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2017 (9) TMI 1406 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - Held that - As decided in assessee s own case for AYs 2008-09 and 2009-10 considering the nature of investments of the assessee during the year under consideration, we do not find any justification on the part of the AO in straightway applying Rule 8D and without recording any dissatisfaction in relation to the suo-moto working made by the assessee. Even otherwise, facts for the year under consideration are squarely cover with the decision of the Tribunal in the own case of the assessee in the subsequent year. We therefore do not find any justification for the Ld. CIT(A) to confirm the disallowance under Rule 8D(2)(iii) of the Income Tax Rules without considering the working/computation offered by the assessee and also without ignoring the nature of investments made by the assessee. The order of the Ld. CIT(A) confirmed the disallowance under Rule 8D(2)(iii) is therefore set aside. Appeal of Revenue is dismissed.
Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961. 2. Restriction of disallowance of expenses under section 14A. Issue 1: Disallowance under section 14A of the Income Tax Act, 1961: The appeal by the Revenue challenged the order of CIT(A) deleting the disallowance made by the Assessing Officer (AO) under section 14A of the Act read with Rule 8D of the IT Rules. The AO disallowed expenses amounting to ?64,57,113, while the assessee made a suo moto disallowance of ?5,00,000. The CIT(A) allowed the claim of the assessee based on the ITAT decisions for AY 2009-10 and 2008-09, stating that there was no change in the investment and expenses. The Tribunal, in its decision for AY 2008-09, observed that the AO failed to follow the guidelines of objective satisfaction as laid down by the High Court and confirmed that the assessee had not incurred any interest/indirect expenditure for earning exempt income. The Tribunal restricted the disallowance to the suo-moto disallowance offered by the assessee, deleting the remaining disallowance. The Tribunal dismissed the Revenue's appeal, citing that the issue was covered by its previous decisions in favor of the assessee for AYs 2008-09 and 2009-10. Issue 2: Restriction of disallowance of expenses under section 14A: The Revenue raised concerns regarding the restriction of disallowance of expenses under section 14A by the CIT(A). The CIT(A) restricted the disallowance to 0.5% of the average investment amounting to ?24,82,882, as opposed to the total disallowable amount of ?59,57,113 under section 14A. The assessee contended that there was no direct nexus between the expenses incurred and the exempt income. The CIT(A) relied on the ITAT decision in the assessee's own case for AY 2009-10 and 2008-09 to support the restriction of disallowance. The Tribunal, following its previous decisions, dismissed the Revenue's appeal, upholding the CIT(A)'s restriction of disallowance to 0.5% of the average investment amount. In conclusion, the ITAT Mumbai dismissed the Revenue's appeal, upholding the decisions of the CIT(A) regarding the disallowance under section 14A and the restriction of expenses. The Tribunal relied on its previous judgments in the assessee's own case for AYs 2008-09 and 2009-10, where it was established that there was no direct nexus between the expenses and the exempt income, leading to the dismissal of the Revenue's contentions.
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