KANTA KAVAR DADHA,CHENNAI vs. ITO, CHENNAI

This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-3, Chennai, dated 10.10.2014 and pertains to assessment year .

Shri D. Anand, the Ld. counsel for the assessee, submitted that the Assessing Officer estimated the expenditure relatable to earning of exempted income by applying Rule 8D of the Income-tax Rules, 1962. According to the Ld. counsel, the assessment year under consideration is 2006-07 and Rule 8D is applicable only from assessment year 2008-09. Therefore, according to the Ld. counsel, the expenditure incurred for earning exempted income cannot be computed by applying Rule 8D. Placing reliance on the decision of this Tribunal in dated 05.08.2013, the Ld. counsel submitted that on identical circumstances, 2% of the exempted income was estimated as expenditure incurred for earning the exempted income.

I have heard Sh. P. Radhakrishnan, the Ld. Departmental Representative also. Admittedly, Rule 8D came into operation from the assessment year 2008-09. Therefore, it is not applicable for assessment year 2006-07 which is under consideration. Hence, this Tribunal is of the considered opinion that Rule 8D of the Income-tax Rules, 1962 cannot be pressed into service for estimating the expenditure for earning exempted income. In those circumstances, this Tribunal is of the considered opinion that estimating the expenditure for earning exemption income at 2% of the exempted income would be reasonable. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to estimate the expenditure for earning exempted income at 2% of the same.

In the result, the appeal of the assessee is allowed.