2013 (1) TMI 844 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of expenses u/s 14A for assessment years 2006-2007 and 2007-2008.
2. Reduction of rebate claimed u/s 88E for assessment year 2007-2008.

Summary:

Issue 1: Disallowance of expenses u/s 14A for assessment years 2006-2007 and 2007-2008

For the assessment year 2006-2007, the assessee, a company dealing in shares and securities, declared a total income of Rs. 10,75,67,534/- and claimed a dividend income of Rs. 77,84,289/- as exempt. The assessee made a disallowance of Rs. 3,89,214/- u/s 14A for expenses related to earning the exempt income. The Assessing Officer (AO) applied Rule 8D of the I.T. Rules, 1962, and increased the disallowance to Rs. 49,29,454/-, resulting in an additional disallowance of Rs. 45,32,240/-.

The CIT(A) found the assessee's basis for allocating expenses reasonable and directed the AO to re-compute the disallowance u/s 14A. The CIT(A) also directed that if the re-computed disallowance was less than 5% of the exempt dividend income, the disallowance should be limited to the amount offered by the assessee. The Revenue appealed, arguing that the AO should verify the reasonableness of the assessee's basis for allocation.

The Tribunal upheld the CIT(A)'s order, agreeing that the disallowance made by the assessee was reasonable and that the basis suggested by the assessee for allocating expenses was also reasonable. The Tribunal dismissed the Revenue's appeal for assessment year 2006-2007.

For the assessment year 2007-2008, the Tribunal followed its decision for the previous year and upheld the CIT(A)'s order on the disallowance u/s 14A, dismissing the Revenue's appeal.

Issue 2: Reduction of rebate claimed u/s 88E for assessment year 2007-2008

The assessee claimed a rebate of Rs. 3,33,11,220/- u/s 88E in the return of income for assessment year 2007-2008. The AO found the basis for allocating expenses at Rs. 40,89,798/- unreasonable and recomputed the rebate, excluding expenses related to earning exempt income. The CIT(A) directed the AO to compute the rebate u/s 88E using the assessee's basis for allocation, finding the AO's rejection of the assessee's basis unjustified.

The Tribunal upheld the CIT(A)'s order, noting that the issue was covered by a decision in favor of the assessee by a Coordinate Bench in the case of KBII Securities Pvt. Ltd. The Tribunal also observed that the AO had accepted the rebate claimed by the assessee on a similar basis for assessment year 2006-2007. The Tribunal dismissed the Revenue's appeal on this issue.

In conclusion, both appeals of the Revenue were dismissed.

Order pronounced in the open Court on 31st January, 2013.