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Application of Rule 8D

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(Querist)
31 October 2010 Sir,
One of my Client has Exempted income (Dividend) + other business income and towards the same he incured interest expenses of Rs. 20 Lacs . while determining his Tax liability , I already Disallowed 20 lacs of Interest. Now My client received letter from ITO regarding application of Rule 8D which says aggregate of 20 lacs and 0.5 % of average invetment are pertaining to Exempted income. Now the position is that I debited 20 lacs in P&L and Disallowed 20 Lacs back but still disallowance comes for 4.25 lacs more ( 0.5 % of average investment ) Means disallowance are moret than my claims. Please suggest what recaurse i should take .......
Thanks and Regards
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Aditya Maheshwari

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Aditya Maheshwari (Expert)
01 November 2010 If your disallowance under rile 8D is more than the total expenses debited to the P & L A/c then the addition has to be restricted to total expenses as the section 14A reads as expenses in relation to exempt income and hence cannot exceed the total expenditure.
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