TaxTMI 
TaxTMI 
2014 (9) TMI 791
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....Tax Act, 1961 the Act, the Tribunal has deleted a disallowance of Rs. 66.79 lacs and has confirmed disallowance of the balance of Rs. 96,000/-. The assessee is to that extent in appeal. The following questions of law have been formulated by the assesse:- (i) Whether ITAT was justified in determining the disallowance of Rs. 0.96 lac on account of other expenditure to the extent of 0.5% of average value of investment, when the Assessing Officer had not brought any material or evidence on record to establish that any expense was incurred to earn any tax free income and had also not recorded any satisfaction to the effect that the claim of the assessee that no such expenditure had been incurred was not correct; and &....
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.... I. Thus, amount of expenditure directly related to income comes to: A x B/C=5938.68 x 1910.98 / 169912.59 = Rs.66.79 lacs II. 0.05% of average value of investment of which income does not form part of total income Rs.0.96 lacs Total amount of disallowance Rs.67.75 lacs" The assessee filed an appeal before the CIT (A). By an order dated 26 May 2011, the CIT (A) deleted the disallowance. In appeal, the Tribunal affirmed the deletion of the disallowance to the extent of Rs. 66.79 lacs (out of a disallowance of Rs. 67.75 lacs made by the Assessing Officer under Section 14A) but confirmed the disallowance to the extent of Rs. 96,000/-. The Tribunal has observed that the....
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....the amount of expenditure which is incurred in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. Rule 8D of the Rules provides for method which is to be used for determining the amount of expenditure in relation to income not includible in the total income. Rule 8D provides as follows: "8D. (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous y....
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....he total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year." Now at this stage, it would be necessary to note that to determine the amount of expenditure incurred in relation to such income which does not form pa....
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....quiring the Assessing Officer to use any particular language or form. So long as the order of Assessing Officer indicates that he is not satisfied with the correctness of the claim of the assessee or the claim of the assessee that no expenditure has been incurred, the Assessing Officer has to proceed in the manner indicated by Rule 8D(2). In the present case, the Assessing Officer has noted that the assessee had invested a certain amount of its funds in shares and that the dividend which has been received or receivable did not form part of the total income. The Assessing Officer noted that there were certain expenses on account of interest etc. which were directly attributable to the exempt income. The assessee had debited the entire exp....