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2015 (3) TMI 441 - AT - Income TaxDisallowance u/s 14A - CIT(A) deleting the disallowance - Held that - Ld. CIT(A) has rightly observed that that Rule 8D will not be applicable to the case of the assessee since it pertains to AY 06-07. We also find that Ld. CIT(A) has also observed that Rule 8D cannot be applied retrospectively, Section 14A however would be applicable for pre Rule 8D period, thus whenever the issue of 14A arises the AO should ascertain the correctness of the claim of the assessee in respect of expenditure incurred or not incurred in relation to income which does not form part of the total income under the Act. Ld. CIT(A) noted that the AO is satisfied with the claim of the assessee and he further noted that the AO should accept the claim of the assessee so far as the quantum of disallowance is concerned. Ld. CIT(A) has further observed that the AO after giving the assessee an opportunity of being heard, is not satisfied with the correctness of the claim of the assessee, he should reject the claim after giving reasons and then AO should determine the amount of expenditure incurred in relation to income which does not form part of the total income. Ld. CIT(A) further observed that the language of sub section 14A(1) is abundantly clear that relation has to be seen between the exempt income and expenditure incurred in relation to it. The AO has not shown any relation between the exempt income and expenditure incurred. Therefore, Ld. CIT(A) has rightly held that the AO has not followed the directions of the ITAT and the Hon. High Court of Court of Delhi in the assessee's case and the AO has to consider the two cases of Godrej Boyce Mfg. Co. Ltd 2010 (8) TMI 77 - BOMBAY HIGH COURT and Maxopp Investment Ltd 2011 (11) TMI 267 - Delhi High Court while deciding the issue, but the AO did not consider the two judgments while finalizing the matter. We find that Ld. CIT(A), in view of the above, has rightly deleted the addition made by the AO of ₹ 1,OO,94,103/- which does not need any interference on our part. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the Appeal filed by the Revenue. - Decided in favour of assessee.
Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act. 2. Applicability of Rule 8D for Assessment Year 2006-07. Issue-wise Detailed Analysis: 1. Deletion of Disallowance under Section 14A: The Revenue filed an appeal against the order of the CIT(A) which deleted the disallowance of Rs. 1,00,94,103/- made by the Assessing Officer (AO) under Section 14A of the Income Tax Act. The AO had initially made this disallowance in the assessment order dated 30.12.2008, which was later challenged by the assessee. The CIT(A) restricted the disallowance to Rs. 93,11,704/- and deleted the disallowance of Rs. 4,49,365/- on account of unpaid statutory liability under Section 43B. The Revenue appealed against this decision, and the ITAT remanded the issue back to the AO. The AO, in his subsequent order, did not take a final decision on the disallowance under Section 14A, stating that the issue was still unsettled. Upon appeal, the CIT(A) found that the AO had not complied with the directions from the ITAT and the Delhi High Court to consider the decisions in Godrej Boyce Mfg. Co. Ltd. and Maxopp Investment Ltd. while deciding the disallowance under Section 14A. The CIT(A) noted that the AO failed to establish a relationship between the exempt income and the expenditure incurred. Consequently, the CIT(A) deleted the addition made by the AO. 2. Applicability of Rule 8D for Assessment Year 2006-07: The Tribunal noted that Rule 8D, which prescribes the method for determining the amount of expenditure incurred in relation to exempt income, is applicable prospectively from Assessment Year 2008-09 onwards, as held by the Bombay High Court in Godrej Boyce Mfg. Co. Ltd. and the Delhi High Court in Maxopp Investment Ltd. For the period prior to the introduction of Rule 8D, the AO is required to ascertain the correctness of the assessee's claim regarding the expenditure incurred in relation to exempt income. If the AO is not satisfied with the claim, he must determine the amount of expenditure using a reasonable and acceptable method of apportionment. However, in this case, the AO did not record any dissatisfaction with the assessee's claim and did not follow the directions of the ITAT and the High Court. The Tribunal upheld the CIT(A)'s decision, stating that the AO had not followed the judicial directions and had not established any relation between the exempt income and the expenditure incurred. Therefore, the deletion of the disallowance of Rs. 1,00,94,103/- by the CIT(A) was justified. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order which deleted the disallowance made by the AO under Section 14A. The Tribunal emphasized that Rule 8D is not applicable retrospectively and that the AO failed to comply with judicial directions and establish a connection between the exempt income and the expenditure incurred. The Tribunal's decision was pronounced in the open court on 16/2/2015.
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