2009 (9) TMI 80 - AT - Income Tax

Summary

Issues:
1. Disallowance under section 14A of the IT Act related to expenditure on exempted income.
2. Allowing deduction under section 80HHC while computing book profits.

Issue 1: Disallowance under Section 14A:
The appeal by the Revenue for the assessment year 2004-05 challenged the order of the CIT(A) regarding the disallowance under section 14A of the IT Act. The AO disallowed administrative management expenses under section 14A, relying on the decision of the Supreme Court in CIT vs. United General Trust Ltd. The CIT(A) held that no disallowance could be made as there was no direct nexus between the exempted income and management expenses. The Tribunal set aside the matter to the AO to determine the disallowance as per rule 8D of IT Rules, 1962, following the decision of the Special Bench in ITO vs. Daga Capital Management (P) Ltd.

Issue 2: Deduction under Section 80HHC:
The second issue revolved around allowing the deduction under section 80HHC while computing book profits. The AO disallowed the claim under section 80HHC and added the amount while computing book profits under section 115JB. The CIT(A) allowed the claim following a decision of the Delhi Bench 'A' for the assessment year 2003-04. The Tribunal considered the overruling of the decision in the case of Syncome Formulations (India) Ltd. by the Bombay High Court in CIT vs. Ajanta Pharma Ltd. The Tribunal directed the AO to compute the book profit in accordance with the decision of the Bombay High Court, setting aside the issue for further assessment.

In conclusion, the appeal filed by the Revenue was allowed for statistical purposes, addressing the issues of disallowance under section 14A and deduction under section 80HHC comprehensively, in accordance with the relevant legal provisions and judicial decisions.