Disallowance u/s 14 A r.w.r 8D of the Act Para 3.

1 - As the assessee has earned exempt income during the year, but no disallowance under section 14A r.w.r 8D has been made, a show cause notice in this relation had been issued Section 14A reproduced

Thereafter reply of the assessee is copy-pasted and reply of the assessee is considered, but simply discussed the provisions of Section 14A r.w.r 8D of the Act, legislature intention of introducing the same, general tendency of diversion of efforts and energy of a company if its making investments, and so on. Then, what is the nature of income of the assessee ? mainly exempt income, this implies all the efforts and energies have been devoted towards the earning of the exempt income, and hence 8D is invoked.

At this juncture, the assessee would like to submit that the basic condition for invoking rule 8d is that Assessee 0 or Less disallowed u/s 14A and the A.O. is not satisfied with the only the said expenditure being related to such income and he is of the opinion that looking t the accounts of the assessee and the amount disallowed by him. This implies that the Act says that firstly A.O. has to consider the amount dis by assessee, if any; in consonance with the books of accounts of the assessee. Then, if he is not satisfied with such amount, he may disallow the exp rel.u/s 14A r.w.r 8D of the Act.

Facts of the case The starting point of discussion is why rule 8D cannot be invoked Reply of the assessee Genberal legislation Outlook of inv Assessee mainly exempt income so, rule 8D applicable He has not considered Rs disallaowed by the assessee in the return of the income as only that amount was relatablesame was said in the show-causes reply. Order appears that only he has went on to apply Rule 8D in a predetermined manner. Reason Noweher in the order, has he explinied that the assessee has disalo Rs, which is not acceptable to me , because of -123 He has simply went on to say why 8D was brought in, what is the nature of the income of the assessee. Nowhere in the memorandum exlplaing the intention of intro was it said that if the assessee has mainly earned exempt income rule 8D can be invoked. Even though 98% exempt income and 2% taxable income assessee is able to substantiate that expendi is in ratio of 4:96, and accordingly disallows the said expenditure, and A.IO. is sati well and good as pur of intention seved, taxable come iexempt incomes exp are not set-off. 8D can be invoked if and ony if A.O. is not satisfied with the calim of assessee, and such a satisfaction is a must instant cae me neither has he dealt with the case in particular with amounts, investments hai to kahan hai and simply went on to say that yes as mainly exempt income earned hence all efforts in that dirction.

Ratio of exempt and taxable Finance company , and all ?? div , int efforts to applied nto both.. Ample of int free funds..and all all. Nexus ? On perusal, it cold be inferred that the Act empowers the Ld. A.O. to disallow the expenditure incurred in relation to exempt income on notional basis, by applying rule 8D, if and only if he is not satisfied with the correctness of the claim of the assessee in respect of the said expenditure incurred in relation to income which does not form par of the total income. However, in this case it is a clear cut indication that the Ld. A.O.