2013 (8) TMI 323 - AT - Income Tax

Deduction u/s 14A - Share trading - CIT partly deleted addition - Held that - assessee has not filed any paper book or the statements of accounts - Therefore, it is not possible to factually verify the veracity of the claim and ascertainment of assessee s business, the amount of stock in trade, investment etc. and the satisfaction about applicability of Rule 8D - Following decision of Esquire Private Limited, Versus DCIT, Range-2 (1), Mumbai 2012 (9) TMI 134 - ITAT MUMBAI - Matter remitted back.

Summary

Issues:
Revenue's appeal against CIT(A)'s order on section 14A read with Rule 8D for A.Y. 2008-09.
Assessee's cross objections regarding the disallowance under section 14A read with Rule 8D.

Analysis:
1. Background: The case involved Revenue's appeal and assessee's cross objections against CIT(A)'s order related to A.Y. 2008-09 concerning section 14A read with Rule 8D.

2. Disallowance under Section 14A: The assessing officer disallowed Rs. 148,07,132 under section 14A read with Rule 8D, which the CIT(A) reduced to Rs. 74,57,347. The Revenue appealed against this reduction, while the assessee filed cross objections challenging the sustained disallowance.

3. Assessee's Arguments: The assessee contended that the assessing officer did not provide sufficient reasons for invoking Rule 8D and failed to establish a direct link between the expenditure and dividend income. Citing various judgments, including those of the High Court and ITAT, the assessee argued that Rule 8D cannot be applied automatically without verifying the nature of expenditure and activities.

4. Judicial Precedents: The assessee relied on judgments such as CIT vs. Hero Cycles and CIT vs. Walfort Stock & Share Brokers to support the argument that there must be a nexus between expenditure and tax-free income for disallowance under section 14A.

5. ITAT Decision: The ITAT referred to a Mumbai Bench order in a similar case and emphasized the need for verifying the claim and assessing the applicability of Rule 8D. As the assessee did not provide detailed documentation, the ITAT set aside the issue for fresh consideration by the assessing officer.

6. Conclusion: The ITAT allowed the revenue's appeal and the assessee's cross objections for statistical purposes, directing a reevaluation by the assessing officer in accordance with the law and relevant case laws. The decision was pronounced on July 31, 2013.

This detailed analysis covers the issues raised in the Revenue's appeal and the assessee's cross objections regarding the disallowance under section 14A read with Rule 8D for the assessment year 2008-09.