2013 (6) TMI 892 - AT - Income Tax

Summary

Issues involved:
Assessee's appeal against CIT(A)'s order for AY 2008-09 challenging addition u/s 14A r/w rule 8D, applicability of Rule 8D, excessive disallowance made by AO.

Issue 1 - Addition u/s 14A r/w rule 8D:
The assessee contested the addition of Rs. 1,24,9432/- made by the AO u/s 14A of the IT Act r/w rule 8D, while the assessee had already made a suo motu disallowance of Rs. 2,46,888/-. The AR argued that no further disallowance could be made without proving the initial disallowance incorrect. The Tribunal examined the AO's findings and held that the AO was not required to establish the nexus of expenditure with exempt income since the assessee admitted to incurring such expenditure. The Tribunal also referenced a Mumbai Bench decision emphasizing that Rule 8D can only be invoked if the AO is not satisfied with the correctness of the assessee's claim regarding such expenditure.

Issue 2 - Applicability of Rule 8D:
The Tribunal analyzed the provisions of section 14A of the Act and the Mumbai Bench decision to determine the applicability of Rule 8D. It was concluded that the AO had recorded his dissatisfaction with the correctness of the assessee's claim regarding expenditure for earning exempt income, justifying the use of Rule 8D for disallowance calculation. The Tribunal rejected the assessee's argument that the basis for estimating expenditure (0.5% of dividend income) was faulty, as dividend income fluctuates yearly and does not necessarily correlate with expenditure.

Issue 3 - Excessive Disallowance:
The assessee contended that the disallowance of Rs. 1,49,6320/- was excessive and sought a reduction. However, the Tribunal upheld the AO's disallowance calculation based on Rule 8D, finding no reason to interfere with the CIT(A)'s order.

In conclusion, the Tribunal dismissed the assessee's appeal, upholding the addition made by the AO u/s 14A r/w rule 8D and confirming the disallowance amount. The decision was based on the AO's satisfaction with the correctness of the expenditure claim and the applicability of Rule 8D for disallowance calculation.