2019 (5) TMI 1522 - AT - Income Tax

Rectification u/s 254 - disallowing the exemption under section 10(23G) of the Act in respect of interest income earned by bank - HELD THAT - As decided in assessee's own case 2013 (8) TMI 1107 - ITAT MUMBAI and HDFC BANK LTD. 2014 (8) TMI 119 - BOMBAY HIGH COURT we hold that deduction for the interest cost incurred was to be taken only in relation to earmarked borrowings utilized by the assessee for the purpose of granting loans to the enterprises, interest income whereof is exempt u/s 10(23G) of the Act for the purpose of computing net interest income eligible for deduction u/s 10(23G) of the Act. Quantifying the disallowance of expenditure u/s 14A - HELD THAT - Mistake pointed out by the assessee that for AY 2007-08, the following ground No. 1(f) and 2(f) have not been adjudicated, which are regarding quantifying the disallowance of expenditure in relation to exempt income under Rule 8D(2)(iii) of the Act in respect to expenditure on account of salaries and allowances, conveyance, communication expenses and printing and stationary. We noted that this ground has not been adjudicated but it was contended by assessee that even in the earlier years the Tribunal has consistently made disallowance of expenses relatable to exempt income at the rate of 1% of the exempt income. She argued that the same decision should be made in AY 2007-08. We direct the AO to compute the disallowance of expenses relatable to exempt income at the rate of 1% of the exempt income because in this year Rule 8D will not apply and Rule 8D(2) will apply only for and from AY 2008-09 only. In term of the above, these Misc. applications are allowed.

Summary

Issues:
Rectification of mistakes in the tribunal's order regarding exemption of interest under section 10(23G) of the Income Tax Act for AY 2006-07 & 2007-08, non-adjudication of certain grounds related to quantifying disallowance of expenditure in AY 2007-08, and correction of errors apparent on record.

Analysis:

1. Rectification of Mistakes in Tribunal's Order:
The assessee filed a Misc. Application seeking rectification of mistakes apparent from the tribunal's order dated 04.04.2018 in ITA No 3399/Mum/2009 & 6752/Mum/2010 for AY 2006-07 & 2007-08. The errors primarily related to the exemption of interest under section 10(23G) of the Act. The tribunal acknowledged the mistakes pointed out by the assessee's counsel and proceeded to correct the relevant paragraphs in the order. The corrections were made to ensure that the exemption under section 10(23G) is granted after deducting actual interest cost instead of notional interest cost, as per the assessee's contentions.

2. Non-Adjudication of Grounds in AY 2007-08:
Another issue raised was the non-adjudication of certain grounds for AY 2007-08, specifically regarding the quantification of the disallowance of expenditure in relation to exempt income under Rule 8D(2)(iii) of the Act. The tribunal noted that these grounds had not been addressed in the original order. Considering the consistent approach taken in earlier years, the tribunal directed the Assessing Officer to compute the disallowance of expenses related to exempt income at the rate of 1% of the exempt income for AY 2007-08, as Rule 8D would not apply in that year.

3. Correction of Errors Apparent on Record:
The tribunal further corrected errors pointed out by the assessee's counsel, ensuring that the order accurately reflected the corrections made in the paragraphs specified. The tribunal clarified that the corrections pertained to Paras 2, 6, and 7 of the original order, addressing the mistakes identified during the proceedings. The counsel for the assessee expressed satisfaction with the decision, except for the identified errors, which were duly rectified by the tribunal.

In conclusion, the tribunal allowed the Misc. Applications of the Assessee, rectifying the mistakes in the order, addressing the non-adjudicated grounds for AY 2007-08, and correcting errors apparent on record to ensure the accuracy and completeness of the tribunal's decision. The order was pronounced in the open court on 24-05-2019, reflecting the modifications and corrections made as per the detailed analysis provided in the judgment.