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of <h1>S.14A/Rule 8D disallowance deleted where AO wrongly used total investments and failed to record proper dissatisfaction</h1> <h3>Kapareva Devlopment P. Ltd. Versus Deputy Commissioner of Income Tax</h3> Kapareva Devlopment P. Ltd. Versus Deputy Commissioner of Income Tax - TMI The appeal challenges an addition under section 14A of the Act and application of Rule 8D. Assessee declared suo moto disallowance of Rs. 2,45,353; AO applied Rule 8D and disallowed Rs. 13,21,676, treating total investments as base. Balance sheet showed own funds (share capital, reserves) of Rs. 7,03,10,513 against investments of Rs. 5,08,43,026; hence investments presumed to be from 'own non-interest bearing funds.' Tribunal notes settled position that where own interest-free funds exceed investments, no disallowance under Rule 8D(2)(ii) is warranted. For Rule 8D(2)(iii) only dividend-yielding investments are relevant, not total investments. Further, under section 14A(2) AO must first record dissatisfaction with the assessee's claim before invoking Rule 8D; AO's finding wrongly proceeded on the impression that 'no disallowance is made by the assessee,' stating 'There can be no eventuality that no expenses could be said to have been made by the assessee in making investments.' That defective dissatisfaction rendered the additional disallowance unsustainable; the AO's disallowance was deleted.
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