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2012 (2) TMI 87 - AT - Income TaxExpenses in relation to income not forming part of total income section 14A dis-allowance - dividend income earned during the year assessee submitted that no expenses were incurred to earn the dividend income A.Y. 06-07 - Held that - A.O. is duty bound to determine the expenditure which has been incurred in relation to exempt income on reasonable basis. See Godrej & Boyce Mfg. Co. Ltd vs DCIT (2010 (8) TMI 77 - BOMBAY HIGH COURT). Therefore, matter is send back to the file of the A.O. to decide the same afresh - Decided partly in favor of assessee for statistical purposes.
Issues:
1. Disallowance of expenses incurred for earning exempt income under section 14A of the Income Tax Act, 1961. Analysis: The appeal was against an order passed by the ld. CIT(A) for the Assessment Year 2006-07. The assessee, engaged in trading and generation of wind power, had claimed dividend income of Rs.12,840 as exempt under section 10(34) of the Act. The AO disallowed expenses incurred for earning the exempt income, adding Rs.1,26,440 to the total income under section 14A read with Rule 8D of the Income Tax Rules. The ld. CIT(A) upheld the AO's decision based on the Special Bench's decision in Daga Capital Management Pvt. Ltd. The assessee challenged this disallowance before the ITAT. During the hearing, the ld. DR argued that the issue was covered by the judgment of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. The ITAT, after considering the recent judgment of the High Court, set aside the orders of the revenue authorities. The High Court's judgment emphasized that the Assessing Officer must determine the expenditure related to income not forming part of the total income, using a reasonable basis or method after providing the assessee with a fair opportunity to present relevant material. The ITAT, respecting the High Court's directions, remanded the matter to the Assessing Officer for fresh consideration, allowing the assessee's appeal partly for statistical purposes. In conclusion, the ITAT partly allowed the assessee's appeal, sending the matter back to the Assessing Officer for a fresh decision in line with the High Court's directions.
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