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Before the date rule 8D come into existence sec 14A(1) applied to determine the expenditure incurred for income not forming part of the taxable income


Last updated: 18 February 2012

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
We have heard the learned counsel for the assessee and the ld. Departmental Representative and considered their submissions carefully. Ld. C.I.T.(A) came to the conclusion that Rule 8D of I.T. Rules will not apply for this assessment year and Rule 8D of the Rules comes into force w.e.f. March 24, 2008, which would apply w.e.f. the subsequent assessment year 2008-09. When Rule 8D was not applicable, the A.O. had to enforce the provisions of sub-sec. (1) to Sec. 14A of the Act. The A.O. is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The A.O. must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after affording a reasonable opportunity to the assessee to place all germane material on record. While finding so, the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, reported as 328 ITR 81 (Bom) remanded the matter to the A.O. to determine as to whether the assessee had incurred any expenditure (direct or indirect) in relation to exempted income.

Citation :
Ajnani Chatravhuj Sampat, Kolkata. (PAN-ALWPS0513P) …………..APPELLANT) Versus Asstt.Commissioner of Income-tax Circle-31, Kolkata………………………..RESPONDENT)

“B”

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B, KOLKATA

Before Sri N.Vijayakumaran, Judicial Member & Sri C.D. Rao, Accountant Member

ITA No. 527 (Kol) of 2011

(/Assessment Year 2007-08

Ajnani Chatravhuj Sampat,

Kolkata. (PAN-ALWPS0513P) …………..APPELLANT)

Versus

Asstt.Commissioner of Income-tax

Circle-31, Kolkata………………………..RESPONDENT)

For the Appellant: __/Sri P.J.Bhide & Sri B.B.Payra

For the Respondent: __/Sri Debasis Roy

Date of Hearing : 13/02/2012

Date of Pronouncement : 15/02/2012

ORDER

N. Vijayakumaran), Judicial Member :

This appeal by the assessee is for the assessment year 2007-08. It is directed against the order of ld. C.I.T.(A)-XIX, Kolkata, dated 13/01/2011. The grounds of

appeal raised by the assessee are as under:-

“1. That on the facts and in the circumstances of the case the learned C.I.T.(A) erred in holding that the provision of Section 14A(1) of the I.T. Act were applicable to the appellant for the year under appeal.

2. That the appellant having not incurred any expenditure for earning exempted income and having not claimed any deduction therefor, the Ld. C.I.T.(A) erred in directing the Assessing Officer to restrict the disallowance u/s. 14A at Rs. 6,780/-, i.e. 1% of the exempted income of Rs.6,77,957/-.

3. That the order passed by the authorities below is bad in law.”

2. We have heard the learned counsel for the assessee and the ld. Departmental Representative and considered their submissions carefully. Ld. C.I.T.(A) came to the conclusion that Rule 8D of I.T. Rules will not apply for this assessment year and Rule 8D

of the Rules comes into force w.e.f. March 24, 2008, which would apply w.e.f. the subsequent assessment year 2008-09. When Rule 8D was not applicable, the A.O. had to enforce the provisions of sub-sec. (1) to Sec. 14A of the Act. The A.O. is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The A.O. must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after affording a reasonable opportunity to the assessee to place all germane material on record. While finding so, the Hon’ble Bombay High Court in the case of Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, reported as 328 ITR 81 (Bom) remanded the matter to the A.O. to determine as to whether the assessee had incurred any expenditure (direct or indirect) in relation to exempted income.

3. Applying the same principle, we after careful consideration of the rival submissions found that, as rightly contended by the learned counsel, the assessee has incurred legal expenses, bank charges etc. which would be considered as expenditure incurred in relation to exempted income. However, the ld. C.I.T.(A) by following the Tribunal’s decision held that 1% of the exempted income is to be treated as expenditure incurred in relation to the exempted income. As the Hon’ble Bombay High Court relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Walfort Share & Stock Brokers (P) Ltd. [(2010) 326 ITR 01 (SC)], we have no hesitation in remanding the matter with an observation that Rule 8D of the Rules is not applicable for this assessment year under appeal. However, the A.O. is duty bound to determine the expenditure which has been incurred in relation to the income, which does not form part of the total income under the I.T. Act. Hence, by respectfully following the decision of Hon’ble Bombay High Court cited supra, we set aside the orders of the authorities below and remit the matter back to the file of A.O. for decision in accordance with law by providing reasonable opportunity to the assessee of producing his accounts and relevant or germane material having a bearing on the facts and circumstances of the case.

4. In the result, assessee’s appeal is treated as allowed for statistical purposes.

This order is pronounced in the open Court on 15th /02/2012

Sd/-                                                                                   Sd/-

(C.D. Rao), Accountant Member                                  (N.Vijayakumaran) Judicial Member

Date: 15-02-2012

Copy of the order forwarded to:

1. The Appellant : Anjani Chatrabhuj Sampat, 19A, Sarat Bose Road,

Kolkata-700 020.

2 The Respondent : A.C.I.T., Circle-31, Kolkata.

3.The CIT(A)-XIX, Kolkata.

4.The C.I.T., Kol-

5 DR, ITAT, Kolkata Benches, Kolkata

6 Guard file.                                                                                                      By order,

(dkp)                                                                                                            Asstt. Registrar.

 

CS Bijoy
Published in Income Tax
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