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2019 (5) TMI 1054

irect nexus between expenditure and exempt income, the AO can not invoke provisions of section 14A of the Act to disallow the said expenses as has been held in the case of Leena Kasbekar vs. ACIT [2017 (8) TMI 845 - ITAT MUMBAI] . It would be reasonable if a reasonable disallowance is worked out by applying the percentage on the total expenses of ₹ 67,35,894/- as has been calculated hereinabove. A.R. during the course of hearing prayed before the Bench to apply a percentage of 2% to 5% of the said expenses, however, we are not convinced with the arguments of A.R. on this issue. 10% of the said expenses would be reasonable disallowance u/s 14A r.w.r. 8D(2)(iii) in this case. Accordingly, a sum of ₹ 6,73,589/- is sustained by reve .....

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ction with the business of the assessee and relates to building and other repairs, electricity, insurance charges, donation paid, business promotion, auditor remuneration, professional fees, travelling expenses, interest on car loan and depreciation and amortization expenses. However, the AO did not accept the contentions of the assessee and calculated the disallowance at ₹ 65,87,383/- and after allowing the deduction of suo-moto disallowance of ₹ 64,583/- made a net addition of ₹ 65,22,800/-. 4. In the appellate proceedings, the Ld. CIT(A) partly allowed the appeal of the assessee by working out the disallowance of ₹ 53,95,230/- by taking the proportionate expenses in the ratio of exempt income to total exempt incom .....

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s ₹ 10,22, 39, 897/- . If these figures are adopted then disallowance works out to ₹ 69,87,133 x 7,98,91,254/10,22,39,897 = ₹ 54,59,813/-. Since the appellant has already disallowed amount of ₹ 64,583/- in the return of income, the disallowance to be made u/s 14A works out to ₹ 53,95,230/-. The AO is directed to restrict the disallowance accordingly. Accordingly, the appeal of the appellant is partly allowed. 5. We have heard the rival submissions of both the parties and perused the material on record. We observe that total expenses as claimed in the profit & loss account were ₹ 1,56,74,085/- and after excluding the expenses which were incurred and considered separately and also the suo-moto disallowa .....

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e order , has made a lump sum disallowance of ₹ 10,00,000/- under rule 8D2(iii). We, further, note that the AO has failed to establish any expenses out of total expenses claimed by the assessee to be relating to the exempt income and in absence of any direct nexus between expenditure and exempt income, the AO can not invoke provisions of section 14A of the Act to disallow the said expenses as has been held in the case of Leena Kasbekar vs. ACIT (2017) 85 taxmann.com 82 (Mumbai - Trib). Therefore, under the current facts and circumstances, we are of the view that it would be reasonable if a reasonable disallowance is worked out by applying the percentage on the total expenses of ₹ 67,35,894/- as has been calculated hereinabove. T .....

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