TaxTMI 
TaxTMI 
TaxTMI 
2012 (12) TMI 131
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....sp; 3. The appellant craves to be allowed to add any fresh grounds of appeal and/or delete or amend any of the grounds of appeal." 2. At the outset, considering the nature of issue and findings of the ITAT in the preceding year ,the Bench rejected the request for adjournment and proceeded to dispose of the appeal after hearing both the parties.. 3.. Facts in brief, as per relevant orders are that the e-return declaring income of Rs.1,53,57,790/- filed on 30.10.2007 by the assessee, was selected for scrutiny with the service of a notice u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the as the 'Act'), issued on 06.07.2009. During the course of assessment proceedings, the Assessing Officer [AO in short] noticed that the assessee claimed exemption in respect of dividend income of Rs.99,14,653/- and offered an amount of Rs.2,17,800/- by way of disallowance in terms of provisions of section 14A of the Act. Since the amount offered for disallowance was not adequate, the AO show-caused as to why the disallowance be not made u/s 14A of the Act read with Rule 8D of I.T. Rules, 1962. In response, the assessee replied that Rule 8D was not applicable in the year under co....
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....essing Officer has to enforce the provisions of section 14A(1). 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. Therefore, Rule 8D is not applicable to the assessment year in question. However, since the appellant has not shown expenses incurred for the earning of dividend income in Proportion to the income earned and in view of the foregoing discussion, the expenses u/s 14A are hereby estimated at 10% of the dividend received of Rs.9,91,653/-. The disallowance u/s 14A is, therefore, restricted to Rs.9,91,465/- which includes Rs.2,17,800/- disallowed by the appellant in its computation of income. The appellant gets relief of Rs.26,53,747/- (Rs.36,45,212 - Rs.9,91,465). This ground of appeal is partly allowed." 5. The Revenue is now in appeal before us against the aforesaid findings of the ld. CIT (A).At the outset, the ld. DR invited our attention to decision dated 31.03.2011 of the ITAT in the assessee's own case in the AY 2006-07 in I.T.A. no.3870/Del./2010 and contended that matter is required to be restored to the file of the AO with similar directions,....
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....t for that year. 6.1. Hon'ble Bombay High Court in the case of Godrej & Boyce Manufacturing Company Ltd. (supra) while adjudicat ing a similar issue in the context of provisions of sec. 14A of the Act and Rule 8D of the IT Rules,1962 concluded that Rule 8D, inserted w.e. f 24.3.2008 cannot be regarded as retrospect ive because i t enacts an art if icial method of est imat ing expenditure relatable to tax-f ree income. I t applies only w.e. f AY 2008-09. For the assessment years where Rule 8D does not apply, the AO wil l have to determine the quantum of disallowable expenditure by a reasonable method having regard to all the facts and circumstances, the Hon'ble High Court concluded. 6.2 Hon'ble Supreme Court in their decision dated 6.7.2010 in CIT v. Walfort Share & Stock Brokers (P. ) Ltd. ,326 ITR 1, inter alia, observed that for at tract ing sect ion 14A of the Act there has to be a proximate cause for disallowance, which is its relat ionship with the tax exempt income. The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A, Hon'ble Apex Court concluded. In the words of Hon'ble Apex Court : "17. The inse....
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....f ive heads of income which are chargeable to tax. In order to be chargeable, an income has to be brought under one of the f ive heads. Sect ions 15 to 59 lay down the rules for comput ing income for the purpose of chargeabi lity to tax under those heads. Sect ions 15 to 59 quant ify the total income chargeable to tax. The permissible deduct ions enumerated in sect ions 15 to 59 are now to be allowed only with, reference to income which is brought under one of the above heads and is chargeable to tax. I f an income like dividend income is not a part of the total income, the expenditure/deduct ion though of the nature speci f ied in sect ions 15 to 59 but related to the income not forming part of total income could not be allowed against other income includible in the total income for the purpose of chargeabil ity to tax. The theory of apport ionment of expenditures between taxable and non-taxable has, in pr inciple, been now widened under sect ion 14A. Reading sect ion 14 in juxtaposit ion with sect ions 15 to 59, it is clear that the words "expenditure incurred" in sect ion 14A refers to expenditure on rent , taxes, salar ies, interest , etc. in respect of which al lowances are pr....
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....trospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:- "The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A." So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been in....
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....relevant previous year, no new share has been acquired and thus, the loan that was taken and for which the interest is payable by the assessee was not for acquisition of those old shares and, therefore, the authorities below erred in law in giving benefit of proportionate deduction. 9. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt sou....
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.... the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the AO has to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act, Hon'ble High Court concluded. Following the view taken in this decision, Hon'ble jurisdictional High Court in CIT vs. Machino Plastic Ltd in their decision dated 28.2.2012 in ITA no. 92 of 2011, restored the matter to the file of the AO, being handicapped because of failure of the assessee to furnish relevant details and particulars .In the instant case also, there is nothing to suggest as to whether or not the assessee furnished the relevant details or accounts before the AO while making the disallowance in terms of provisions of sec. 14A of the Act. There is nothing in the assessment order or impugned order as to whether the assessee placed the relevant details & accounts before the AO nor the ld. CIT(A) seems to have undertaken any exercise to ascertain the details of expenditure objectively in managing and supervising the aforesaid huge investments. In view of the foregoing, especially in the light of findings of the co-ordinate Bench ....