Appeal allowed for disallowable expenditure calculation challenge under section 14A[2]

The appeal challenging the disallowable expenditure calculation under section 14A[2] of the Act was allowed for statistical purposes. The Tribunal directed the issue back to the Assessing Officer for reconsideration, emphasizing the need to review the assessee's calculation and investigate investments related to borrowed funds. Both lower authorities were deemed to have erred in not accepting the assessee's computation. Related matters were also remanded to the AO for resolution. The order was pronounced on 23rd November 2012.

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Issues involved: Challenge to disallowable expenditure calculation u/s 14A[2] of the Act.

Issue 1: Disallowable Expenditure Calculation

The assessee challenged the correctness of the orders of the lower authorities regarding the disallowable expenditure calculation u/s 14A[2] of the Act. The AO observed that the assessee earned dividend income claimed to be exempt from tax but did not attribute any expenditure for earning exempt income. The AO invoked sec.14A r.w rule 8D of the Act and calculated the disallowable expenditure, which was contested by the assessee. The CIT[A] upheld the AO's decision based on the precedent set by the Honb'le High Court of Bombay in a specific case.

The counsel for the assessee argued that the AO erred in not accepting the computation of disallowable expenditure submitted by the assessee. The counsel presented a working showing a significantly lower total disallowable expense compared to the AO's calculation. The Tribunal noted that the AO should have verified the assessee's calculation of disallowable expenditure as per sec.14A[2] before proceeding further. As the CIT[A] also did not accept the assessee's calculation, both lower authorities were deemed to have erred.

In the interest of justice, the Tribunal directed the issue back to the AO for reconsideration. The AO was instructed to review the assessee's calculation of disallowable expenditure and investigate the investments in relation to borrowed funds, ensuring a fair opportunity for the assessee to present their case. Ground No.1 was allowed for statistical purposes.

Issue 2: Related Matters

The matters covered under ground No. 2 were intertwined with those of ground No. 1 and were therefore also sent back to the AO for resolution in alignment with the directions provided for ground No. 1. Ground No. 2 was similarly allowed for statistical purposes.

Conclusion

The appeal was allowed for statistical purposes, and the order was pronounced in open court on 23rd November 2012.

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