2012 (6) TMI 840 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - Held that - Whatever case law referred by the assessee in his reply are related to before A.Y.08-09 when Rule 8D was not in existence. No case law was referred by the assessee for nexus is to be established by the A.O. even in disallowance made under Rule 8D of the IT Act 1962. The A.R. for the assessee has not pointed out any defects in computation of disallowance made under Rule 8D. Thus we have considered view that ld. CIT(A) has rightly confirmed the disallowance.

Summary

Issues:
Appeal against disallowance of expenses under section 14A of the IT Act for assessment year 2008-09.

Analysis:
1. The Assessing Officer (A.O.) observed an increase in investment leading to Long Term Capital Gain and dividend income not forming part of the total income. The A.O. disallowed expenses under Rule 8D of IT Rules, 1962, amounting to Rs. 5,35,926 under section 14A of the IT Act due to substantial exempt income.

2. The CIT(A)-6, Ahmedabad upheld the A.O.'s decision, citing the necessity of disallowance as the appellant did not allocate expenses related to exempt income. The CIT(A) applied Rule 8D, considering the appellant's exempt income from dividends and interest, leading to the confirmation of the disallowance of expenses.

3. The appellant contended that there was no established nexus between borrowed funds and non-taxable investments, arguing against the application of Rule 8D. However, the Revenue emphasized the clarity of Rule 8D's applicability from A.Y. 08-09, with no defects in the disallowance calculation pointed out by the appellant.

4. The Appellate Tribunal noted that the appellant's cited case laws were pre-Rule 8D era and did not address the nexus requirement for disallowance under Rule 8D. As the appellant failed to identify any errors in the disallowance computation under Rule 8D, the Tribunal upheld the CIT(A)'s decision, dismissing the appellant's appeal.