Disallowance U/s. 14A as per Rule 8D can not be made for the period prior to 01.04.2008

Prakash Securities Private Limited Vs. ACIT (ITAT Mumbai) -Asst. Comm. of Income Tax The dispute is regarding dis allowance of expenses relating to exempt income under section 14A of the IT Act. Under the provisions of Section 14(2) and 14(3), expenses relating to exempt income are required to be computed as per method prescribed by the Government. The Government has since notified the method in the form of Rule 8D w.e.f. 1.4.2008.

The Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. vs. DCIT (328 ITR 81) have held that Rule 8D is applicable only from assessment year 2008-09 and in respect of prior years, dis allowance has to be made on a reasonable basis, of both direct and indirect expenses, after allowing opportunity of hearing to the assessee. Therefore, order of CIT(A) confirming the disallowance following Rule 8D cannot be upheld as assessment year involved is 2007- 08. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for passing a fresh order after necessary examination in the light of the decision of Hon’ble Bombay High Court in case of Godrej and Boyce Mfg. Co. vs. DCIT (supra), after allowing opportunity of hearing to the assessee.

INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No. : 6334/Mum/2010 Assessment Year : 2007-08

M/s. Prakash Securities Private Limited

Vs.

Asst. Comm. of Income Tax

Date of Pronouncement: 07.02.2012

O R D E R

Per RAJENDRA SINGH (AM) :

This appeal by the assessee is directed against the order dated 29.6.10 for the CIT(A) for the assessment year 2007-08. The only dispute raised in this appeal is regarding dis allowance of expenses under section 14A relating to exempt income.

2. Facts in brief are that the AO during the assessment proceedings noticed that the assessee had earned dividend income of Rs. 14,16,221/- which was exempt from tax but the assessee had not disallowed any expenses relating to said income. He, therefore, computed dis allowance relating to exempt income under rule 8D at Rs. 3,01,337/- which in appeal was confirmed by the CIT(A) aggrieved by which assessee is in appeal before the Tribunal.

3. We have heard both the parties, perused the records and considered the matter carefully. The dispute is regarding dis allowance of expenses relating to exempt income under section 14A of the IT Act. Under the provisions of Section 14(2) and 14(3), expenses relating to exempt income are required to be computed as per method prescribed by the Government. The Government has since notified the method in the form of Rule 8D w.e.f. 1.4.2008. The Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Vs. DCIT (328 ITR 81) have held that Rule 8D is applicable only from assessment year 2008-09 and in respect of prior years, dis allowance has to be made on a reasonable basis, of both direct and indirect expenses, after allowing opportunity of hearing to the assessee. Therefore, order of CIT(A) confirming the dis allowance following Rule 8D cannot be upheld as assessment year involved is 2007- 08. We, therefore, set aside the order of CIT(A) and restore the matter to the file of AO for passing a fresh order after necessary examination in the light of the decision of Hon’ble Bombay High Court in case of Godrej and Boyce Mfg. Co. vs. DCIT (supra), after allowing opportunity of hearing to the assessee.

4. In the result appeal of the assessee is allowed for statistical purposes.

Order pronounced in the open court on 7.2.2012