ORIENTAL BANK OF COMMERCE,GURGAON vs. DCIT, NEW DELHI

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ITA 5968/DEL/2014Status: DisposedITAT Delhi24 October 2017AY 2006-074 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that Rule 8D cannot be applied retrospectively for the assessment year 2006-07. However, disallowance under Section 14A is still permissible if exempt income was earned with incurred expenditure. Following the Bombay High Court's precedent, the disallowance was restricted to 1% of the gross exempt income.

What were the facts?

The assessee bank challenged the disallowance made under Section 14A for the assessment year 2006-07. The Assessing Officer initially computed a disallowance, which was later re-computed by the AO and sustained by the CIT(A) at 5% of tax-free income.

What were the issues?

Whether Rule 8D can be applied retrospectively for AY 2006-07 and the quantum of disallowance under Section 14A in the absence of Rule 8D.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, DELHI BENCHES : E : NEW DELHI

Before: SHRI R.S. SYAL & SHRI KULDIP SINGH

For Appellant: Shri KVSR Krishna, CA
For Respondent: Ms Shefali Swaroop, CIT DR
Hearing: 23.10.2017Pronounced: 24.10.2017

ORDER PER R.S. SYAL, VP: This appeal by the assessee is directed against the order passed by the ld. CIT(A) on 29.08.2014 in relation to the assessment year 2006-07.

2.

The only issue raised in this appeal is against the confirmation of disallowance u/s 14A amounting to Rs.2,53,07,008/-.

3.

Briefly stated, the facts of the case are that the Assessing Officer, in the original assessment, computed disallowance to the tune of Rs.4,81,18,439/- u/s 14A in respect of exempt dividend income. The matter was restored by the Tribunal to the Assessing Officer for re- computation of disallowance. In such fresh proceedings, the Assessing Officer allowed some relief by giving effect to the order passed by the CIT(A). No relief beyond that was allowed. The ld. CIT(A) sustained the disallowance at 5% of tax free income by the impugned order. The assessee is aggrieved against the sustenance of disallowance to this extent.

4.

We have heard the rival submissions and perused the relevant material on record. The assessment year under consideration is 2006-07.

It has been held in several judgments that the provisions of Rule 8D have been inserted from A.Y. 2008-09 and hence cannot apply retrospectively. Thus rule 8D cannot be invoked for making 2 disallowance. However, the fact remains that if some exempt income has been earned and some expenditure has been incurred for earning such exempt income, then disallowance u/s 14A is called for de hors rule 8D.

The ld. AR has placed on record a copy of the judgment of the Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) in which the Hon'ble High Court approved the view taken by the Tribunal in restricting the disallowance to 1% of the gross exempt income. No contrary view in the pre-Rule 8D period has been brought on record by the ld. DR. Respectfully following the precedent, we direct that the disallowance u/s 14A be restricted to 1% of the gross exempt income.

5.

In the result, the appeal filed by the assessee is partly allowed.

The order pronounced in the open court on 24.10.2017.

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