2014 (5) TMI 988 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D of the Act Held that - Following Godrej Boyce Ltd. Mfg. Co. VS. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT - the provisions of section 14A are applicable in circumstances as are prevailing presently and the disallowance has to be worked out by the AO on some reasonable basis and not under rule 8D in so far as the assessment years prior to 2008-09 are concerned the preent case is related with the AY 2007-08 - rule 8D cannot be applied, but the disallowance is required to be worked out on some reasonable basis thus, the matter is remitted back to the AO for computation of the disallowable amount as per rule 8D Decided in favour of Assessee. Surcharge and education cess to be levied after giving MAT credit or before giving the credit Held that - The claim of the assessee is that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied - there was merit in the contention of the assessee that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied What is required is that in the year when such credit is given, education cess and surcharge should be computed after giving credit of MAT to the tax computed on the assessed income in the same way as in the case of interest under sections 234B and 234C. The nature of MAT is like pre-paid taxes and, therefore, it should be treated alike for the purposes of computing education cess and surcharge also. - Decided in favour of Assessee.

Summary

Issues:
1. Disallowance under section 14A read with Rule 8D for the Assessment Year 2007-08.
2. Levying surcharge and educational cess before adjusting MAT credit.

Disallowance under section 14A read with Rule 8D:
The appeal was against the disallowance of Rs.48,66,304 made by the AO under section 14A read with Rule 8D. The assessee contended that no expenses were required to be attributed for earning the exempt income as the investments were not from borrowed funds. The Ld.CIT(A) upheld the disallowance and directed the AO to determine the disallowance by considering expenditure directly attributable to the income and disallowing interest based on the ratio of average value of investments to total assets. However, the ITAT noted that for the A.Y. 2007-08, Rule 8D could not be applied as per the judgment of the Hon'ble Bombay High Court. The ITAT set aside the decision and instructed the AO to decide the disallowance on a reasonable basis, providing the assessee with an opportunity to be heard.

Levying surcharge and educational cess before adjusting MAT credit:
The issue of levying surcharge and educational cess before adjusting MAT credit was raised. The assessee argued that MAT credit should first reduce the tax payable, followed by levying surcharge and educational cess. The ITAT agreed with the assessee's contention, citing the nature of MAT as prepaid taxes. The ITAT directed that MAT credit should be reduced from the tax payable first, and then surcharge and educational cess should be levied on the residual amount. This approach was supported by the ITAT, and Ground No. 6 was allowed, resulting in the appeals filed by the assessee being treated as allowed.

In conclusion, the ITAT Mumbai addressed the issues of disallowance under section 14A read with Rule 8D and the levying of surcharge and educational cess before adjusting MAT credit. The judgment provided detailed analysis and directions based on legal precedents and interpretations, ultimately allowing the appeals filed by the assessee.