2012 (2) TMI 622

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....e issue involved in all these appeals is regarding reduction of the addition made by the Assessing Officer u/s 14A of the Income Tax Act. 3. In the appeal related to the A.Y. 2007-08 the Revenue has also raised an issue that the AO has correctly made disallowance as per u/s 14A of I.T. Act as per the provisions of Rule 8D of I.T. Rules, 1962. 4. In the appeal for the A.Y. 2006-07 the Revenue has also raised a ground that assessee has advanced loan at a concessional rates for non business purposes, where it has paid interest on borrowed capital/funds. This issue has been raised in a sub ground to the main ground with regard of reduction of the addition made u/s 14A. The AO made the disallowances by applying the Rule 8D in the A.Y. 2007....

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....pleaded to condon the delay. Ld. AR also pleaded that to serve the end of justice the delay may be condoned. Ld. AR also pleaded that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred. The assessee's delay was not deliberate or due to culpable negligence or on account of any mala-fides. Ld. AR prays to condone the delay. We have also heard both the sides on the cross objection raised by the assessee. 7. After hearing both the sides on all the issues raised in appeals and cross objection, we hold that the disallowances made as per Rule 8D cannot be held justified in view of the various decisions of Hon'ble High Court and particularly in view of th....

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....b-sections (2) and (3) would require the AO to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the AO would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the AO was free to adopt any reasonable and acceptable method. Thus, the fact that sub-section (2) and (3) of section 14A and rule 8D would operate prospectively (and, not retrospectively) does not mean that the AO is not to satisfy himself with the correctness of the claim of the assessee with regard to....

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....claim and state the reasons for doing so. Having done so, the AO will have to determine the amount of expenditure incurred in relation to income which does not form part of total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment. In view of foregoing discussion, expenditure (including interest paid on funds borrowed) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein is hit by section 14A inasmuch as the dividend received on such shares does not form part of the total income." 8. In this decision the Hon'ble High Court has also held that even where investment in shares of operating companies for ....