2012 (10) TMI 1263 - AT - Income Tax

Summary

Issues involved: Challenge to disallowance u/s 14A of the Act read with Rule 8D of Income-tax Rules.

Summary:

Issue 1: Disallowance u/s 14A of the Act read with Rule 8D of Income-tax Rules
The appeal was against the disallowance of Rs.4,17,376/- made by the Assessing Officer u/s 14A of the Act read with Rule 8D of Income-tax Rules, which was confirmed by the CIT(A). The assessee, a company engaged in trading and dealing in shares and securities, had claimed exempt dividend income of Rs.1,16,600/- without making any disallowance for related expenses as required by section 14A. The CIT(A) agreed that Rule 8D was not applicable for the assessment year 2007-08 and that a reasonable basis should be used for the disallowance. However, the CIT(A) still upheld the disallowance based on Rule 8D. The Tribunal, considering the decision of the Bombay High Court, held that the disallowance should be made on a reasonable basis for years prior to 2008-09. It determined a fair and reasonable disallowance u/s 14A at Rs.29,150/-, being 25% of the dividend income received by the assessee, and directed the AO to restrict the disallowance accordingly.

In conclusion, the appeal was partly allowed, and the disallowance u/s 14A was modified to Rs.29,150/-.

Order pronounced on 10th October 2012.