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Issues involved:
The judgment involves issues related to the disallowance of expenses under Section 14A of the Income Tax Act, 1961 and the application of Rule 8D of the Income Tax Rules, 1962. Issue 1: Disallowance of expenses under Section 14A: The appellant contended that the Commissioner of Income Tax (Appeals) erred in not directing the Assessing Officer to reduce Rs. 45,72,144/- from the income originally assessed before making an addition of Rs. 14,11,915/- u/s 14A. The Income Tax Appellate Tribunal (ITAT) found that the Assessing Officer's proportionate disallowance of expenses was not justified and directed the disallowance to be worked out only as per Section 14A read with Rule 8D. The ITAT held that expenses attributable to investment activity should be considered as expenses incurred for earning dividend income, and the disallowance should be calculated based on Rule 8D. The ITAT directed the Assessing Officer to delete the disallowance of Rs. 45,72,144/- as it was already deleted by the Tribunal. Issue 2: Application of Rule 8D and retrospective operation: The appellant argued that the Assessing Officer was not justified in applying Rule 8D for assessment year 2005-06 as per the direction of the ITAT. The appellant contended that Rule 8D is not retrospective, citing the decision of the Bombay High Court in Godrej Boyce Manufacturing Co. Ltd. vs. DCIT. However, the ITAT held that the Assessing Officer was bound to work out the disallowance under Section 14A read with Rule 8D as per the direction of the ITAT. The ITAT rejected the appellant's challenge against the application of Rule 8D, stating that the Assessing Officer was only giving effect to the ITAT's order. Separate Judgement by the Judges: The judgment was pronounced by G. D. Agrawal (Vice President) and Rajpal Yadav (Judicial Member) on 9th August, 2012.
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