Appeal partly allowed on expenditure disallowance, reverse indexation claim dismissed.

The Tribunal partly allowed the appeal, ruling in favor of the assessee on the disallowance of expenditure under section 14A. However, the claim for reverse indexation in the computation of long term capital gain on the transfer of tenancy rights was dismissed as it was not supported by statutory provisions.

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Issues:
1. Challenge to order of Commissioner of Income Tax (Appeals) for assessment year 2008-09.
2. Computation of cost inflation index in reverse manner for long term capital gain on transfer of tenancy rights.
3. Disallowance of expenditure under section 14A of the Income Tax Act.

Issue 1: Challenge to Order of Commissioner of Income Tax (Appeals)

The appeal was filed challenging the order dated 25th July 2011 by the Commissioner of Income Tax (Appeals) for the assessment year 2008-09. The appeal was initially disposed off but was recalled based on a misc. application by the assessee. The present appeal was then heard by the Bench.

Issue 2: Computation of Cost Inflation Index for Long Term Capital Gain

The assessee raised the issue of computing cost inflation index in reverse while calculating long term capital gain on the transfer of tenancy rights. The Assessing Officer did not accept the assessee's claim that the gain from the transfer of tenancy rights was not taxable. The Commissioner (Appeals) allowed indexation benefit for the cost of acquisition based on the fair market value as on 1st April 1981 determined by a registered valuer. The claim for reverse indexation was rejected as it was not provided for in statutory provisions.

Issue 3: Disallowance of Expenditure under Section 14A

The Assessing Officer disallowed expenditure under section 14A of the Act regarding exempt income earned through dividends. The assessee contended that all expenditure was for professional income and not related to earning exempt income. The disallowance was based on rule 8D(2)(iii). The Tribunal held that unless there is a nexus between expenditure and exempt income, no disallowance can be made. The disallowance under section 14A was deleted.

In conclusion, the appeal was partly allowed, with the Tribunal ruling in favor of the assessee on the disallowance of expenditure under section 14A. The Tribunal dismissed the claim for reverse indexation in the computation of long term capital gain on the transfer of tenancy rights, as it was not supported by statutory provisions.

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