TaxTMI 
TaxTMI 
2019 (11) TMI 337
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...., the assessee had received dividend income of Rs. 1,10,58,833/- which was claimed as exempt not chargeable to tax and that in its computation of income, the assessee had, suo moto, made a disallowance of Rs. 2.13 crores as expenditure incurred by it on account of administrative and personal expenditure u/s 14A of the Act. The AO, was however, unconvinced and by invoking provisions of Rule 8D (2)(iii) he recomputed the disallowance u/s 14A at Rs. 4,05,51,458/-. 2.1 Being aggrieved, the assessee filed an appeal before Ld. CIT (A) which was allowed vide. The Ld CIT (A) deleted the additional disallowance made by AO and in this regard, vide order dated 30th April, 2014 in Appeal No.182/13-14, it, was held by the Ld. CIT (A) as under:- "4.1.1 I have carefully considered the submissions of the A/R of the appellant company, the facts of the case as well as the findings of the AO Ground no.3 of appeal is general in nature. Therefore, no adjudication is called for. In Ground no.1 of appeal the plea of the appellant is that the AO has erred in enhancing disallowance under clause (iii) of sub-rule (2) of Rule 8D from Rs. 2,12,73,863/- (as returned by the appellant) to Rs. 4,05,51....
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....s of Rs. 1,92,77,595/- over and above the disallowance made suo moto by the appellant. The AO has grossly erred in making the additional disallowance of Rs. 1,92,77,595/- as the entire expenditure debited in the P&L account have already been added back suo moto by the appellant in the computation of income. Disallowance by the AO cannot exceed the total expenditure debited in the P&L account. In view of the above, the additional disallowance of Rs. 1,92,77,595/- made by the AO being not justified, is deleted. The appeal is allowed in this ground." 2.2 The Revenue, however, was aggrieved by the relief granted by Ld. CIT (A) and it filed an appeal before this Tribunal in Appeal No.4088/Del/2014. The said appeal was dismissed vide order dated 9th February, 2017 by observing as under:- "We have carefully considered the rival contentions and also produced the orders of the lower authorities. In the present case the assessee has earned exempt dividend income of Rs. 11058833/- and assessee on its own has disallowed a sum of Rs. 21952010/- in the form of Rs. 678146/- out of interest and Rs. 21273864/- in accordance with the clause (iii) of sub rule 2 of rule 8D under section 14....
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....d by AO: 4,05,51,458/- Balance : 14,45,00,128/- In this regard, it is important to note that the disallowance u/s 14A (2) is a mandatory provision. The section is reproduced below for ready reference: "The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed (see Rule 8D, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act." Thus, once the provisions of section 14A (2) are invoked, the Assessing Officer has no option, but to apply Rule 8D to compute the disallowance. Now by following rule 8D (2), the position in the case of the assessee would be as under: Under rule 8D(2)(iii), though the Assessing Officer has worked out the disallowance at Rs. 4,05,51,458/- from this he reduced the amount of Rs. 2,12,73,863/- offered by the assessee which does not appear to be correct. The matte....
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....llowance made under section 14A read with Rule 8D, which is not permissible. 5. The Assessing Officer should have calculated the disallowance under each limb of Rule 8D separately and given credit of the specific disallowance u/s 14A made by the assessee in its computation of income. The AO cannot give credit for disallowance made under other heads by the assesseein the computation of income. 6. Once the disallowance made by the assessee is not accepted by the Assessing Officer, the Assessing Officer has but no choice, other than to follow of the disallowance as provided in Rule 8D. 7. The assessment order has been passed without making necessary and proper verification of the claims u/s 14A made by the assessee and no proper enquiries have been conducted by the Assessing Officer. 8. The Assessing Officer has failed to examine the element of direct expenses incurred relatable to earning of exempt income. Further, proper computing of disallowance under various limbs of Rule 8D has not been done. Thus the contention of the assessee that the Assessing Officer has fully examined the matter is not correct and hence not acceptable. Thus from t....
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....come and income from Mutual Funds related to other business activities i.e. of giving loans and advances and purchase of units of Mutual Funds etc., the income(s) from which are chargeable to tax and that the said interest cost was not relatable to investments. The same had been duly examined by the AO and factual position, as such, was accepted by her. Apart from the interest cost, the Appellant Company had offered disallowance of total administrative expenses incurred as per Rule 80(2)(iii) and therefore, no further disallowance under Clauses (i), (ii) & (iii) of Rule 80(2) was called for. 5. That the Ld. CIT also erred in passing the impugned Order without giving any holding to the effect that how the Order passed by the AO u/s 143(3) of the Income Tax Act was erroneous and prejudicial to the interest of revenue. He failed to appreciate that as per well-settled legal position, an order cannot be set-aside or revised u/s 263 of the Act just by making general observations to the effect that issue needs examination, without giving any specific holding. 6. That the Ld. CIT also failed to appreciate that no action u/s 263 of the Income Tax Act could be taken in the ....
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....against the order of the Ld. CIT (A) before this Tribunal was also dismissed vide order dated 9th February, 2017 in ITA No. 4088/Del/2014. It is our considered view that on the factual matrix of the case, the doctrine of merger will apply. The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject-matter at a given point of time. In the case of CIT vs. Narpat Singh Malkhan Singh (1981) 128 ITR 77 (MP), the Hon'ble Madhya Pradesh High Court has very illustratively considered the doctrine of merger. In this case, the Income Tax Officer (ITO) had completed the assessment u/s 143(3) of the Act against which the assessee preferred an appeal before the AAC confining his objections to certain disallowances of expenses by the ITO. The AAC partly allowed the assessee's appeal resulting in partial reduction in the total income of the assessee. The Ld. CIT, thereafter, served a notice u/s 263 of the Act on the assessee to show cause why the assessment order be not set aside as it was erroneous and prejudicial to the interest of the Revenue in as much as the AO had not charged interest u/s 217 (1A) of the Act and ha....