2014 (3) TMI 770 - AT - Income Tax

Disallowance u/s 14A of the Act r.w. rule 8D of the Rules Held that - The initial and the primary onus to show that r. 8D, which is only a manner of estimation which will apply in default, is on the assessee once the assessee exhibits the expenditure claimed as bearing no relation with the income not forming part of the total income, or has allocated the expenditure related, as the common administrative expenditure, it would have to be necessarily verified by the AO in terms of sections 14A(2) and 14A(3) of the Act, and he cannot proceed to mechanically apply r.8D relying upon GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT - It is not clear on the perusal of the record if the said initial onus has been discharged in the facts and circumstances of the case thus, the matter is remitted back to the AO for fresh consideration Decided in favour of assessee.

Summary

Issues:
- Disallowance u/s.14A read with Rule 8D of the Income Tax Rules, 1962.

Analysis:
The appeal was against the Commissioner of Income Tax (Appeals) order partly allowing the assessee's appeal regarding the assessment under section 143(3) of the Income Tax Act, 1961 for the assessment year 2008-09. The only issue raised in the appeal was the disallowance under section 14A read with Rule 8D amounting to Rs.15,85,470. The assessee argued that the indirect administrative expenditure, which has no relation with the income not forming part of the total income, should not be included for disallowance under section 14A. The assessee referred to relevant decisions to support this argument.

The Tribunal noted that the initial onus to show that Rule 8D applies is on the assessee. If the assessee demonstrates that the expenditure claimed has no relation to the income not forming part of the total income, or has allocated related expenditure as common administrative expenditure, the Assessing Officer must verify this in accordance with sections 14A(2) and 14A(3) of the Act. The Assessing Officer cannot mechanically apply Rule 8D without considering the factual position. The Tribunal emphasized the need for the Assessing Officer to determine the basis for apportioning common activities' expenses uniformly to eliminate arbitrariness across assessments under the Act.

The Tribunal decided to send the matter back to the Assessing Officer for fresh consideration, allowing the assessee an opportunity to present its case. Both parties are required to discharge the onus under section 14A of the Act. The Assessing Officer is directed to issue a speaking order clearly stating findings concerning sections 14A(2) and 14A(3) of the Act. The appeal was allowed for statistical purposes, and the order was pronounced in open court on March 6, 2014.