2012 (7) TMI 276

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....in law, the Ld. CIT(A) has erred in restricting the addition u/s 14A of the I.T. Act to Rs.29,00,000/- as against Rs.99,92,186/- made by the Assessing Officer. 2.1 The Ld. CIT(A) ignored the finding recorded by the Assessing Officer and the fact that the addition was correctly made by the Assessing Officer in accordance with the provisions of Rule 8D of I.T. Rules." 2. The only issue for consideration relates to restricting the addition u/s 14A of the Act to Rs.29,00,000/- as against Rs.99,92,186/- made by the Assessing Officer. The facts of the case stated in brief are that the assessee paid interest of Rs.6,54,55,465/- which was claimed as deduction in the Profit & Loss Account. The assessee made investment by way of share application m....

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....ear under consideration. He placed reliance on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd., 328 ITR 81. However, the AO was duty bound to compute the disallowance by application of a reasonable method having regard to all facts and circumstances of the case. The learned CIT(A) accepted the contention of the assessee that on the amount of Rs.2 crores which was invested out of borrowed funds, interest @ 12% would worked out to Rs.24,00,000/-. Out of other expenditure as suggested by the assessee the learned CIT(A) accepted Rs.5,00,000/- as disallowance u/s 14A. The learned CIT(A) therefore restricted the disallowance to Rs.29,00,000/- as against Rs.99,92,186/- disallowed by the AO by applying....

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....he appellant has not been able to establish that interest bearing funds were not utilized for the purpose of earning exempt income, I hold that interest on the balance amount of Rs.2,00,00,000 (Rs.31,50,00,000 - 29,50,00,000) is required to be disallowed u/s 14A. The interest on the said amount of Rs.2,00,00,000 @ 12% works out to Rs.24,00,000 for the year under consideration as per the Ld. AR's own submission quoted earlier. Similarly, after going through the Profit and Loss account of the appellant for the year and the quantum of expenditure under various heads including heads like director's remuneration, I hold that it will be reasonable to disallow out of the other over heads, an amount of Rs.5,00,000 u/s 14A of the Act as per the inve....

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.... and will be applicable from Assessment Year 2008-09 onwards. Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. (supra) has also held that the provisions of Rule 8D are applicable for Assessment Year 2008-09. Therefore, for Assessment Year 2007-08 which is under consideration provisions of Rule 8D are not applicable. Hon'ble High Courts have also held that prior to Rule 8D, the AO was bound to examine the application of sec. 14A(2) of the Act. The AO was required to determine the amount of expenditure incurred in relation to such income which does not form a part of total income. In the case before us the AO has applied Rule 8D following the decision of ITAT Special Bench in the case of Daga Capital Management Pvt. Ltd., 312 I....