2015 (10) TMI 1587 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - whether rule 8D cannot be made applicable without first rejecting the claim of the appellant as envisaged under sub-section (2) of section 14A? - Held that - Considering the argument of the assessee, similar disallowance can be made in the year under consideration after examining the expenditure claimed in the year under consideration provided the expenses in this year is comparable. Both the parties agreed for remanding this issue for the limited purpose of analyzing the expenditure and comparing the same with that of the assessment year 2009-10. Accordingly, for the limited purpose, the matter is remanded to the file of the Assessing Officer for deciding the disallowance under section 14A after granting reasonable opportunity of being heard to the assessee. Accordingly, ground raised by the assessee is allowed for statistical purposes. - Decided in favour of assessee for statistical purposes.

Summary

Issues:
1. Application of rule 8D under section 14A without rejecting the appellant's claim.
2. Disallowance amount under section 14A and administrative expenses calculation.

Issue 1: The appellant challenged the application of rule 8D under section 14A without rejecting their claim. The appellant contended that the learned CIT(A) failed to appreciate that rule 8D cannot be applied without first rejecting the appellant's claim as per sub-section (2) of section 14A. The Assessing Officer made a disallowance of a significant amount under section 14A based on rule 8D, which the appellant contested before the appellate authority.

Issue 2: The second issue revolved around the disallowance amount under section 14A and the calculation of administrative expenses. The appellant received dividend income and claimed exemption, offering a specific amount for disallowance under section 14A. However, the Assessing Officer applied rule 8D and made a substantial disallowance. The learned CIT(A) directed the Assessing Officer to reevaluate the administrative expenses calculation, considering the incorrect inclusion of certain items in the closing and opening balance. The appellate tribunal found in favor of the appellant, citing a previous decision in the appellant's own case for the assessment year 2009-10. The tribunal emphasized the importance of examining the nature of expenditure related to earning exempt income before applying rule 8D, and remanded the issue back to the Assessing Officer for further analysis and comparison with the previous year's expenses.

In conclusion, the appellate tribunal allowed the appellant's appeal, highlighting the necessity of a detailed examination of expenses related to exempt income before making disallowances under section 14A. The tribunal emphasized the importance of following the provisions of sub-section (2) of section 14A and ensuring the correctness of claims before resorting to rule 8D. The case serves as a reminder of the procedural requirements and the need for a thorough analysis of expenses to determine the appropriate disallowance under section 14A.