No Sec.14A or Rule 8D Disallowance without showing how assessee’s calculation is wrong. Only real expenditure can be disallowed. The High Court had to consider two issues:
(a) whether interest paid on funds borrowed to acquire “trading shares” is hit by Sec.14A given that the profits there from are assessable to tax as “business profits” and the dividend is incidental and
(b) whether Rule 8D has retrospective operation.
High Court held that, "the AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same"
Also Sec.14A(2) & (3) were inserted w.e.f. 1.4.1962,but Rule 8D was inserted on 24.03.2008. Accordingly, Rule 8D would operate prospectively. However, here also, he will have to show why he is not satisfied with the correctness of the assessee’s claim.
(a) whether interest paid on funds borrowed to acquire “trading shares” is hit by Sec.14A given that the profits there from are assessable to tax as “business profits” and the dividend is incidental and
(b) whether Rule 8D has retrospective operation.
High Court held that, "the AO cannot proceed to determine the amount of expenditure incurred in relation to exempt income without recording a finding that he is not satisfied with the correctness of the claim of the assessee. This is a condition precedent. While rejecting the claim of the assessee with regard to the expenditure or no expenditure in relation to exempt income, the AO will have to indicate cogent reasons for the same"
Also Sec.14A(2) & (3) were inserted w.e.f. 1.4.1962,but Rule 8D was inserted on 24.03.2008. Accordingly, Rule 8D would operate prospectively. However, here also, he will have to show why he is not satisfied with the correctness of the assessee’s claim.
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