2015 (1) TMI 1436 - AT - Income Tax

Disallowance u/s. 14A r.w. Rule 8D - HELD THAT - The Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs DCIT Another 2010 (8) TMI 77 - BOMBAY HIGH COURT has held that sub-section (2) of Sec. 14A does not enable the AO to apply the method prescribed by Rule 8D without determining in the first instance the correctness of the claim of the assessee in respect of expenditure incurred in relation to income which does not form part of the total income under the Act, that he can proceed to make a determination under the Rules. Taking a leaf out of these observations of the Hon ble Jurisdictional High Court, we restore the issue to the file of the AO. The AO is directed to verify the correctness of the claim of the assessee and decide the issue afresh as per provisions of the law. Ground No. 1 is allowed for statistical purpose. Denial of the deduction of suo-motu disallowance made by the assessee out of the total disallowance computed by the AO - HELD THAT - As we restored the issue of computing the disallowance to the file of the AO, the AO is directed to decide this issue also afresh after computing the disallowance u/s. 14A r.w. Rule 8D. This ground is allowed for statistical purpose.

Summary

Issues:
1. Disallowance made under section 14A r.w. Rule 8D.
2. Denial of deduction of suo-motu disallowance made by the assessee.

Issue 1: Disallowance made under section 14A r.w. Rule 8D:
The appellant, a non-banking finance company, appealed against the disallowance made under section 14A in relation to dividend income. The Assessing Officer (AO) disallowed a specific amount under Rule 8D, which the appellant contested. The appellant argued that being a non-banking finance company, section 14A was not applicable. However, the AO rejected this argument and proceeded to make the disallowance. The appellant then approached the Ld. CIT(A) without success. During the appeal, the appellant claimed to have suo-motu disallowed a certain amount, which the AO did not find fault with. The Tribunal referred to a judgment by the Hon'ble Bombay High Court, stating that the AO must first verify the correctness of the claim of the assessee before applying Rule 8D. Consequently, the issue was remanded back to the AO for fresh consideration, allowing Ground No. 1 for statistical purposes.

Issue 2: Denial of deduction of suo-motu disallowance made by the assessee:
The second ground of appeal related to the denial of the deduction of the suo-motu disallowance made by the assessee out of the total disallowance computed by the AO. Since the Tribunal had already directed the AO to re-examine the disallowance under section 14A with Rule 8D, this issue was also remanded back to the AO for fresh consideration. Ground No. 2 was allowed for statistical purposes. Ultimately, the appeal filed by the assessee was treated as allowed for statistical purposes. The order was pronounced in an open court on 19th January 2014.

This judgment by the Appellate Tribunal ITAT Mumbai addressed the issues of disallowance under section 14A and the denial of deduction of suo-motu disallowance. The Tribunal emphasized the importance of verifying the correctness of the assessee's claims before applying Rule 8D, following a precedent set by the Hon'ble Bombay High Court. The decision to remand both issues back to the AO for fresh consideration was made, allowing the appellant's appeal for statistical purposes.