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2015 (3) TMI 155

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....and circumstances, the ITAT fell into error in confirming the order of the Assessing Officer (AO) with respect to the additions made under Rule 8D of the Income Tax Rules. 3. The brief facts are that the assessee is engaged in diverse investment activities and in the course of its business derives income from rent, sale of investments, dividend and interest. For AY 2009-10, it reported a loss of Rs. 52,56,197/-. Inter alia it had declared tax exempt income in the form of dividend to the tune of Rs. 48,90,000/-. The assessee volunteered Rs. 2,97,440/- as attributable under Section 14A for the purpose of disallowance. The AO on the basis of his own understanding of Rule 8D of the Income Tax Rules disallowed the sum of Rs. 52,56,197/- under S....

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....mpt income have not been considered by the Assessing Officer at all. The assessee has also disputed the correctness of the disallowance of interest at Rs. 34,08,582/-. However, we find that the disallowance as per Part (iii) itself is Rs. 65,36,743/-. The assessee's counsel has not disputed the value of investment as taken by the Assessing Officer for the purpose of computing the disallowance at half per cent as provided by Rule 8D (2) (iii). The disallowance at half per cent of the investment is Rs. 65,36,743/- while finally, the Assessing Officer restricted the disallowance to Rs. 52,56,197/-. Therefore, whether the working of the disallowance of interest as per Rule 8D(2)(ii) is correct or not is of academic interest and, therefore, ....

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....n Commissioner of Income Tax VI v. Taikisha Engineering India Ltd., (ITA 115/2014, decided on 25.11.2014). The court had, in that judgment, highlighted the necessity in view of the peculiar wording of Section 14A (2) that computation or disallowance of the assessee, or claim that no expenditure was incurred for earning exempt income should be examined with reference to the accounts and only if the assessee's explanation is unsatisfactory, can the AO proceed further. 8. The Court in Taikisha Engineering (supra) pertinently observed: - "Thus, Section 14A(2) of the Act and Rule 8D(1) in unison and affirmatively record that the computation or disallowance made by the assessee or claim that no expenditure was incurred to earn exempt income mus....