2013 (5) TMI 892 - AT - Income Tax

Summary

Issues involved: Cross appeals by the assessee and the Revenue regarding disallowance u/s. 14A @ 20% of exempted income for A.Y. 2007-08.

Assessee's Appeal:
1. The assessee contended that Ld. CIT(A) erred in conferring the disallowance u/s. 14A @ 20% of the exempted income, citing previous years' restrictions to 20% of exempted income.
2. Assessing Officer observed no expenditure attributed to earning exempt income, computed disallowance at &8377; 50,92,351.
3. Ld. CIT(A) found Rule 8D not applicable but disallowed 20% of exempt income as reasonable u/s. 14A.
4. Assessee argued for consistency with earlier years' decisions, directing AO to restrict disallowance to 2% of exempt income. Additional ground not pressed, dismissed.

Revenue's Appeal:
1. Revenue challenged Ld. CIT(A)'s ruling that disallowance u/s. 14A cannot be computed using Rule 8D.
2. AO invoked Sec. 14A r.w. Rule 8D for disallowance, Ld. CIT(A) held Rule 8D not applicable.
3. Tribunal upheld Ld. CIT(A)'s decision, citing Rule 8D as prospective from 1.4.2008, as per Godrej & Boyce Mfg. Co. Ltd. Vs DCIT 328 ITR 81.
4. Assessee's appeal partly allowed, Revenue's appeal dismissed.

This judgment addresses the dispute over the disallowance u/s. 14A of the Income Tax Act for the assessment year 2007-08. The Tribunal ruled in favor of the assessee, directing the Assessing Officer to restrict the disallowance to 2% of the exempt income based on consistency with earlier years' decisions. The Revenue's appeal challenging the applicability of Rule 8D was dismissed, affirming that Rule 8D is prospective from 1.4.2008.