TMI Blog2012 (12) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... restore the matter to the file of AO for deciding the issue, afresh in accordance with law , after allowing sufficient opportunity to the assessee - Matter remanded back - Decided in favor of revenue. Decision in Maxopp Investment Ltd. & Others Versus Commissioner of Income Tax [2011 (11) TMI 267 - DELHI HIGH COURT] followed. - ITA No.5755/Del/2011 - - - Dated:- 2-11-2012 - SHRI RAJPAL YADAV, SHRI A.N. PAHUJA, JJ. Revenue by Shri Anoop Kr. Singh, DR O R D E R A.N.Pahuja:- This appeal filed on 26th December, 2011 by the Revenue against an order dated 31-08-2011 of the learned CIT(A)-XVI, New Delhi, raises the following grounds:- 1. On the facts and circumstances of the case, the learned CIT(A) has erred in reducing disallowance u/s 14A to Rs.9,91,465/- @10% of dividend income on the basis of the decision of Hon ble ITAT, Mumbai (SB) in the case of Income-tax Officer Vs. Daga Capital Management Pvt. Ltd. (2009) 117 ITD 169. 2. On the facts and circumstances of the case, the learned CIT(A) has erred by ignoring the facts mentioned in judgment of Hon ble High Court of Bombay in the case of M/s Godrej Boyce Mfg. Co. Ltd. Vs. DCIT 228 ITR 81 (Mum) where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd income of Rs.99,14,653/- holding as under:- 2.2 I have considered the submissions made by the authorized representative of the appellant company as well as the discussion in the assessment order and am of the view that no income, whether taxable or exempt, can be earned without incurring some expenses towards the earning of the same. Perusal of the final accounts of the appellant filed before me reveals that as on 31.03.2007 the appellant was having total investments to the tune of Rs.69,00,92,446/- as compared to Rs.61,36,67,536/- in the immediately preceding year. While certain investments in equity shares, bonds and mutual funds running into crores of rupees were disposed of during the year, fresh investments to the tune of crores were made. All this must have entailed the expertise and time of the management in order to take decisions regarding where to invest and how long to continue with the investments. Overhead and administrative expenses on telephone, postage, printing and stationary, etc. must have also been incurred for these activities and for following up in regard to the collection of dividend income. Although the Hon ble High Court of Bombay in the case of Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... suggest as to what is the basis for disallowance of Rs.2,17,800/- computed by the assessee nor the latter seems to have furnished any specific details of expenditure incurred for management and supervision of aforesaid huge investments either before the AO or the ld. CIT(A) in order to enable them to record their satisfaction on the claim of the assessee . Of course, as per section 14A(2) of the Act, even where the assessee claims that there is no expenditure which had been incurred, relating to income which does not form part of his total income, the AO, having regard to the accounts of the assessee, has to record his satisfaction in respect of correctness of the claim of the assessee. The provisions clearly state that when the AO embarks upon such exercise, he must have regard to the accounts of the assessee; he cannot show a blind eye to the picture revealed by the accounts. Hon ble Apex Court in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 and again in Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466 (SC) observed that it is the duty of the assessee to bring to the notice of the Income tax Officer particular items in the books of account or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apport ionment of expenses incurred in relat ion to exempt income. The basic reason for insert ion of sect ion 14A is that cer tain incomes are not includible while comput ing total income as these are exempt under certain provisions of the Act . In the past , there have been cases in which deduct ion has been sought in respect of such incomes which in ef fect would mean that tax incent ives to cer tain incomes was being used to reduce the tax payable on the non-exempt income by debit ing the expenses, incur red to earn the exempt income, against taxable income. The basic principle of taxat ion is to tax the net income, i .e. , gross income minus the expenditure. On the same analogy the exempt ion is also in respect of net income. Expenses allowed can only be in respect of earning of taxable income. This is the purport of sect ion 14A. In sect ion 14A, the f i rst phrase is "for the purposes of comput ing the total income under this Chapter" which makes it clear that var ious heads of income as prescr ibed under Chapter IV would fall within sect ion 14A. The next phrase is, "in relat ion to income which does not form part of total income under the Act". I t means that if an income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) [as it now stands] as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) (3) would require the assessing officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the assessing officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-section (2) of section 14A. Prior to that, the assessing officer was free to adopt any reasonable and acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reasonable and acceptable method of apportionment." . 6.6. Hon ble Calcutta High Court in Dhanuka Sons vs. CIT, (Cal.) held that- After hearing the learned counsel appearing for the parties and after going through the materials on record and the decisions cited by Mr. Khaitan, we find that the Supreme Court in the cases of CIT v. Maharastra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corpn. v. CIT [2000] 242 ITR 450/109 Taxman 145 having held that where there is one indivisible business giving rise to taxable income as well as exempt income, the entire expenditure incurred in relation to that business would have to be allowed even if a part of the income earned from the business is exempt from tax, section 14A of the Act was enacted to overcome those judicial pronouncements. The object of section14A of the Act is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. 8. In the case before us, there is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained in Rule 8D is applicable to the proceedings of assessment year 2008-09 and onward. It is also held that prior to this year, the Assessing Officer can make inquiry regarding the expenditure incurred for earning the income which is not to be included in the total income of the assessee. On the basis of such inquiry, he may make disallowance of a reasonable amount, depending the facts of the case. The exercise as per the ratio of this case has not been carried out by the lower authorities. Therefore, the matter is restored to the file of the Assessing Officer to decide the matter of the disallowance or otherwise as per aforesaid decision. In case the decision of any other High Court including the Territorial High Court is received till finalization of the assessment pursuant to this order, the same shall also be considered by the Assessing Officer. 7. As al ready observed, in terms of the aforesaid decision of the Hon ble jurisdictional High Court in Maxopp Investment Ltd.(supra), even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the AO is required to verify the correctness of such claim. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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