Tribunal directs reassessment of disallowance under Income Tax Act section 14A & Rule 8D

The Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to reconsider the disallowance made under section 14A of the Income Tax Act, emphasizing that the disallowance under Rule 8D should not exceed the total expenditure claimed by the assessee. The appeal by the assessee was treated as allowed for statistical purposes, with the order pronounced on 17.10.2016.

---

---

Issues:
Disallowance made under section 14A of the Income Tax Act.

Analysis:
The appeal before the Appellate Tribunal ITAT Mumbai was against the order passed by the CIT(A)-6, Mumbai for the assessment year 2011-12. The main issue raised in the appeal was the disallowance made under section 14A of the Income Tax Act. The Assessing Officer had disallowed a significant amount under Rule 8D(2)(iii) of the IT Rules, whereas the assessee had made a much lower disallowance. The assessee argued that manufacturing expenses should not be included in the disallowance calculation and referred to a previous case where a similar issue had been considered by the Tribunal. The assessee also contended that certain investments did not yield dividend income and that dividend income should not be considered exempt since it had already been taxed at the company level.

On the other hand, the Departmental Representative argued that the income earned by the assessee through dividends is exempt and that the payment of dividend distribution tax by the company does not affect this exemption. The Departmental Representative cited the judgment of the Jurisdictional High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. (328 ITR 81) to support this argument.

After considering the arguments from both sides, the Tribunal noted that a similar issue had been sent back to the Assessing Officer in a previous case of the assessee. Following the same approach, the Tribunal set aside the order of the CIT(A) and directed the Assessing Officer to reconsider the issue, taking into account all contentions and evidence presented by the assessee. The Tribunal emphasized that the disallowance under Rule 8D should not exceed the total expenditure claimed by the assessee related to taxable and non-taxable income activities.

As a result, the appeal filed by the assessee was treated as allowed for statistical purposes, and the order was pronounced on 17.10.2016.

---