 80 of the Rules. Where the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO cannot invoke Rule 8D to compute the said disallowance under the said Rule. Therefore, we find substance in the argument of the ld. AR and so, we find that without recording satisfaction as envisaged by the statute before invoking the computation provided for under Rule 8D has vitiated the impugned order. In this case we also note that exempt income is to the tune of Rs. 17,56,369/- whereas the disallowance is to the tune of Rs. 1,13,77,730/- which is 647% of the exempt income, which cannot be the interpretation for computing disallowance as per section 14A or Rule 8D as held recently by the Hon'ble jurisdictional High Court in the case of Joint Investment Pvt. Ltd. vs. CIT - (2015) 372 ITR 694 (Del.) wherein it has been held "By no s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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