2014 (8) TMI 722 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D Held that - In the case of GODREJ AND BOYCE MFG. CO. LTD. Versus DEPUTY COMMISSIONER OF INCOME-TAX AND ANOTHER 2010 (8) TMI 77 - BOMBAY HIGH COURT it has been held that Rule 8D r.w.s. 14A(2) is not arbitrary or unreasonable and also not retrospective and applies from A.Y. 2008-09 u/s 14A of the Income Tax Act, resort can be made to Rule 8D of the Income Tax Rules for determining the amount of expenditure in relation to exempt income, if, the AO is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure CIT(A) without recording any reasoning for his dissatisfaction with regard to the working/claim of the assessee, straightway applied Rule 8D against the mandate of the provisions of section 14A of the Income Tax Act - CIT(A) also ignored the mandate of the provisions of section 14 A, while confirming the disallowance thus, the matter is remitted back to the AO for fresh adjudication Decided in favour of Assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Disallowance of Portfolio Management fees while computing short term capital gains.
3. Addition of the write back from provision for Non-Performing Assets to the 'Book Profits' as computed under section 115JB of the Income Tax Act.
4. Non-reduction of write back from the provision for Non-Performing Assets amounting to a specific sum.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The appellant contested the disallowance under section 14A made by the Assessing Officer using Rule 8D of the Income Tax Rules for the assessment year 2008-09. The Commissioner of Income Tax (Appeals) upheld the disallowance, citing the necessity to apply Rule 8D for the said assessment year. However, the appellant argued that the AO did not consider their suo-moto working of the disallowance and directly applied Rule 8D without proper justification. The tribunal noted that the AO did not follow the guidelines for objective satisfaction as established by the Bombay High Court in a relevant case. Consequently, the issue was remanded back to the AO with directions to allow the appellant to present relevant facts and accounts before making a decision, emphasizing the need for objective satisfaction before resorting to Rule 8D.

Issue 2: Disallowance of Portfolio Management fees:
The appellant challenged the disallowance of Portfolio Management fees while computing short term capital gains. The tribunal noted that a similar issue was decided against the appellant in a previous tribunal decision for an earlier assessment year. Therefore, following precedent, the tribunal decided this issue against the appellant.

Issues 3 & 4: Addition of write back from provision for Non-Performing Assets:
The appellant raised concerns regarding the addition of the write back from the provision for Non-Performing Assets to the 'Book Profits' under section 115JB of the Income Tax Act. The appellant argued that the amount had already been added in a previous assessment year and should not be included again. The tribunal found merit in the appellant's submissions and remanded the issue back to the AO for a fresh decision, instructing the AO to consider the appellant's contentions and issue a detailed order on the matter.

In conclusion, the tribunal allowed the appeal of the appellant for statistical purposes, remanding certain issues back to the Assessing Officer for reconsideration based on the arguments presented by the appellant.