2013 (7) TMI 1001 - AT - Income Tax

Summary

Issues Involved: The appeal by the Revenue against the order of the Ld. CIT(A)-16, Mumbai pertaining to A.Y. 2006-07, specifically addressing the applicability of provisions of Sec. 14A r.w. Rule 8D.

Summary:

Issue 1 - Applicability of Sec. 14A r.w. Rule 8D:
During scrutiny assessment, the Assessing Officer noted the assessee's dividend income of Rs. 36,98,997 claimed as exempt u/s. 10(34) without allocating related expenses. The AO invoked Sec. 14A r.w. Rule 8D and computed disallowance at Rs. 3,99,17,000. The Ld. CIT(A) found the AO's computation erroneous, restricting the disallowance to Rs. 7,50,000 based on predecessor's decision from the previous assessment year.

Issue 2 - Disallowance Calculation:
The Revenue contested the Ld. CIT(A)'s decision, with the Departmental Representative supporting the AO's findings. The assessee's counsel reiterated their stance. The ITAT Mumbai confirmed the applicability of Rule 8D from 1.4.2008 as per the Godrej & Boyce Mfg. Co. Ltd. case, upholding the Ld. CIT(A)'s decision to limit the disallowance to Rs. 7,50,000 based on the previous year's assessment.

Issue 3 - Consequential Ground:
Ground No. 4 was deemed consequential, directing the AO to reconsider the issue in light of the ITAT's decision. The appeal by the Revenue was partly allowed, with the disallowance amount set at Rs. 7,50,000.

This judgment clarifies the application of Sec. 14A r.w. Rule 8D for determining disallowance related to exempt income, emphasizing the retrospective nature of Rule 8D and the significance of prior assessment year decisions in limiting disallowance amounts.