2012 (7) TMI 450 - AT - Income Tax

Disallowance of expenses under Section.14A - alleged to be relatable to earning the dividend income, by applying Rule 8D alleged that assessee s income included exempted income and the assessee has not segregated and excluded any expenditure pertaining to the exempted income, invoked the provisions of sec.l4A of the Act - Assessing Officer, before invoking the provisions of Rule 8D r.w.s.14A of the Act, has not given the reasons as to why he was invoking the provisions of Rule 8D r.w.s.14A of the IT Act Held that - Provisions of Rule-8D can be invoked only if the Assessing Officer is not satisfied with the claim of the assessee - Assessing Officer is satisfied that there was an element of expenses involved in earning the exempt income and the assessee has not shown the same - matter remanded back to the file of the Assessing Officer for adjudicating the same afresh - appeal of the Assessee is allowed for statistical purposes

Summary

Issues:
Disallowance of expenses under Section 14A by applying Rule 8D.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax(A)-III Chennai for Assessment Year 2008-09. The only issue raised by the Assessee was regarding the disallowance of expenses of Rs. 26,69,572 under Section 14A related to earning dividend income by applying Rule 8D. The Commissioner of Income Tax(Appeals) confirmed the disallowance based on the assessee's investments and earnings from dividends, invoking Rule 8D. The Commissioner noted that the provisions of Rule 8D were applicable for the relevant assessment year and justified the disallowance. The Commissioner considered the common expenses incurred in managing investments and earning dividends, concluding that there was an element of expenditure involved. The Commissioner also addressed the calculation steps under Rule 8D, determining the disallowance of expenses. The Commissioner emphasized the need to estimate reasonable expenses attributable to earning exempted income, citing relevant case laws and legislative intent behind Rule 8D. The Commissioner upheld the disallowance of expenses under Section 14A read with Rule 8D.

During the proceedings, the Assessee presented a Tribunal order supporting their position, while the Departmental Representative cited another Tribunal order favoring the Revenue. Both parties agreed that the lower authorities did not have the benefit of these Tribunal orders while deciding the issue. Consequently, the Tribunal set aside the orders of the lower authorities and remanded the matter back to the Assessing Officer for fresh adjudication in light of the Tribunal orders provided by the parties. The Tribunal allowed the appeal of the Assessee for statistical purposes, indicating that the decision was based on procedural grounds rather than the merits of the case. The appeal was allowed, and the matter was remanded for further assessment by the Assessing Officer.