2010 (12) TMI 1236 - AT - Income Tax

ITAT Mumbai Allows Appeal Against Disallowance under Section 14A

The Appellate Tribunal ITAT Mumbai allowed the appeal against the disallowance made under section 14A for the assessment year 2004-2005. Relying on the ... Disallowance under section 14A - Computation of disallowance on a reasonable basis - Inapplicability of Rule 8D for computation of section 14A disallowance - Remand for fresh quantificationDisallowance under section 14A - Computation of disallowance on a reasonable basis - Whether the provisions of section 14A are applicable and require disallowance to be worked out on a reasonable basis - HELD THAT: - The Tribunal records that the applicability of section 14A is no longer an open question in view of the decision of the Hon'ble Bombay High Court in Godrej & Boyce Limited v. ACIT. The Tribunal accordingly treats section 14A as applicable in the facts of the case and holds that the disallowance, if any, must be determined on some 'reasonable basis' rather than by application of Rule 8D. This conclusion follows the High Court ruling which the Tribunal accepts as determinative of the legal principle to be applied. [Paras 3]Section 14A applies and the quantum of disallowance must be determined on a reasonable basis in accordance with the cited High Court decision.Inapplicability of Rule 8D for computation of section 14A disallowance - Remand for fresh quantification - Whether the Assessing Officer should compute disallowance under Rule 8D as directed by the CIT(A), or recompute the disallowance afresh following the High Court ruling - HELD THAT: - The learned CIT(A) had directed the Assessing Officer to compute the disallowance under Rule 8D. The Tribunal, however, having accepted the High Court's determination that disallowance under section 14A must be worked out on a reasonable basis and not by Rule 8D, sets aside the CIT(A)'s direction. The matter is restored to the file of the Assessing Officer for deciding the quantum of disallowance, if any, in accordance with the accepted principle, with opportunity to the assessee to be heard. The order therefore does not finally quantify any disallowance but remands the issue for fresh consideration consistent with the legal principle. [Paras 3]CIT(A)'s direction to apply Rule 8D is set aside; matter remitted to the Assessing Officer to determine, after hearing the assessee, the quantum of disallowance in accordance with the High Court's requirement of a reasonable-basis computation.Final Conclusion: The appeal is allowed for statistical purposes; the order of the CIT(A) directing computation under Rule 8D is set aside and the matter is remanded to the Assessing Officer to compute any disallowance under section 14A on a reasonable basis in conformity with the Bombay High Court decision, after affording the assessee a reasonable opportunity of being heard. Issues involved: Appeal against disallowance made u/s.14A for assessment year 2004-2005.The Appellate Tribunal ITAT Mumbai heard the appeal regarding the disallowance made u/s.14A for the assessment year 2004-2005. The assessee, engaged in trading in shares, debentures, and venture capital contributions, contested the disallowance of &8377;20,64,825 computed by the Assessing Officer. The Commissioner of Income-tax (Appeals) directed the AO to compute the disallowance u/s.14A as per rule 8D, leading to the current appeal.The Tribunal noted that the issue of disallowance u/s 14A is settled in light of the judgment of the Hon'ble Bombay High Court in Godrej & Boyce Limited Vs. ACIT dated 12.08.2010. The High Court held that the provisions of section 14A apply to present circumstances, and the disallowance should be determined by the AO on a 'reasonable basis,' not rule 8D. Consequently, the Tribunal set aside the previous order and remanded the matter to the AO for deciding the disallowance amount in accordance with the mentioned judgment, providing the assessee with a fair opportunity to present their case.The Tribunal allowed the appeal for statistical purposes, pronouncing the order on December 20, 2010.