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2012 (7) TMI 182 - AT - Income TaxDisallowance under section 14A - indirect expense incurred in earning the dividend income claimed exempt u/s 10(34)- CIT(A)restricting the to Rs.1,00,000/- as against the disallowance of Rs.16,90,103 computed by the AO - Held that - As decided in Maxopp Investment Ltd. vs. C.I.T. 2011 (11) TMI 267 (HC) as per-rule 8D period whenever issue of section 14A arises before an AO, he has first of all, to ascertain correctness of claim of assessee in respect of expenditure incurred in relation to income which does not form part of total income under Act and if he is satisfied on an objective analysis and for cogent reason that amount of such expenditure as claimed by assessee is not correct, he required to determine amount of such expenditure on basis of a reasonable and acceptable method of apportionment rule 8D, which is prospective in operation and cannot be regarded as being retrospective - the issue is remitted to the file of the Assessing Officer to consider the issue afresh in light of the decision - partly in favour of revenue.
Issues:
- Disallowance under section 14A of the Income Tax Act - Enhancement of disallowance by the Assessing Officer - Expenditure incurred in earning exempt income - Application of Rule 8D of the Income Tax Rules - Justifiability of disallowance by the CIT(A) - Applicability of recent Delhi High Court decision in Maxopp Investment Ltd. case Analysis: 1. The appeal before the Appellate Tribunal concerned the disallowance under section 14A of the Income Tax Act. The Assessing Officer had disallowed Rs. 16,90,103, whereas the CIT(A) restricted it to Rs. 1,00,000, leading to a challenge by the Revenue. 2. The Assessing Officer's decision was based on the automatic invocation of section 14A once dividend income is claimed exempt. The assessment was completed with an income of Rs. 53,25,87,649, after disallowing Rs. 15,90,103. 3. The assessee contended that the enhancement of disallowance by the Assessing Officer was unilateral, unjustified, and unsustainable. The company argued that no specific expenditure was incurred to earn the exempt income and had already made a disallowance of Rs. 1,00,000 in the return. 4. The assessee, engaged in manufacturing, had earned dividend income from surplus funds invested in shares, securities, and mutual funds. The company highlighted that it did not utilize borrowed funds for investments and had a history of investing surplus funds over the years. 5. The CIT(A) accepted the assessee's plea and restricted the addition to Rs. 1,00,000, citing precedents and the case of Godrej & Boyace Mfg. Co. Ltd. vs. DCIT. However, the Revenue appealed, urging for the restoration of the Assessing Officer's order. 6. The Tribunal considered the latest decision of the Delhi High Court in the Maxopp Investment Ltd. case, emphasizing the conditions for determining expenditure related to exempt income under section 14A. The Tribunal set aside the orders of the authorities and remitted the issue to the Assessing Officer for fresh consideration in line with the High Court's decision. 7. The Tribunal accepted the department's appeal for statistical purposes, directing a reevaluation by the Assessing Officer in light of the High Court's ruling. The decision was pronounced on 15.06.2012, emphasizing the need for a fair examination of the issue based on the legal principles outlined by the High Court.
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