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Issues involved: Appeal against CIT (A) order for assessment year 2007-2008 regarding disallowance u/s 14A of the Income Tax Act.
Summary: The appellant, an assessee company, initially declared a loss in its income tax return for the assessment year 2007-2008. Later, a revised return was filed after disallowing an amount u/s 14A. During assessment proceedings, the disallowance was withdrawn by the assessee, stating no nexus between the interest-bearing loan and investments made. However, the Assessing Officer disallowed the interest and other expenses u/s 14A using Rule 8D. The CIT (A) upheld the disallowance of interest on the grounds that borrowed funds were used for investments. The Tribunal noted a similar issue in the assessee's case for the assessment year 2006-2007, where the presumption of investments from internal accruals and own funds was discussed. Referring to the judgment in CIT vs. Reliance Utilities and Power Ltd., the Tribunal directed the matter back to the Assessing Officer for a fresh decision without invoking Rule 8D, as it was held inapplicable for the relevant assessment year. Given the inapplicability of Rule 8D for the assessment year in question, the Tribunal set aside the issue to the Assessing Officer for a fresh decision on the disallowance u/s 14A in light of the relevant High Court judgment. Consequently, the appeal of the assessee was allowed for statistical purposes. (Order pronounced on 7th September 2012 by Vijay Pal Rao, Judicial Member)
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