2017 (11) TMI 1854

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....the Income Tax Rules, 1962 at the rate of 0.5% of the average investments and also AO has not recorded any satisfaction before invoking the provisions of rule 8D. 2. Facts in brief are that during the course of assessment proceedings, the AO observed that the assessee did not disallow any expenditure relating to earning of exempt income. Therefore, the AO calculated disallowance on account of interest by applying rule 8D(2)(ii) at Rs. 2,16,00,000/- and other expenditure at the rate of 0.5% of average investments in tax free securities at Rs. 15,00,000/-. In the appellate proceedings, the ld.AR submitted that rule 8D were not applicable to the case of the assessee as the assessee is a Banking entity. Since, the ld.AR submitted that the inv....

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....rities held as stock in trade the dividend accrued to the assessee and it is settled law that provisions of section 14A rule 8D are not applicable to such case. The case of the assessee is also supported by the decision of Hon'ble Punjab & Haryana High Court in the case of PCIT V/s SBOP (supra) vide para 26 in which it has been held that: "26. What is of vital importance in the above judgment are the observations emphasised by us. Each of them expressly states that what is disallowed is expenditure incurred to "earn" exempt income. The words "in relation to" in section 14A must be construed accordingly. Thus, the words "in relation to" apply to earning exempt income. The importance of the observation is this. We have held that the sec....