Appeal Allowed on Expenses Disallowance for AY 2006-07 under Rule 8D

The Tribunal allowed the appeal against the disallowance of expenses under Rule 8D for Assessment Year 2006-07. The decision was based on the Bombay High Court ruling that Rule 8D is applicable only from Assessment Year 2008-09, not retroactively. The case was remanded to the Assessing Officer for fresh adjudication without applying Rule 8D, as it was not relevant for the year in question. The appeal was treated as allowed for statistical purposes, with the decision announced immediately after the hearing on 29.11.2010.

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Issues:
Disallowance of expenses under Rule 8D of the Income-tax Rules for Assessment Year 2006-07.

Analysis:
The appeal was filed against the Commissioner of Income-tax (Appeals)'s order confirming the disallowance of Rs.28,37,906 made by the Assessing Officer under Rule 8D of the Income-tax Rules, 1962 read with sec. 14A of the Income-tax Act, 1961. The disallowance was based on half per cent of the average investment as on April 1, 2005. The CIT(A) upheld the AO's decision citing the Special Bench's ruling in ITO vs. Daga Capital Management Pvt. Ltd. (2008) 26 SOT 603 (Mumbai)(SB).

The assessee contended that the decision of the Special Bench holding Rule 8D to be retrospective was overruled by the Bombay High Court in Godrej Boyce Manufacturing Co. Ltd. vs. DCIT (2010), stating that Rule 8D is applicable only from the Assessment Year 2008-09. Therefore, Rule 8D should not be applied to the Assessment Year 2006-07. The assessee had voluntarily disallowed Rs.15,26,645 in the return of income, arguing that no further disallowance was necessary. The case was remanded back to the AO for fresh adjudication without applying Rule 8D, as it was not applicable for the year in question.

The Tribunal held that the appeal was treated as allowed for statistical purposes. The decision was pronounced immediately after the hearing on 29.11.2010.

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