2013 (4) TMI 932 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance u/s 14A r.w. Rule 8D.

Summary:

Issue 1: Disallowance u/s 14A r.w. Rule 8D

The assessee appealed against the order of CIT(A)-9 Mumbai, which confirmed a disallowance of Rs. 34,69,832 u/s 14A r.w. Rule 8D, over and above the disallowance already made by the appellant of Rs. 4,98,010. The grounds of appeal were that the CIT(A) erred in confirming this disallowance and that it should be deleted.

At the outset, it was submitted that for A.Y 2008-09, similar grounds were raised by the assessee, and the matter was restored to the file of AO by relying on another ITAT decision in the case of Ciba Research (India) Ltd. The Tribunal, in the assessee's own case for A.Y 2008-09, restored the issue to the file of AO with similar directions. The Tribunal reproduced the order for completeness, which involved a similar disallowance issue where the AO had disregarded the disallowance made by the assessee suo moto and computed a higher disallowance using Rule 8D.

The Tribunal noted that the revenue authorities did not specify how the assessee's computation was incorrect before applying the prescribed formula. The Tribunal emphasized that the AO must show dissatisfaction with the assessee's computation before applying Rule 8D, as per the decision of the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. The Tribunal found that the revenue authorities had applied the decision mechanically without addressing the assessee's arguments or specifying the reasons for rejecting the assessee's claims.

The Tribunal referred to the principles established in the Godrej & Boyce case, which clarified that section 14A aims to prevent deductions of expenditure related to exempt income and that the AO must first determine the correctness of the assessee's claim regarding such expenditure. The Tribunal concluded that the revenue authorities erred in not recording specific dissatisfaction with the assessee's working and directed the AO to recompute the disallowance by applying Rule 8D and following the spirit of the Godrej & Boyce judgment.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the AO to re-examine the disallowance issue.

Order pronounced in the open court on 17/04/2013.