2018 (1) TMI 1759 - HC - Income Tax

Disallowance made u/s 14A - assessee was asked why proportionate expenses by way of disallowance u/s 14A ought not to be added back to its income - AO applied the Rule 8D sub-clause (3) of the Income Tax Rules - HELD THAT - CIT(A) and the Income Tax Appellate Tribunal (ITAT) however set aside the findings of the AO. Firstly relying upon the decision of this Court in Maxopp Investment Ltd 2011 (11) TMI 267 - DELHI HIGH COURT . It was held that the AO did not reject the explanation given by the assessee with respect to the disallowance offered by it for no reasons. This Court notices that the reasoning in Maxopp Investment (supra) was later followed in Godrej Boyce 2010 (8) TMI 77 - BOMBAY HIGH COURT It was later affirmed by the judgment of the Hon ble Supreme Court in CIT Vs. Godrej Boyce 2017 (5) TMI 403 - SUPREME COURT - No merit in the appeal.

Summary

The Delhi High Court, in an appeal concerning the disallowance under Section 14A of the Income Tax Act, 1961, upheld the concurrent findings of the CIT(A) and ITAT which had set aside the Assessing Officer's (AO) disallowance of Rs. 3,23,90,104/-. The AO had applied Rule 8D(3) of the Income Tax Rules to disallow expenses proportionate to exempt dividend income claimed by the assessee for AY 2008-09. The Court relied on its precedent in Maxopp Investment Ltd. v. CIT, (2012) 347 ITR 272 (Delhi), where it was held that the AO must not reject the assessee's explanation without reasons. This reasoning was subsequently followed in Godrej & Boyce v. CIT, 328 ITR 81 (Bom), and affirmed by the Supreme Court in CIT v. Godrej Boyce, 394 ITR 449. Given the concurrent findings of fact and binding legal precedents, the appeal was dismissed, confirming that mere invocation of Rule 8D(3) without rejecting the assessee's explanation with valid reasons does not justify disallowance under Section 14A.