TMI Blog2010 (11) TMI 705X X X X Extracts X X X X X X X X Extracts X X X X ..... are cross-appeals arising from the order of Learned CIT(Appeals)-V Ahmedabad dated 05/06/2007. Both the appeals are consolidated and for the sake of convenience hereunder decided by this common order. (A) Assessee's appeal (ITA No. 3813/Ahd/2007) 2. Ground Nos.1 and 2 are as under:- The appellant company respectfully prays that:- 1. The disallowance u/s.94(7) of Rs.2,070/- confirmed by the Learned CIT(Appeals) may kindly be deleted. 2. The disallowance of preliminary expenses u/s.35D of the Act restricted by the Ld. CIT(A) to the extent of Rs.2,160/- may kindly be deleted. 2.1. Learned Authorised Representative of the assessee Mr. Dhiren Shah appeared and expressed not to press these grounds, hence, dismissed being not pressed. 3. Ground No.3 is as under: 3. The disallowance u/s.14A of Rs.10,000/- restricted by the Ld. CIT(A) may kindly be deleted. 3.1. The assessee has claimed interest as a deduction, however, by invoking the provisions of Section 14A of the Act, the Assessing Officer has made the proportionate disallowance. When the matter was carried before the first appellate authority, it was held as under:- "6.2. I have considered the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zette dated 24/03/2008, relevant findings are reproduced below:- "a) The ITAT had recorded a finding in the earlier assessments that the investments in shares and mutual funds have been made out of own funds and not out of borrowed funds and that there is no nexus between the investments and the borrowings. However, in none of those decisions was the disallowability of expenses incurred in relation to exempt income earned out of investments made out of own funds considered. Moreover, under Section 14A, expenditure incurred in relation to exempt income can be disallowed only if the assessing officer is not satisfied with the correctness of the expenditure claimed by the assessee. In the present case, no such exercise has been carried out and, therefore, the Tribunal was justified in remanding the matter. b) Section 14A was introduced by the Finance Act 2001 with retrospective effect from 1 April 1962. However, in view of the proviso to that Section, the disallowance thereunder could be effectively made from assessment year 2001-2002 onwards. The fact that the Tribunal failed to consider the applicability of Section 14A in its proper perspective, for assessment year 2001-2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the hands of the shareholder as the recipient of dividend, income by way of dividend does not form part of the total income by virtue of the provisions of Section 10(33). Income from mutual funds stands on the same basis; iii) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv) The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi) Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the provisions of sub section (1) of Section 14A. 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 under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied in holding that the loss arising from the transaction was liable to be set off against the other taxable income of the assessee. While upholding the decision of Hon'ble High Court, the Hon'ble Supreme Court [CIT vs Walfort Share and Stock Brokers 326 ITR pg.1(SC)] has also said that for attracting section 14A of the Act there has to be a proximate cause for disallowance, which is its relationship with the tax exempt income, relevant para from the held portion is as follows:- "Section 14A of the Income-tax Act, 1961, clarifies that expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income. In many cases the nature of expenses incurred by the a may be relatable partly to exempt income and partly to taxable income. In the absence of section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of section 14A is clear: it desires to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, this ground of the assessee may be treated as allowed for statistical purposes. 4. Ground No.4 is as under: 4. The disallowance of deduction u/s.80HHC of the Act amounting to Rs.13,64,232/- confirmed by the CIT(A) may kindly be deleted. 4.1. The assessee has claimed a deduction u/s.80HHC of Rs.13,64,232/-, however, the Assessing Officer has made certain adjustments and disallowed the claim. As per the Assessing Officer's calculation the figure of deduction was arrived at Rs.NIL. The adjustments were stated to be in the total turnover in respect of Sales-tax and Excise Duty. The action of the Assessing Officer was confirmed by the Learned CIT(Appeals). However, now before us, two decisions in assessee's own case decided by the ITAT "C" Bench Ahmedabad bearing ITA Nos.1849 and 1862/Ahd/2005 for Assessment Year 2002-03 order dated 24/04/2009 and another decision bearing ITA No.581/Ahd/2007 for Assessment Year 2003-04 order dated 05/09/2006 are placed. For both the years, the Respected Co-ordinate Bench has restored the matter back to the stage of Assessing Officer with certain directions after citing the decision of Hon'ble Supreme Court in the case of CIT vs. Laxmi Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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