2017 (12) TMI 1691 - AT - Income Tax

Addition u/s 14A read with rule 8D - HELD THAT - As in assessee s case for the assessment year 2008-09 where in an identical issue on identical facts has been decided as observed that the disallowance should be worked out on proportionate method under rule 8D(2)(iii) and determined disallowance at Rs. 35, 120/- applying the proportionate method on the total income and dividend income earned and total expenses in the current year. The only difference in the facts are with regard to the quantum of amount of dividend income earned and the quantum of expenses. Considering the decision of the Co-ordinate Bench of the Tribunal and the overall expenses as well as the income and total income of the assessee we are of the view that it would be fair and reasonable if a sum of Rs. 10 lakhs is disallowed under rule 8D(2)(iii). Accordingly we direct the AO to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii). Resultantly the appeal of the assessee is partly allowed.

Summary

Issues:
Appeal challenging order of CIT(A) for assessment year 2011-12 regarding addition under section 14A of the Income Tax Act, 1961 read with rule 8D.

Analysis:
The appeal was filed by the assessee against the order passed by the ld.CIT(A)-14, Mumbai for the assessment year 2011-12. Despite the absence of the assessee or their representative during the hearing, the Tribunal proceeded to dispose of the appeal ex-parte after hearing the ld.DR. The sole issue raised in the appeal was the confirmation of the addition of Rs. 52,59,295/- by the ld.CIT(A) under section 14A of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962.

During the assessment proceedings, the AO noted that the assessee had disallowed Rs. 1,15,612/- under section 14A, while the dividend income earned by the assessee was Rs. 2,73,57,057/-, claimed as exempt income under section 10. The assessee provided details under rule 8D(2)(iii) calculating disallowance at Rs. 52,59,295/-. However, the AO calculated the disallowance at Rs. 76,10,449/- under rule 8D(2)(ii) and (iii), which was restricted to Rs. 65,80,214/- after considering expenses claimed by the assessee and suo motu disallowance of Rs. 1,15,612/-. The ld.CIT(A) partly allowed the appeal by sustaining the disallowance under rule 8D(2)(iii) to Rs. 52,59,295/-, directing the AO to make disallowance of interest by considering net interest expenses only.

Upon perusal of the material and considering the decision in the assessee's case for the assessment year 2008-09, it was observed that a proportionate method should be applied under rule 8D(2)(iii) to determine the disallowance. The Tribunal decided to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii) based on the overall expenses and income of the assessee. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the Tribunal directed the AO to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii) and partly allowed the appeal filed by the assessee. The order was pronounced in the open court on 15th Dec, 2017.