2012 (2) TMI 622 - AT - Income Tax

Tribunal rules on Rule 8D application, remands case for fresh assessment

ITO Ward 4 (4), DCIT Circle 4 (1), New Delhi Versus Liquid Investment & Trading Company

The Tribunal held that Rule 8D cannot be applied retrospectively but found the method used by the CIT(A) for apportioning expenditure towards exempted ... - Issues involved: The judgment involves the reduction of additions made by the Assessing Officer u/s 14A of the Income Tax Act, specifically related to the orders for the A.Y. 2007-08, 2001-02, and 2006-07.A.Y. 2007-08:The Revenue raised an issue regarding the correctness of the disallowance made by the Assessing Officer u/s 14A of the Income Tax Act, following the provisions of Rule 8D of the Income Tax Rules, 1962. The argument presented was that Rule 8D should not be applied retrospectively, as established by various court decisions, including the Jurisdictional High Court ruling in the case of Maxopp Investment vs. CIT. The contention was to restore the issue to the AO for reevaluation based on the court decisions.A.Y. 2006-07:In this appeal, the Revenue also raised a ground concerning the assessee advancing loans at concessional rates for non-business purposes while paying interest on borrowed capital/funds. This issue was linked to the reduction of additions made u/s 14A. The AO had applied Rule 8D in the A.Y. 2007-08, resulting in disallowances totaling &8377; 2,95,03,813, whereas the assessee self-disallowed only &8377; 85,48,009. The CIT(A) calculated disallowances using a formula different from the one adopted by the assessee, which was deemed incorrect based on the decision of the Hon'ble Delhi High Court.Cross Objection:The delay in filing the Cross Objection by the assessee was a point of contention. The AR argued that there was a valid reason for the delay and requested condonation. The AR emphasized the importance of substantial justice over technical considerations and pleaded for the delay to be excused. After hearing both sides, the Tribunal considered the arguments and decided to allow the appeals of the Revenue and the Cross Objection of the Assessee for statistical purposes.Conclusion:The Tribunal held that while Rule 8D cannot be applied retrospectively, the method adopted by the CIT(A) for apportioning expenditure towards exempted income was incorrect. Referring to the decision of the Hon'ble Delhi High Court, the Tribunal emphasized the need for the AO to verify the correctness of the assessee's claims regarding expenditure, especially for the period before the introduction of Rule 8D. The issue was thus remanded back to the AO for a fresh decision, ensuring a reasonable opportunity for the assessee. The appeals of the Revenue and the Cross Objection of the Assessee were allowed for statistical purposes.