TMI Blog2019 (7) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... inst revenue - R/TAX APPEAL NO. 208 of 2019 - - - Dated:- 9-7-2019 - MR J. B. PARDIWALA AND MR A. C. RAO, JJ. For The Appellant (s) : MRS MAUNA M BHATT (174) For The Opponent (s) : MR B S SOPARKAR (6851) ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This tax appeal under Section 260A of the Income Tax Act, 1961 [for short the Act, 1961] is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, Ahmedabad 'A' Bench, Ahmedabad in the ITA No.623/AHD/2016, dated 17/10/2018 for the A.Y 2010-11. 2. The Revenue has proposed the following questions of law: - [ A] Whether the Appellate Tribunal has erred in law and on facts by not appreciating that the disallowance under section 14A of the Income Tax Act, 1961 can be made on expenditure incurred for earning exempt income even when there is no claim of exempt income? [ B] Whether the Appellate Tribunal has erred in law and on facts in deleting the addition of ₹ 1,58,31,847/m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing tax free income, the disallowance under Section 14A of the Act would not be justified. 7. Mr. Patel submitted that the decision of the Supreme Court in S.A.Builders Limited (supra) is not applicable to the issue involved in the present case as the decision in the case of S.A.Builders Limited (supra) is with respect to Section 36(i)(iii) of the Income Tax Act, whereas in the present case the issue is with regard to the disallowance under Section 14A read with Rule 8D in the context of the assessee having mixed funds, i.e. interest free as well as interest bearing funds. In the case of S.A.Builders Limited (supra), the relevant assessment years were Assessment Years 1990-91 and 1991-92, i.e. prior to the insertion of Rule 8D in the Income Tax Rules by the Income Tax (Fifth Amendment) Rules, 2008 w.e.f. 24th March 2008. It is also submitted that Section 14A has been inserted in the Income Tax Act by the Finance Act, 2001, with retrospective effect from 1st April 1962. 8. It is further submitted that after the insertion of Rule 8D, in all the cases of mixed funds, i.e. interest free as well as interest bearing funds, the subsequent decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expenditure incurred for earning exempt income is not in order. The Assessing Officer, in such circumstances, is obliged to assign reasons for he not being satisfied having regard to the accounts maintained by the assessee and the suo motu disallowance made by the assessee under Section14A of the Act. We may reproduce the relevant observations of the Supreme Court in this regard thus: Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned the expenditure but the Assessing Officer did not accept the assessee's apportionment. In that eventuality, he will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares or making the investment in shares is to be examined by the Assessing Officer. 16. We also refer to and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation of Section 14A and Rule 8D of the Rules adopted by this Court and various Courts, noted above. This judgment does not lay down a proposition that the requirement of subrule (1) of Rule 8D of the satisfaction to be arrived by the Assessing Officer before applying the formula given in subrule (2) of Rule 8D is done away with. In other words, the judgment in case of Maxopp Investment Ltd., does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds i.e. interest free as well as interest bearing funds and utilized them for making investments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. We are conscious that neither in M/s. Max India Ltd., Punjab Haryana nor in Gujarat State Fertilizer and Chemicals case, this High Court had noticed the judgment of the Supreme Court in case of Maxopp Investment Ltd. Nevertheless in view of the discussion above, in our opinion the situation would not change on account of the said judgment of the Supreme Court. 17. This Court, in Shreno Limited (supra), has taken the view that Maxopp Investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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