Computation of disallowance for expenditure attributable to exempt income under amended Rule 8D(2), appeal dismissed confirming revenue benefit.

Computation of disallowance for expenditure attributable to exempt income under amended Rule 8D(2) governs assessment year 2017-18; the substituted sub rule (effective 02.06.2016) displaces earlier precedents and requires the Assessing Officer to apply the new formula. The AO recorded satisfaction with accounts, rejected the assessee's internal computation and suo motu disallowance, and applied the amended rule to identify relevant investments. The Tribunal found the AO's satisfaction valid, held the assessee failed to justify its working, and upheld the Commissioner (Appeals) in confirming the disallowance under the statutory scheme.

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Issues: Whether the Commissioner of Income Tax (Appeals) was justified in confirming the Assessing Officer's disallowance under section 14A of the Income-tax Act, 1961 by invoking Rule 8D(2) of the Income Tax Rules, 1962 for assessment year 2017-18.

Analysis: The appeal concerns computation of disallowance under section 14A read with Rule 8D of the Income Tax Rules. The amendment to sub-rule (2) of Rule 8D effected by the IT (Fourteenth Amdt.) Rules, 2016 w.e.f. 02.06.2016 replaced the prior three-clause structure and is applicable to the assessment year 2017-18. The Assessing Officer recorded satisfaction with the accounts and rejected the assessee's internal computation and suo motu disallowance. The Tribunal examined whether earlier decisions and the assessee's arguments based on availability of surplus own funds and older judicial precedents under the pre-amendment rule extend to the post-amendment rule; the Tribunal held they do not, because the amended Rule 8D(2) governs the year in question. The Tribunal also examined the contention that only investments yielding exempt income should be considered for disallowance and found that, in view of the substituted rule effective from 02.06.2016, the Assessing Officer and the Commissioner (Appeals) were entitled to apply the amended computation under Rule 8D(2) and to consider the relevant investments as per the amended rule. The Tribunal further held that the Assessing Officer had validly recorded satisfaction about the inadmissibility of the assessee's working and that the assessee failed to justify its suo motu disallowance amount.

Conclusion: The Tribunal dismissed the grounds raised by the assessee and upheld the order of the Commissioner of Income Tax (Appeals); the appeal is dismissed, confirming the disallowance under section 14A read with Rule 8D(2) of the Income Tax Rules, 1962 in favour of the Revenue.

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