2012 (8) TMI 581 - AT - Income Tax

Tribunal dismisses assessee's objection on disallowance under Income Tax Act Section 14A for AY 2007-08

The Tribunal allowed the Revenue's appeal for statistical purposes and dismissed the assessee's cross objection related to disallowance under section 14A ... Disallowance of dividend income u/s 14A r.w.r. 8D - CIT(A) curtailed the disallowance - Held that:- As decided in GODREJ AND BOYCE MFG. CO. LTD. Versus DCIT AND ANOTHER [2010 (8) TMI 77 - BOMBAY HIGH COURT] the provisions of rule 8D would apply with effect from assessment year 2008-09 and prior to assessment year 2008-09, when rule 8D was not applicable AO must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record - thus the matter is remitted back to the file of the AO with a direction decide the issue afresh in the light of the said judgment after providing reasonable opportunity of being heard to the assessee - in favour of assessee. Issues: Disallowance under section 14A of the Income Tax Act.The case involved an appeal by the Revenue and a cross objection by the assessee against the CIT(A)'s order for Assessment Year 2007-08. The main issue was the disallowance under section 14A of the Income Tax Act. The assessee, engaged in various businesses, declared a business loss, with the only ground of appeal relating to the disallowance under section 14A. The Assessing Officer observed that the assessee had admitted dividend income and claimed it as exempt, leading to a disallowance under section 14A. The CIT(A) directed the Assessing Officer to disallow 2% of the dividend income as expenses incurred to earn it, a decision challenged by the Revenue in the Tribunal.The Revenue contended that the CIT(A) had no basis to direct the disallowance of 2% of the dividend income, as the Assessing Officer had made the disallowance based on the case's facts. On the other hand, the assessee's counsel supported the CIT(A)'s order. The Tribunal reviewed the submissions and records, focusing on whether the CIT(A) was correct in directing the disallowance of 2% of the dividend income. The Tribunal disagreed with the CIT(A)'s decision, citing a Bombay High Court case where it was emphasized that the Assessing Officer must determine the expenditure related to income not forming part of the total income. Therefore, the matter was remitted back to the AO for fresh consideration in line with the High Court's judgment.The Tribunal allowed the Revenue's appeal for statistical purposes and dismissed the assessee's cross objection, which supported the CIT(A)'s order. As a result, the appeal of the Revenue was allowed for statistical purposes, while the cross objection of the assessee was dismissed. The judgment was pronounced in Chennai on June 15, 2012.