2012 (9) TMI 1043 - AT - Income Tax

Summary

Issues involved:
The issues involved in this judgment are related to the disallowance of expenses under section 14A of the Income Tax Act, 1961 for assessment years 2007-08 and 2008-09.

Assessment Year 2007-08:
The appellant contested the disallowance of expenses under section 14A by the Assessing Officer, invoking Rule 8D. The appellant argued that Rule 8D was not applicable for the assessment year 2007-08 based on a decision of the Bombay High Court. The appellant also contended that there was no nexus between interest paid on borrowed funds and exempt income. The Tribunal, considering the appellant's submissions and a previous order, set aside the lower authorities' orders and directed the Assessing Officer to re-examine the matter in line with the High Court decision. The appeal was allowed for statistical purposes.

Assessment Year 2008-09:
Similar to the previous year, the appellant challenged the disallowance of expenses under section 14A by the Assessing Officer using Rule 8D. The appellant argued that no expenditure, including interest, was incurred for earning exempt income. The Tribunal referred to a co-ordinate bench decision and emphasized that the Assessing Officer must verify the correctness of the claim of the assessee before applying Rule 8D. The Tribunal directed the matter to be reconsidered by the Assessing Officer in accordance with the observations made in the co-ordinate bench decision. The appeal was allowed for statistical purposes.

Conclusion:
In both assessment years, the Tribunal ruled in favor of the appellant, directing the Assessing Officer to re-examine the disallowance of expenses under section 14A in light of the High Court decision and the requirement to verify the correctness of the assessee's claim before applying Rule 8D.