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2017 (6) TMI 777 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Held that:- In the instant case, the assessment year is 2007- 08. We find that the AO has worked out the disallowance u/s 14A r.w.r. 8D. The same rule is not retrospective as it was notified on 24/03/2008 and would be applicable only from AY 2008-09. In Godrej & Boyce Mfg. Co. Ltd. (2010 (8) TMI 77 - BOMBAY HIGH COURT) it has been held that Rule 8 D is not retrospective. The Hon’ble Bombay High Court in CIT vs. M/s. Godrej Agrovet Ltd vide [2014 (8) TMI 457 - BOMBAY HIGH COURT] has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance in the years earlier to the assessment year 2008-09. In the above case it upheld the disallowance to the extent to 2% of the total exempt income. Respectfully following the above decision, we direct the AO to restrict the disallowance to 2% of the total exempt income. Disallowance of interest - Assessee had paid interest @ 13% to the Directors - Held that:- A perusal of the ‘Party Advice’ given by Union Bank of India, Mumbai indicates that the terms and conditions state that ‘profits should be ploughed back so as to strengthen equity base and improve debt equity ratio’. It has been held that the disallowance of interest is justified when the amount borrowed had not been used for the purpose of business but for advancing money to Managing Director without interest. The contention of the assessee that the total rate of interest including exchange fluctuations comes to 13% is to be verified. In view of CIT(A) on the above issue is set aside and the same is restored to the file of the A.O. to make a fresh assessment after verification of the rate of interest calculated by the assessee at 13% as delineated at para 5.2 and following the ratio of the decisions mentioned here-in-above, after giving a reasonable opportunity of being heard to the assessee. The assessee is directed to file the relevant details before the AO.
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