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2014 (8) TMI 457 - HC - Income TaxApplication of Rule 8D Quantification of disallowance u/s 14A Held that - The Tribunal has rightly followed the decision in Godrej & Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT - Rule 8D of the Income Tax Rules, 1962 is applicable prospectively w.e.f. AY 2008-09, the appeal relates to AY 2005-06 - the Tribunal correctly held that Rule 8D of the Income Tax Rules, 1962 is inapplicable for the AY under consideration Decided against Revenue. Restriction of disallowance @2% of exempted income - Held that - The Tribunal while applying the decision in Godrej & Boyce Mfg. Co. Ltd. 2010 (8) TMI 77 - BOMBAY HIGH COURT has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the assessee - the Tribunal rightly remanded the matter to the AO for verification of the disallowance claimed and restrictes the disallowance only to the extent to 2% of the total exempt income Decided against Revenue.
Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal (ITAT) relating to Assessment Year 2005-06. 2. Interpretation of Rule 8D of the Income Tax Rules, 1962. 3. Disallowance of expenses under Section 14A of the Income Tax Act. Issue 1: Challenge to ITAT Order The High Court, in response to the appeal under Section 260A of the Income Tax Act, 1961, sought to challenge the ITAT's order dated 17.09.2010 concerning Assessment Year 2005-06. Issue 2: Interpretation of Rule 8D Regarding the applicability of Rule 8D of the Income Tax Rules, 1962, the High Court noted that the ITAT correctly held that Rule 8D is applicable prospectively from Assessment Year 2008-09, not for the Assessment Year 2005-06 under consideration. The court cited the decision in the case of Godrej & Boyce Mfg. Co. Ltd., where it was established that Rule 8D is not applicable for the relevant Assessment Year. Consequently, the court did not entertain the question raised by the revenue on this issue. Issue 3: Disallowance of Expenses under Section 14A Regarding the disallowance of expenses under Section 14A of the Income Tax Act, the High Court observed that the ITAT, following the decision in the case of Godrej, restricted the disallowance to 2% of the total exempt income earned by the respondent assessee. The ITAT also remanded the matter to the Assessing Officer to verify the disallowance claimed and restrict it to 2% of the total exempt income. The High Court found no fault with the ITAT's decision on this issue and therefore did not entertain the question raised by the revenue. In conclusion, the High Court dismissed the appeal with no order as to costs, upholding the ITAT's decision on both issues related to the interpretation of Rule 8D and the disallowance of expenses under Section 14A.
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