TMI Blog2009 (2) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss account the Assessing Officer noted that the assessee had shown sale of paraxylene to the tune of Rs. 4,899.92 lakhs and other income at Rs.349.05 lakhs. Such other income included dividend of Rs. 319.67 lakhs on the long-term investments and interest on debentures of Rs. 24.92 lakhs. On the debit side, purchase of paraxylene was recorded at Rs.4,897.61 lakhs and administrative and other expenses at Rs. 6.19 lakhs. Thus profit after tax was shown at Rs. 343.57 lakhs. From the computation of total income, the Assessing Officer observed that the assessee had returned income at Rs 3.82 lakhs only after claiming the exemption of dividend income under section 10(33) on gross dividend receipts of Rs. 319.67 lakhs and of interest on debentures under section 10(23G) on the gross receipt of Rs. 24.92 lakhs. It was observed by the Assessing Officer that the assessee had incurred various expenses but no disallowance was offered under section 14A of the Act. He held that part of the expenditure incurred by the assessee-company was attributable to the activities of earning exempt income of such a high magnitude. Out of the total expenses of Rs.6.19 lakhs, the assessee had itsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and indirect expenses under this section now stands decided by the Special Bench of the Tribunal in the case of ITO v. Daga Capital Management Pvt. Ltd. [2008] 312 ITR (AT) 1 (Mum) ; 119 TTJ 289 in which it has been held that sub-sections (2) and (3) of section 14A are also retrospective and accordingly disallowance is called for under section 14A read with rule 8D. We have heard the rival submissions and perused the relevant material on record. First we take the plea of the learned authorised representative that the Departmental appeal deserves to be dismissed as not maintainable since the tax effect is Rs. 1,25,748. It is an admitted fact that the Revenue had filed appeal on August 9, 2004. Instruction No. 2 of 2005 dated October 24, 2005 states that it shall come into effect from October 31, 2005. In paragraph 2 of this instruction, it has been mentioned that "in partial modification of the above instruction, it has now been decided by the Board that appeals will henceforth be filed only in cases where the tax effect exceeds the revised monetary limits given hereunder". Such limit for filing appeals before the Tribunal has been determined at Rs. 2 lakhs. In paragraph 4 it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the limit of tax effect as per this instruction, is Rs. 1 lakh. In other words if the tax effect involved in the Departmental appeal before the Tribunal is more than Rs. 1 lakh, then the appeal will be maintainable and in the converse situation, it cannot be filed. From the ground of appeal and the computation of tax effect filed on behalf of the assessee it is observed that the tax effect in this case is obviously more than Rs. 1 lakh though less than Rs. 2 lakhs. Now the question before us is to decide as to whether the earlier instruction dated March 27, 2000 would apply or the later instruction dated October 24, 2005. On going through the later instruction it is found to have been mentioned that it will come into force with effect from October 31, 2005. It is stated in paragraph 2 that the "appeals will henceforth be filed" only in cases where the tax effect exceeds the revised monetary limits. On a cursory look at this instruction it becomes apparent that the embargo has been placed on the Revenue for not filing the appeals before the Tribunal after October 31, 2005 where the tax effect is less than Rs. 2 lakhs subject to the saving clause as contained in paragraph 3 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prospectively changed the scenario by enhancing the monetary ceiling of tax effect. The reference to the "other Division Bench" in the remarks of the court that "we would not be inclined to follow the view taken by the other Division Bench, regarding the earlier circular" refers to the case of CIT v. Pithwa Engg. Works [2005] 276 ITR 519 (Bom). Thus it is noticed that the hon'ble jurisdictional High court in Chhajer Packaging and Plastics P. Ltd. [2008] 300 ITR 180 (Bom) has not concurred with the earlier view expressed in Pithwa Engg. Works (supra) and sounded a contra note. Now the position which prevails before us is that there is one judgment in the case of CIT v. Pithwa Engg. Works [2005] 276 ITR 519 (Bom) dated July 1, 2005, according to which the instruction prescribing the monetary limit is applicable even to old references ; and on the other hand the judgment in the case of Chhajer Packaging and Plastics P. Ltd. [2008] 300 ITR 180 (Bom) dated September 28, 2007 rules that the instructions laying down the monetary limits for filing appeals are prospective and do not apply to pending matters. Patently there is a conflict of the opinion in the two judgments of the hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities. It was argued before some of the Benches that the provisions of section 14A cannot apply to a dealer in shares whose earning of the dividend income is incidental to the trading in shares. Thereafter the Special Bench was constituted on this question. Jettisoning this plea the Tribunal has held that disallowance under section 14A is called for even in the case where the assessee is engaged in the business of purchase and sale of shares. This decision is an authority for sustaining the disallowance even in respect of traders in shares when exempted dividend income is earned by them. It does not oust the applicability of section 14A on dividend income which is earned by the assessee on shares held by it as investment. It is apparent from paragraph 3 of the majority view in which it has been mentioned (page 31 of 312 ITR (AT)) : "however, there is no controversy about the rightness in making the disallowance of expenses under section 14A when the shares and other securities are held as investment and not as stock-in-trade". It is, therefore, palpable that the disallowance under section 14A is sustainable even when the shares are held as investment which fetch exempt income under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered for computing deduction under this section. Nowhere section 14A was the subject-matter of consideration. Whereas section 80M talks of granting deduction from the gross total income, section 14A, which operates in an entirely different field, concerns itself with making disallowance of the expenditure incurred in relation to the exempt `income'. In this view of the matter, we are of the considered opinion that the judgments rendered in the context of section 80M cannot be applied when the question is of making disallowance under section 14A." From the above discussion it is apparent that the disallowance under section 14A is required to be made in accordance with rule 8D as has been held in the case of ITO v. Daga Capital Management Pvt. Ltd. [2008] 312 ITR (AT) 1 (Mum) [SB] ; 119 TTJ 289. Since the learned Commissioner of Income-tax (Appeals) has arbitrarily sustained the disallowance at 25 per cent. of the total expenditure without any basis, we are of the considered opinion that his view cannot be upheld. We, therefore, set aside the impugned order and restore the matter to the file of the Assessing Officer for working out the disallowance under this section as per the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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