If Rule 8D is not applicable than indirect expenses which is attributable on proper basis can only be disallowed

IN THE INCOME TAX APPELLATE TRIBUNAL

DELHI BENCH “D” NEW DELHI

BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA

ITA No. 4456/Del/2010

Asstt. Yr: 2007-08

Kama Holding Ltd.

(Formerly SRF Polymers Ltd.)

Block-C, Sector-45, Gurgaon.

(Appellant)

Vs.

ACIT, Cir. 9(1),

New Delhi.

(Respondent)

AND

ITA No. 4852/Del/2010

Asstt.Yr: 2007-08

ACIT, Cir. 9(1),

New Delhi.

(Appellant)

Vs.

SRF Polymers Ltd.

Block-C, Sector-45,

Gurgaon (Haryana)

PAN/GIR No. AAFCS9521A

(Respondent)

Assessee by: Shri Satyen Sethi Adv.

Revenue by: Ms. Y. Kakkar DR

O R D E R

PER R.P. TOLANI, J.M:

These are cross appeals, filed by the assessee as well as the revenue against the order of CIT(A) dated 12-8-2010 relating to A.Y. 2007-08. Both the appeals are heard together and disposed of by a consolidated order for the sake of convenience. Respective grounds raised are as under:

Assessee’s appeal (ITA no. 4456/Del/10):

“That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) has erred in upholding the disallowance of interest and deemed expenses under section 14A of the Income-tax Act read with Rule 8D. That on the facts and circumstances of the case and in law, the learned Commissioner of Income Tax (A) ha failed to appreciate that provisions of sub section (2) and (3) of section 14A are not applicable.

Revenue’s appeal (ITA no. 4852/Del/10):

“On the facts and circumstances of the case the Ld. CIT(A) erred in law as well as on merits in directing the AO to recomputed the disallowance u/s 14A as per Rule 8D after reducing the financial charges from the interest considered in the assessment order and not to reduce current liabilities from the total assets for the purpose of calculating disallowance under Rule 8D, while the AO computed the disallowance correctly at Rs. 4,33,84,679/- as per method prescribed under

Rule 8D of the Act.”

2. Learned counsel for the assessee submitted that in this case Rule 8D has been held to be retrospective in nature and the disallowance has been worked out by applying Rule 8D. Hon’ble Bombay High Court in subsequent judgment in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT & Another (2010) 234 CTR (Bom) 1 has held Rule 8D to be prospective in nature. Thus, Rule 8D would not be applicable to the assessment year in question i.e. 2007-08. The Hon’ble High Court, however, has directed that indirect expenses which may be attributable on a reasonably proper basis can only be disallowed.

3. Learned DR is heard.

4. We have heard rival contentions and gone through the material available on record. In view of the foregoings and keeping in view the Hon’ble Bombay High Court judgment in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), we are inclined to set aside the issue involved in these appeals back to the file of AO to decide the same afresh.

5. In the result, assessee’s appeal as well as revenue’s appeal are allowed for statistical purposes.

Order pronounced in open court on 13-02-2012.

                                                 Sd/-                                    Sd/-

                                      (B.C. MEENA)                  (R.P. TOLANI)

                            ACCOUNTANT MEMBER   JUDICIAL MEMBER

Dated: 13-02-2012.

MP

Copy to :

1. Assessee

2. AO

3. CIT

4. CIT(A)

5. DR