2015 (9) TMI 1583 - AT - Income Tax

Appellate Tribunal allows Revenue's partial appeals on disallowance of expenses related to exempt income

The Appellate Tribunal partly allowed the Revenue's appeals for AYs 1998-99 and 1999-2000 concerning the disallowance of expenses related to exempt income ... Disallowance u/s 14A of the Act in respect of the exempt income - Held that:- Referring to the binding judgment of the Hon’ble Bombay High Court in the case of Godrej Agrovet (2010 (9) TMI 291 - ITAT, MUMBAI ), we are of the opinion that the disallowance @ 2% of the exempt income as upheld by the Hon’ble High Court, is appropriate. Issues:- Appeal against the order of CIT (A) for AYs 1998-99 and 1999-2000- Disallowance of expenses related to exempt income under section 14A of the Act- Adjudication on various grounds raised by the RevenueAnalysis:1. AY 1998-99:- The Revenue filed an appeal against the CIT (A)'s order, challenging various grounds related to book profit computation, interest accrued on securities, disallowances, and exempt income under section 10.- The Counsel for the assessee contended that certain grounds were not approved by the Committee of Dispute (COD) and should be dismissed.- The Tribunal dismissed several grounds but considered the disallowance under section 14A relating to exempt income. The Counsel argued against the disallowance based on Rule 8D(2)(ii) of IT Rules, 1962, citing precedents like Reliance Utilities & Power Ltd.- The Tribunal referred to decisions regarding disallowance of expenses for exempt income, settling on a 2% disallowance upheld by the High Court. The Tribunal directed the AO to restrict the disallowance to 2% of the total exempt income, partly allowing the Revenue's appeal.2. AY 1999-2000:- In this appeal, the Revenue contested the CIT (A)'s order on grounds including book profit computation, interest on securities, disallowances, and indexation cost for capital gains.- Similar to the AY 1998-99 appeal, certain grounds were dismissed in limine as they were not approved by the COD.- The Tribunal partly allowed the appeal, focusing on the disallowance under section 14A related to exempt income. It directed the AO to follow the judgment of the High Court, similar to the AY 1998-99 decision, and restrict the disallowance to 2% of the total exempt income.- Both appeals of the Revenue for AYs 1998-99 and 1999-2000 were partly allowed for statistical purposes.This judgment by the Appellate Tribunal ITAT Mumbai addressed the Revenue's appeals for AYs 1998-99 and 1999-2000, primarily focusing on the disallowance of expenses related to exempt income under section 14A of the Act. The Tribunal considered precedents and directed the AO to restrict the disallowance to 2% of the total exempt income, aligning with the High Court's judgment. The decision provided detailed reasoning for each ground raised by the Revenue, ensuring a comprehensive analysis of the issues involved in the appeals.