2011 (2) TMI 1405 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest and other expenditure u/s 14A.
2. Disallowance of depreciation claim on residential premises.
3. Disallowance of 'provision for outstanding repo transactions'.

Summary:

1. Disallowance of interest and other expenditure u/s 14A:
The assessee contested the CIT(A)'s decision to confirm the disallowance of Rs. 1,16,48,000/- u/s 14A and the directive to the Assessing Officer to recompute the disallowance as per Rule 8D of the IT Rules. The assessee argued that the investments were made from surplus funds, not borrowed money, and referenced previous assessment years where no interest was disallowed. The Tribunal noted that Rule 8D was not applicable for AY 2004-05 as per the Hon'ble Bombay High Court's decision in Godrej & Boyce Mfg P Ltd vs ACIT. The Tribunal directed the Assessing Officer to verify the claims and decide afresh, allowing the ground for statistical purposes.

2. Disallowance of depreciation claim on residential premises:
The assessee challenged the disallowance of Rs. 11,04,419/- on two vacant flats. The CIT(A) upheld the disallowance based on the previous year's order. The Tribunal, noting that the issue was restored to the Assessing Officer for fresh adjudication in the previous year, directed the Assessing Officer to re-examine the matter and decide in accordance with the law, allowing the ground for statistical purposes.

3. Disallowance of 'provision for outstanding repo transactions':
The revenue appealed against the CIT(A)'s decision to delete the addition of Rs. 1,09,69,000/- for 'provision for outstanding repo transactions'. The Assessing Officer had disallowed the amount, considering it provisional and not an actual expenditure. The CIT(A) found that the provision was in line with RBI guidelines and represented an actual loss. The Tribunal upheld the CIT(A)'s decision, noting that the assessee followed RBI guidelines and the provision was for an actual loss, dismissing the revenue's appeal.

Conclusion:
The appeal by the assessee was allowed for statistical purposes, and the appeal by the revenue was dismissed. The Tribunal directed the Assessing Officer to re-examine the disallowances afresh and in accordance with the law.