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The company in H. T. MEDIA LTD. Case [2023] 22 ITR-OL 230 (Del) suo motu apportioned total salary cost of executives in corporate finance function in the proportion of income from exempted dividends over total turnover in submitting to a nominal disallowance u/s 14A at Rs. 88632/- and further rounded it off to 1 lac which method of apportionment according to the AO, CIT(A) , ITAT and High Court constituted a mere “guess estimate” rather than it being actually borne out from the records of the assessee.
As against company’s guess estimate the Tribunal invoked rule 8D(2) and determined disallowance at 0.5% of average of all Investments on which dividend income was received during the year following rule 8D.
0.5 % or 1% basis under rule 8D is no less an irrational guess estimate by any standard as it assume expenditure as percentage of average of dividend yielding investments.  This for instance if in one year it yield no dividend it is to be excluded in average calculation. There is no consistency rule therefore.
The argument that the basis followed by the company is inferior is therefore fallacious especially when the company has categorically stated in their reply  that negligible cost is incurred by the company on account of administrative activities as against which the department determined such expenditure at 50 odd lacs in each year for holding investments in books.
It is v important to remove and disband the discretionary satisfaction powers to the AO from section 14A of the income tax act as well as to remove the more obnoxious and irrational ‘guess estimate’ rule 8D from the income tax rules book which has only fulled litigation costs for either side since 2008.
Because rule 8D admittedly is no less a guess estimate it is liable to be struck down as arbitrary and unlawful by the able Courts in India sooner than later.

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