Setback to AAI: ITAT Directs Recalculation of Exempt Income Disallowance u/r 8D at 1%, Rejecting Sufficient Interest-Free Funds Claim

The ITAT directed the recalculation of Air India's exempt income, rejecting the disallowance made under Rule D of the Income Tax Act. The dispute involved the allocation of interest-free funds used by Air India for tax purposes, with the department denying deductions on the assumption that the funds were not properly allocated. The Tribunal found that Air India had enough interest-free funds to cover the exempt income, and that the department's disallowance was incorrect. The ruling highlights the importance of accurate allocation of funds for tax deductions under the Income Tax Act.