Tribunal allows appeal, directs AO to recompute disallowance under section 14A

The Tribunal partly allowed the appeal, setting aside the CIT(Appeals) decision to disallow expenses related to exempt income under section 14A using Rule 8D of Income-tax Rules. The Tribunal directed the AO to recompute the disallowance using a reasonable method for years before 2007-08, as per the Hon'ble Bombay High Court ruling. The order was pronounced on October 12, 2012.

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Issues involved: The appeal concerns the addition of &8377; 6,99,140/- made by the Assessing Officer (AO) and confirmed by the learned CIT(Appeals) on account of disallowance u/s 14A read with Rule 8D of Income-tax Rules, 1962.

The judgment addresses the case of a company engaged in share broking, where the AO disallowed expenses related to exempt income under section 14A. The AO applied Rule 8D of Income-tax Rules to make the disallowance. The learned CIT(Appeals) upheld this decision based on a previous Special Bench ruling. However, the Tribunal noted that the issue was covered by a decision of the Hon'ble Bombay High Court, which stated that Rule 8D is applicable only from assessment year 2007-08. The High Court also emphasized that for years before 2007-08, a reasonable method should be used for disallowance u/s 14A. Consequently, the Tribunal set aside the CIT(Appeals) order and directed the AO to recompute the disallowance using a reasonable method, providing the assessee with an opportunity to be heard.

In conclusion, the appeal was treated as partly allowed for statistical purposes, with the Tribunal pronouncing the order on October 12, 2012.

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