TaxTMI 
TaxTMI 
2022 (1) TMI 995
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....re were four orders, which are subject matter of challenge before us in these two appeals. ITA/148/2018 is directed against the consolidated order dated 26.4.2018 passed by the Tribunal in ITA/1037/Kol/2012 and 773/KOL/2013 for the assessment years 2008-09 and 2009-10 respectively. The order impugned in ITAT/43/2021 is the order passed by the Tribunal in ITA/1195 and 1176/Kol/2019 for the assessment year 2011-12. The Tribunal in its order dated 21.10.2020, which is impugned in ITAT/43/2021 followed the order impugned in ITA/148/2018 and disposed of the appeal and, therefore, ITA/148/2018 is taken as the lead case which deals with the assessment years 2008-09 and 2009-10. ITA/148/2018 was admitted on 14.09.2018 on the following substantial q....
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....sallowance under Section 14A of the Act. For the assessment years 2008-09 and 2009-10 the Assessing Officer in paragraph 11 of the assessment order dated 31.12.2010 the Assessing Officer has observed that the assessee has earned dividend income of Rs. 3,58,81,107/-, which is exempt under Section 10(34) and they were called upon to explain why expenses related to dividend earned from shares held as investment be disallowed under Section 14A, as per formula provided in rule 8D of the Rules. The assessee had stated that they had voluntarily made a disallowance of Rs. 10 lakhs. However, on going through the order of assessment dated 31.12.2010 we find that the Assessing Officer has not noticed this fact and noted only the argument of the asses....
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....cribed under rule 8D without determining in the first instance the correctness of the claim of the assessee, having regard to the accounts of the assessee. The assessee placed reliance on the decision in the case of Godrej & Boyce Mfg. Co. Ltd. -Vs- DCIT reported in 328 ITR 081. Further, the assessee contended that the disallowance has been computed by automatically applying the method prescribed in rule 8D of the Rules without recording any reasons on the non-satisfaction of the claim of the appellant. We have perused the order passed by CIT(A) and we are surprised to note that no specific finding has been recorded by the CIT(A) on the ground canvassed by the assessee, the method of applying rule 8D and under what circumstances it could b....
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....e assessees would apply while interpreting section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee-company. However, that does not appear to be a relevant factor in determining the issue at hand. The fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping....
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..... Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer". Two important issues have been pointed out in the aforementioned decision. Firstly that the provisions of Section 14A has to be interpreted, particularly, the words that "in relation to the income" that does not form part of total income. Therefore, it was held that the principle of apportionment of expenses comes into play as that is the principle which is incorporated in Section 14A of the Act. With regard to as to how the power under Section 14A(2) read with rule 8D of the Rules could be invoked it was pointed out that the assessing officer ne....
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....nnot be accepted, the assessing officer can then proceed to apply computation mode as provided in rule 8D (2) of the Rules. We also take into consideration the decision of the Hon'ble Supreme Court in Godrej and Boyce Manufacturing Company Limited Vs. Deputy Commissioner of Income Tax, Mumbai; 2017(7) SCC 421, wherein it was held that the law postulates the recording of satisfaction as the requirement to be complied with by the assessing officer. The law on the subject as noted has been reiterated in several subsequent decisions as well, and, therefore, the issue has to be decided by the Tribunal, before the Tribunal can remand the matter to the assessing officer to do the computation as directed to be done in paragraphs 11 and 12 of the or....