TaxTMI 
TaxTMI 
2010 (11) TMI 705
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....g not pressed. 3. Ground No.3 is as under: 3. The disallowance u/s.14A of Rs.10,000/- restricted by the Ld. CIT(A) may kindly be deleted. 3.1. The assessee has claimed interest as a deduction, however, by invoking the provisions of Section 14A of the Act, the Assessing Officer has made the proportionate disallowance. When the matter was carried before the first appellate authority, it was held as under:- "6.2. I have considered the observation of the A.O. in the assessment order and the submissions made by the appellant. I agree with the contention of the appellant that it is having sufficient interest free funds in the form of share capital and reserves and surplus to the tune of Rs.120117138/- as well as investments are made in the past years wherein also the appellant was sufficient interest free funds and that in past year no disallowance has been made. However, some administrative expenses have to be incurred for earning dividend because accounts etc have to be maintained in this regard. Thus, though out of interest no disallowance is to be made, but out of expenses relatable amount has to be disallowed. The same is estimated at Rs.10,00....
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...., no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 would not bar the Tribunal from considering disallowance under Section 14A in assessment year 2002-2003. c) The decisions reported in Sridev Enterprises (supra), Munjal Sales Corporation (supra) and Radhasoami Satsang (supra) holding that there must be consistency and definiteness in the approach of the revenue would not apply to the facts of the present case, because of the material change introduced by Section 14A by way of statutory disallowance in certain cases. There, the decisions of the Tribunal in the earlier years would have no relevance in considering disallowance in assessment year 2002- 2003 in the light of Section 14A of the Act. 73. For the reasons which we have....
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....Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; vii) The proceedings for Assessment Year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt a reasonable basis for effecting the apportionment. While making that determination, the Assessing Officer....
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....he earning of taxable income. In many cases the nature of expenses incurred by the a may be relatable partly to exempt income and partly to taxable income. In the absence of section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of section 14A is clear: it desires to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in relation to exempt income. The basic reason for insertion of section 14A is that certain incomes are not includible while computing the total income because these are exempt under certain provisions of the Act. The basic principle of taxation is to tax the net income, i.e., gross income minus expenditure. On the same analogy, exemption is also in respect of net income. The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. A pay back is not an expenditure in the scheme of section 14A; for attracting section 14A there has to ....
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.... and Excise Duty. The action of the Assessing Officer was confirmed by the Learned CIT(Appeals). However, now before us, two decisions in assessee's own case decided by the ITAT "C" Bench Ahmedabad bearing ITA Nos.1849 and 1862/Ahd/2005 for Assessment Year 2002-03 order dated 24/04/2009 and another decision bearing ITA No.581/Ahd/2007 for Assessment Year 2003-04 order dated 05/09/2006 are placed. For both the years, the Respected Co-ordinate Bench has restored the matter back to the stage of Assessing Officer with certain directions after citing the decision of Hon'ble Supreme Court in the case of CIT vs. Laxmi Machine Works (290 ITR 667)[SC]. Since the matter has to be decided now in the light of the past history and as per the directions of the Tribunal, therefore, we have nothing much to add but to follow the same. In the result, this ground may be treated as allowed for statistical purposes being restored to Assessing Officer. (B) Revenue's appeal (ITA No.3563/Ahd/2007) 5. Ground No.1 is as under: 1. The CIT(A) erred in law and on facts in deleting disallowance of Rs.5,15,689/- made on account of interest expenses. 5.1. As per Assessing O....