2012 (11) TMI 1270 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of disallowance u/s 14A r.w. Rule 8D.
2. Correctness of the computation of disallowance by the revenue authorities.

Summary:

1. Confirmation of disallowance u/s 14A r.w. Rule 8D:
The assessee, engaged in the business of manufacture and export, showed exempt dividend income of Rs. 65,93,178 and a disallowance of Rs. 35,63,498. The AO computed an additional disallowance of Rs. 28,31,068 u/s 14A r.w. Rule 8D, disregarding the assessee's suo moto disallowance. The CIT(A) sustained the AO's computation. The ITAT noted that the revenue authorities did not specify how the assessee's computation was incorrect and emphasized that the AO must show dissatisfaction with the assessee's computation before applying the prescribed formula.

2. Correctness of the computation of disallowance by the revenue authorities:
The ITAT referred to the decision of the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd., which mandates that the AO must first determine the correctness of the assessee's claim regarding the expenditure incurred in relation to exempt income. The ITAT observed that the revenue authorities failed to record specific dissatisfaction with the assessee's working. Consequently, the ITAT set aside the order of the CIT(A) and directed the AO to recompute the disallowance by applying Rule 8D and following the spirit of the judgment in Godrej & Boyce.

Conclusion:
The appeal filed by the assessee is allowed for statistical purposes, with the AO directed to recompute the disallowance in accordance with the prescribed rules and judicial precedents.