Assessee's Appeal Partially Allowed: Disallowed Rs. 10 Lakhs under Rule 8D(2)(iii)

The Tribunal partly allowed the appeal filed by the assessee, directing the Assessing Officer to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii) regarding addition under section 14A of the Income Tax Act, 1961 read with rule 8D. The order was pronounced on 15th Dec, 2017.

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Issues:
Appeal challenging order of CIT(A) for assessment year 2011-12 regarding addition under section 14A of the Income Tax Act, 1961 read with rule 8D.

Analysis:
The appeal was filed by the assessee against the order passed by the ld.CIT(A)-14, Mumbai for the assessment year 2011-12. Despite the absence of the assessee or their representative during the hearing, the Tribunal proceeded to dispose of the appeal ex-parte after hearing the ld.DR. The sole issue raised in the appeal was the confirmation of the addition of Rs. 52,59,295/- by the ld.CIT(A) under section 14A of the Income Tax Act, 1961 read with rule 8D of the Income Tax Rules, 1962.

During the assessment proceedings, the AO noted that the assessee had disallowed Rs. 1,15,612/- under section 14A, while the dividend income earned by the assessee was Rs. 2,73,57,057/-, claimed as exempt income under section 10. The assessee provided details under rule 8D(2)(iii) calculating disallowance at Rs. 52,59,295/-. However, the AO calculated the disallowance at Rs. 76,10,449/- under rule 8D(2)(ii) and (iii), which was restricted to Rs. 65,80,214/- after considering expenses claimed by the assessee and suo motu disallowance of Rs. 1,15,612/-. The ld.CIT(A) partly allowed the appeal by sustaining the disallowance under rule 8D(2)(iii) to Rs. 52,59,295/-, directing the AO to make disallowance of interest by considering net interest expenses only.

Upon perusal of the material and considering the decision in the assessee's case for the assessment year 2008-09, it was observed that a proportionate method should be applied under rule 8D(2)(iii) to determine the disallowance. The Tribunal decided to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii) based on the overall expenses and income of the assessee. Consequently, the appeal of the assessee was partly allowed.

In conclusion, the Tribunal directed the AO to disallow a sum of Rs. 10 lakhs under rule 8D(2)(iii) and partly allowed the appeal filed by the assessee. The order was pronounced in the open court on 15th Dec, 2017.

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