Allowing the appeal of the assessee the Tribunal held that ; if AO want to disturb computation of assessee regarding disallowance that it had incurred more expenditure in relation to exempt income, it was pre-requisite in order to invoke provisions of Rule 8D of the Rules that AO had to record his objective satisfaction regarding assessee’s claim of expenses in relation to exempt income or disallowance u/s 14A read with Rule 8D having regard to accounts of assessee Followed Godrej & Boyce Mfg. Co. Ltd. v. DCIT (2010) 234 CTR 1 (Bom) (HC). (AY. 2009-10)
Morgan Stanley Investment Management (P) LTD. v. DCIT(2017) 160 DTR 19/ ( 2018) 191 TTJ 365 (Mum.) (Trib.)
S. 14A : Disallowance of expenditure – Exempt income – Sub-section (2) of section 14A does not authorize or empower AO to apply prescribed method irrespective of nature of claim made by assessee, AO has to first consider correctness of claim of assessee having regard to accounts of assessee. [R. 8D]