2010 (10) TMI 1088 - AT - Income Tax

Summary

Issues involved: Appeal against invoking provisions of sec. 14A of the Income Tax Act and disallowance of expenses under Rule 8D of the Income-tax Rules for Assessment Year 2007-08.

The appellant challenged the order of the Commissioner of Income-tax (Appeals) regarding the invocation of sec. 14A of the Income Tax Act and the disallowance of expenses under Rule 8D. The Assessing Officer disallowed a sum under Rule 8D without identifying actual expenditure for earning exempted income. The CIT(A) upheld the AO's decision, stating that the provisions of sec. 14A and Rule 8D were correctly applied. The appellant then appealed to the Tribunal.

Upon review, the Tribunal found that the AO and CIT(A) had disallowed expenses based on Rule 8 of the Income-tax Rules without evidence of actual expenditure for earning exempt income. The Tribunal noted that the Bombay High Court ruled that Rule 8D applies only from Assessment Year 2008-09, not for the present case in Assessment Year 2007-08. Consequently, the Tribunal set aside the lower authorities' orders, stating that no disallowance under sec. 14A was warranted as no expenses were incurred by the assessee to earn exempt income. The AO was directed to adjust the assessment order accordingly.

The Tribunal allowed the appeal filed by the assessee, emphasizing that the application of Rule 8D for disallowance was incorrect for Assessment Year 2007-08. The decision was pronounced in the Open Court on 22nd October, 2010.