2013 (11) TMI 1490 - HC - Income Tax

Expenses on exempt income - Held that - The assessee has himself disallowed an amount of Rs.1,73,98,255/- under Section 14A of the Act - The said figure was calculated by appropriating expenditure incurred in proportion of the exempt income to the total income - 95% of the total expenditure was suo motu treated and attributed as expenditure relatable to earning of exempt income - If Rule 8D is applied to calculate the disallowance then the amount will be lower than the disallowance computed by the assessee - Decided against Revenue.

Summary

Issues:
1. Retrospective application of Rule 8D
2. Factual inaccuracies in disallowance made by the Assessing Officer

Analysis:

1. Retrospective application of Rule 8D:
The judgment addresses the issue of the retrospective application of Rule 8D. It is stated that Rule 8D is not retrospective and, therefore, does not apply to the assessment year in question. This conclusion is drawn based on the decision in Maxopp Investment Limited versus Commissioner of Income Tax. The judgment highlights that the non-retrospective nature of Rule 8D is a crucial factor leading to the dismissal of the appeal by the Revenue.

2. Factual inaccuracies in disallowance made by the Assessing Officer:
The judgment also delves into the factual inaccuracies in the disallowance made by the Assessing Officer through the application of Rule 8D. It is noted that the respondent-assessee had substantial tax-free dividend income but had already disallowed a specific amount under Section 14A of the Act. The Commissioner (Appeals) identified the factual position and calculated that the disallowance made by the respondent assessee was higher than what would be arrived at by applying Rule 8D accurately. The judgment emphasizes that the total disallowance would be reduced by applying Rule 8D, which would be against the interest of revenue. Despite the factual position being clear, the Revenue's appeal was dismissed by the tribunal and subsequently by the High Court due to lack of merit.

In conclusion, the judgment comprehensively addresses the issues of the retrospective application of Rule 8D and the factual inaccuracies in the disallowance made by the Assessing Officer. It highlights the legal principles and factual findings that led to the dismissal of the Revenue's appeal, emphasizing the importance of accurate application of rules and adherence to legal precedents in tax assessments.