Appeal on 10% Dividend Income Disallowance upheld, Assessing Officer to verify expenditure claim

The appeal challenged the disallowance of 10% of dividend income under Section 14A of the Act. The CIT (A) reduced the disallowance amount but upheld it at 10%. The Tribunal emphasized the need for the Assessing Officer to verify the correctness of the expenditure claim even for the pre-Rule 8D period. The matter was remanded for reassessment in line with the High Court's decision. The appeal was treated as allowed for statistical purposes.

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Issues:
1. Disallowance of 10% of dividend income under Section 14A of the Act.
2. Applicability of Rule 8D for Assessment Year 2007-08.
3. Correctness of the disallowance amount.

Analysis:
1. The appeal filed by the assessee challenged the sustained disallowance of Rs. 12,71,622, which was 10% of the dividend income of Rs. 1,27,16,222 under Section 14A of the Act. The Assessing Officer calculated the disallowance using Rule 8D, resulting in a sum of Rs. 16,02,548. The assessee contended that Rule 8D could not be applied for Assessment Year 2007-08, citing Tribunal decisions and the Bombay High Court case of Godrej & Boyce Mfg. Pvt. Ltd. The CIT (A) acknowledged that Rule 8D could not be invoked for that year but upheld the disallowance at 10% of the dividend income, reducing it to Rs. 12,71,622 and granting relief of Rs. 3,30,926 to the assessee. The assessee remained dissatisfied and raised various grounds of appeal against the sustained addition.

2. During the hearing, the assessee argued that the CIT (A) erred in limiting the disallowance to 10% based on estimation. Referring to the jurisdictional High Court's decision in Max Opp Investment Ltd. vs. CIT, it was highlighted that for the pre-Rule 8D period, the Assessing Officer should verify the correctness of the assessee's expenditure claim related to income not forming part of the total income. The matter was suggested to be remanded to the Assessing Officer for reevaluation in line with the Delhi High Court's decision in Max Opp Investment Ltd. vs. CIT.

3. The Tribunal, after considering the submissions, noted the decision in Max Opp Investment Ltd. vs. CIT, emphasizing that even for the pre-Rule 8D period, the Assessing Officer must verify the correctness of the assessee's expenditure claim. If unsatisfied, a reasonable method of apportionment should be used to determine the disallowance under Section 14A. Therefore, the issue was remanded to the Assessing Officer for reassessment in accordance with the High Court's observations. Consequently, the appeal by the assessee was treated as allowed for statistical purposes.

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