A.O. has applied Rule 8D holding that Rule 8D is retrospective in nature. It is now settled that Rule 8D is prospective and is applicable on and from the A.Y. 2008- 09. We direct the A.O. to recalculate the dis allowance, if any, without applying Rule 8D on the dividend income shown at Rs. 4,00,039/-. The A.O. is further directed to verify the contention of the appellant that the investments have not been made out of borrowed capital, after giving the appellant an opportunity of being heard.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
ITA No. 5281/Mum/2010, Assessment Year: 2007- 08
M/s. Global Aviation Services P. Ltd.
The Asst. Commissioner of Income-Tax
Date of Pronouncement: 16.04.2012
O R D E R
PER N.K. BILLAIYA, A.M:
This appeal by the assessee is directed against the order of the Ld. CIT(A)-39, Mumbai dated 31.03.2010.
2. The only ground of appeal shows the grievance of the appellant against the order of the Ld. CIT(A)-39, Mumbai. who held that the interest to the tune of Rs. 41,05,081/- should be considered for working out the dis allowance u/s.14A of the Act. Briefly stated the facts of the case are that the appellant company engaged in the business of general sales agents for International airlines and full fledged money changers. For the year under consideration, the return of income declaring the total income of Rs..5,94,41,960/- was filed on 16.11.2007. This return was selected for scrutiny assessment and accordingly notices u/s.143(2) and 142(1) of the Act were issued and served upon the assessee. During the course of the assessment proceedings, the A.O. found that the assessee has declared dividend of Rs. 4,00,039/- and has claimed the same as exemption u/s.10(34) of the Act. The A.O. asked the assessee as to why the proportionate expenses attributable to the dividend income should not be disallowed u/s.14A read with Rule 8D. In reply to this, the assessee vide letter dated 10.11.2009 worked out the dis allowance at Rs. 6,99,840/-. The A.O. was not satisfied with the working of the assessee and went on to work out the dis allowance u/s.14A read with Rule 8D. Thus the aggregate dis allowance worked out to Rs.. 14,14,985/- and accordingly, the A.O. added back this amount to the return income of the assessee.
3. Aggrieved by this, the assessee took the matter before the Ld. CIT (A)-39, Mumbai.
4. Before the Ld. CIT(A) the assessee pointed out that as far as the investments are concerned, the same had been made in the earlier years, to substantiate the assessee filed a comparative chart which is as under:-
4.1 The assessee further explained that the loans from the banks have been taken for specific purposes like purchase of fixed assets and no amount from borrowed capital has been invested in tax free investment. The Ld. CIT(A) after considering the facts on the submission of the assessee came to the conclusion that out of the total dis allowance made by the A.O. bank charges of Rs. 3,04,274/- and bank charges for TC settlement of Rs. 39,514/- cannot be considered as interest payments and further these expenses are not at all connected for earning tax free income and accordingly directed the A.O. to exclude these two expenses from interest expenditure and thereafter work out the dis allowance under Rule 8D of the I.T. Rules.
5. Aggrieved by this order, the assessee is in appeal before us.
6. The learned Counsel appearing for the assessee stated that the working of the dis allowance u/s.14A by the A.O. by applying Rule 8D is bad in law, as Rule 8D is applicable from the A.Y. 2008- 09 as has been held by the Hon’ble High Court of Bombay in the case of Godrej & Boyce Manufacturing Company Ltd. vs. DCIT reported in 328 ITR 81. The learned DR supported the assessment order.
7. We have gone through the orders of the lower authorities. Undoubtedly, the A.O. has applied Rule 8D holding that Rule 8D is retrospective in nature. It is now settled that Rule 8D is prospective and is applicable on and from the A.Y. 2008-09. We direct the A.O. to recalculate the disallowance, if any, without applying Rule 8D on the dividend income shown at Rs..4,00,039/-. The A.O. is further directed to verify the contention of the appellant that the investments have not been made out of borrowed capital, after giving the appellant an opportunity of being heard. We restore this matter back to the file of the A.O. as directed here in above.
8. In the result, the appeal filed by the assessee is allowed for statistical purposes.
Order pronounced on this 16th day of April, 2012.