2016 (10) TMI 1253 - AT - Income Tax

Disallowance made u/s. 14A r.w.r. 8D - computation of deduction - HELD THAT - As decided in assessee s own case 2014 (3) TMI 399 - ITAT MUMBAI Rule 8D is applicable for the year under consideration therefore, the disallowance of administrative expenses has to be computed as per the formula provided in Rule 8D. The disallowance worked out under Rule 8D cannot exceed the total expenditure claimed by the assessee which can be apportioned to the exempt income. Thus we set aside this issue to the record of AO for the limited purpose of computing the total expenditure incurred by the assessee for the composite/indivisible activities in which taxable and non-taxable income is received and if the disallowance work out under Rule 8D on account of administrative expenses exceeds the total claim of expenditure incurred for the composite activities resulting taxable or non-taxable income then the disallowance should be restricted to the said actual total claim of expenditure. We set aside the order passed by the CIT(A) on this issue and restore the same to the file of the Assessing Officer for considering the issue afresh by duly considering all the types of contentions that may be raised and all the materials that may be produced by the assessee. - Appeal filed by the assessee as allowed for statistical purposes.

Summary

Issues:
Disallowance made under section 14A of the Income Tax Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai was against the order passed by the CIT(A)-6, Mumbai for the assessment year 2011-12. The main issue raised in the appeal was the disallowance made under section 14A of the Income Tax Act. The Assessing Officer had disallowed a significant amount under Rule 8D(2)(iii) of the IT Rules, whereas the assessee had made a much lower disallowance. The assessee argued that manufacturing expenses should not be included in the disallowance calculation and referred to a previous case where a similar issue had been considered by the Tribunal. The assessee also contended that certain investments did not yield dividend income and that dividend income should not be considered exempt since it had already been taxed at the company level.

On the other hand, the Departmental Representative argued that the income earned by the assessee through dividends is exempt and that the payment of dividend distribution tax by the company does not affect this exemption. The Departmental Representative cited the judgment of the Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (328 ITR 81) to support this argument.

After considering the arguments from both sides, the Tribunal noted that a similar issue had been sent back to the Assessing Officer in a previous case of the assessee. Following the same approach, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to reconsider the issue, taking into account all contentions and evidence presented by the assessee. The Tribunal emphasized that the disallowance under Rule 8D should not exceed the total expenditure claimed by the assessee related to taxable and non-taxable income activities.

As a result, the appeal filed by the assessee was treated as allowed for statistical purposes, and the order was pronounced on 17.10.2016.