Section 14A disallowance before Rule 8D was confined to a reasonable percentage of exempt income on the facts.

For assessment years before Rule 8D, expenditure relatable to exempt income under section 14A may be quantified on a reasonable percentage basis. Where the assessee has sufficient funds to cover the investments, no interest disallowance is warranted; only administrative expenditure may be estimated. Applying binding jurisdictional precedent, the Tribunal treated 2% of the exempt income as the appropriate disallowance on the facts. Other Revenue grounds were not entertained because of a procedural objection, so they did not proceed for adjudication.

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Issues: Whether, for assessment years prior to the insertion of Rule 8D, the disallowance of expenditure relatable to exempt income under section 14A should be restricted to 2% of the exempt income.

Analysis: The Revenue's other grounds were dismissed in limine as they were not entertained on the procedural objection raised. On the substantive issue, the assessee had sufficient funds to meet the investment, so no interest disallowance was warranted. For administrative expenditure, the Tribunal treated a reasonable percentage of exempt income as the accepted method for quantification in years preceding Rule 8D. Relying on binding jurisdictional precedent, the Tribunal held that disallowance at 2% of the exempt income was appropriate in the facts of the case.

Conclusion: The disallowance under section 14A was restricted to 2% of the exempt income, and the Revenue succeeded only to that limited extent.

Final Conclusion: The consolidated result was that the Revenue's appeals were allowed only in part, with the expenditure disallowance linked to exempt income confined to the prescribed percentage and the remaining grounds not surviving for adjudication.

Ratio Decidendi: For assessment years prior to Rule 8D, expenditure attributable to exempt income under section 14A may be quantified on a reasonable percentage basis, and in the facts of the case it was confined to 2% of the exempt income.

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