Assessee's Appeal Allowed for Recomputation of Expenses under Rule 8D

The appeal filed by the assessee was allowed for statistical purposes. The Assessing Officer (AO) was directed to recompute the disallowance of expenses in accordance with Rule 8D and judicial precedents, emphasizing the requirement for the AO to demonstrate dissatisfaction with the assessee's computation before applying the prescribed formula. The Income Tax Appellate Tribunal (ITAT) set aside the order of the Commissioner of Income Tax (Appeals) and emphasized the importance of assessing the correctness of the assessee's claim regarding expenses related to exempt income.

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Issues Involved:
1. Confirmation of disallowance u/s 14A r.w. Rule 8D.
2. Correctness of the computation of disallowance by the revenue authorities.

Summary:

1. Confirmation of disallowance u/s 14A r.w. Rule 8D:
The assessee, engaged in the business of manufacture and export, showed exempt dividend income of Rs. 65,93,178 and a disallowance of Rs. 35,63,498. The AO computed an additional disallowance of Rs. 28,31,068 u/s 14A r.w. Rule 8D, disregarding the assessee's suo moto disallowance. The CIT(A) sustained the AO's computation. The ITAT noted that the revenue authorities did not specify how the assessee's computation was incorrect and emphasized that the AO must show dissatisfaction with the assessee's computation before applying the prescribed formula.

2. Correctness of the computation of disallowance by the revenue authorities:
The ITAT referred to the decision of the Hon'ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd., which mandates that the AO must first determine the correctness of the assessee's claim regarding the expenditure incurred in relation to exempt income. The ITAT observed that the revenue authorities failed to record specific dissatisfaction with the assessee's working. Consequently, the ITAT set aside the order of the CIT(A) and directed the AO to recompute the disallowance by applying Rule 8D and following the spirit of the judgment in Godrej & Boyce.

Conclusion:
The appeal filed by the assessee is allowed for statistical purposes, with the AO directed to recompute the disallowance in accordance with the prescribed rules and judicial precedents.

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