Essar Teleholdings Ltd. Vs DCIT (ITAT Mumbai)
The ITAT Mumbai partly allowed the assessee’s appeal against the order of the CIT(A) for AY 2005-06. The assessee, engaged in the business of investment, had filed a return declaring a loss of Rs. 87,98,40,509. The Assessing Officer completed the assessment under Section 143(3) by determining the total loss at Rs. 65,60,40,509 after disallowing finance charges of Rs. 22.38 crore under Section 14A. The Assessing Officer also added Rs. 4.06 crore to the book profit under Section 115JB as expenditure relating to exempt income under Section 10(34), although the assessee had not received any dividend or other exempt income during the year.
The CIT(A) upheld the disallowance by applying Rule 8D on the basis of the Special Bench decision in Daga Capital Management Pvt. Ltd. The Tribunal observed that the Bombay High Court in Godrej & Boyce Vs. DCIT had subsequently held that Rule 8D applies only from AY 2008-09 onwards and not to earlier assessment years. Accordingly, the Tribunal set aside the orders of the lower authorities on this issue and restored the matter to the Assessing Officer to determine the quantum of disallowance on a reasonable basis, after providing the assessee with a reasonable opportunity of being heard.
