If provisions of section 14A is to be invoked, disallowance is to be computed as per rule 8D

Brief of the Case: In the cited case, ITAT affirmed the earlier order of ITAT in a similar case of the same assessee that once provisions of section 14A of the IT Act are to be invoked, the disallowance is to be computed as per rule 8D of the IT rules.

Facts of the Case: The Assessee was a Public Limited Company and it earned dividend of Rs.1,74,04,733/- during the year. The Assessing Officer disallowed an amount of Rs.28,98,891/- being 0.5% of the average value of investments during the relevant previous year.

On aggrieved by the order of the AO, the assessee preferred an appeal before CIT(A), who re-examined the issue in the light of various judicial pronouncements and following his earlier order for assessment year 2009-10 in the assessee’s own case, CIT(A) deleted the addition made by AO.

Revenue appealed against the order of CIT(A) on a solitary ground that CIT(A) erred in law and on facts of the case in deleting the addition of Rs.28,98,891/- made u/s 14A of the Income Tax Act, 1961 on account of disallowance of expenditure incurred in earning dividend income without verifying the facts on records and assigning any logical reason.

Contention of the Revenue: Revenue invited attention to the order of the ITAT for assessment year 2009-10 in the assessee’s own case, in which it was held that once provisions of section 14A of the Act are to be invoked, disallowance is to be computed as per rule 8D of the rules. Since the CIT(A) adjudicated the issue in the instant A.Y 2010-11 following his view taken in A.Y 2009-10, which had been reversed by the Tribunal, the order of the Tribunal for A.Y 2009-10 be followed in the impugned assessment year (i.e. A.Y 2010-11) in view of rule of consistency.

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