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2019 (6) TMI 1251 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - in the period prior to introduction of Rule 8D - HELD THAT - It is not shown to us by learned DR as to how factual matrix in AY 2006-07 is different from that of AY 2007-08. Both the years are prior to AY 2008-09 from where onwards Rule 8D of the 1962 Rules is held to be applicable. Thus, Respectfully following the aforesaid decision of Hon ble Tribunal in assessee s own case for AY 2007-08 2016 (7) TMI 1527 - ITAT MUMBAI we are of the considered view that end of justice will be met in this case if disallowance of expenses incurred in relation to earning of an exempt income u/s 14A be restricted to 2% of dividend income . Ground no. 1 is partly allowed. Levy of interest u/s. 234C and 234D - HELD THAT - As agreed by learned counsel for the assessee that levying of interest u/s 234C and 234D is mandatory and there is no dispute as far as mandatory nature of the interest u/s 234C and 234D is concerned but keeping in view facts and circumstances of the case no interest is exigible. Reference is made to the decision of Hon ble Supreme Court in the case of Anjum M. H. Ghaswala 2001 (10) TMI 4 - SUPREME COURT DR did not objected if the matter is restored back to the file of the AO for verification of the contentions of the assessee and for deciding the quantum of interest u/s 234C and 234D in accordance with law. Remanded to AO with direction.
Issues Involved:
1. Disallowance under section 14A of the Income Tax Act. 2. Levy of interest under section 234C of the Income Tax Act. 3. Levy of interest under section 234D of the Income Tax Act. Detailed Analysis: 1. Disallowance under section 14A of the Income Tax Act: The primary issue revolves around the disallowance under section 14A related to expenses incurred for earning exempt income. The assessee contested the adhoc disallowance, arguing no expenditure was incurred to earn exempt income. The CIT(A) confirmed the disallowance, noting the assessee failed to highlight mistakes in the AO's computation. The assessee further argued that the expenses considered by the AO were for regular business activities, not related to earning exempt income. Additionally, the assessee referenced a jurisdictional tribunal decision restricting such disallowance to 2% of dividend income for periods before AY 2008-09. In the first round of litigation, the tribunal directed the AO to re-compute the disallowance reasonably. In the second round, the AO added 5% of miscellaneous expenses, resulting in a disallowance of ?7.5 lacs. The assessee had already offered a disallowance of ?77,815, leading to a total disallowance of ?8,27,815. The tribunal observed that Rule 8D of the Income Tax Rules, 1962, is not applicable for AY 2006-07, as confirmed by the Supreme Court in CIT v. Essar Teleholdings Limited. The tribunal also noted consistency with its prior decision for AY 2007-08, where a 2% disallowance of dividend income was deemed reasonable. Following this precedent, the tribunal restricted the disallowance to 2% of the dividend income, partly allowing the assessee's appeal. 2. Levy of interest under section 234C of the Income Tax Act: The assessee challenged the mandatory nature of interest levied under section 234C, arguing timely payment of advance tax. The CIT(A) upheld the interest levy, citing the Supreme Court's decision in CIT v. Anjum M. H. Ghasswala, which mandates such interest. The tribunal restored the matter to the AO for verification of the assessee's claim regarding timely advance tax payments. The tribunal emphasized the mandatory nature of interest under section 234C but allowed for verification and proper quantification by the AO, ensuring adherence to natural justice principles. 3. Levy of interest under section 234D of the Income Tax Act: Similar to the previous issue, the assessee contested the mandatory levy of interest under section 234D, arguing it was consequential. The CIT(A) dismissed this challenge, maintaining the interest levy was mandatory. The tribunal, agreeing with the mandatory nature of interest under section 234D, restored the issue to the AO for verification and proper quantification. The tribunal directed the AO to provide the assessee an opportunity to present evidence and explanations, ensuring a fair adjudication process. Conclusion: The tribunal partly allowed the appeal, restricting the disallowance under section 14A to 2% of the dividend income and remanding the issues of interest under sections 234C and 234D to the AO for verification and proper quantification, ensuring compliance with natural justice principles.
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