TMI Blog2014 (7) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant Member: The appeal filed by the Revenue is directed against the order dated 16.10.2012 passed by Ld. CIT(A)-13, Mumbai and it relates to the assessment year 2009-10. 2. The solitary issue urged before us for adjudication in this appeal is whether the ld. CIT(A) was justified in restricting the disallowance made u/s 14A of the Income Tax Act, 1961 (the Act) read with Rule 8D of the Income Tax Rules, 1962 (the Rules) to ₹ 5.00 lakhs. 3. The facts relating to the issue under consideration are stated in brief. The Assessee-Company is engaged in the business of financing, real estate development and real estate consultancy and also engaged in the activity of investing in shares/securities. During the year under consideration, the assessee received dividend income of ₹ 5.15 crores and claimed the same as exempt. The Assessing Officer noticed that the assessee did not disallow part of any expense as per the provisions of sec. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (the Rules), apparently under the plea that it did not incur any expense in earning the dividend income. Hence, the AO sought clarification in this regard and the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ught it fit to estimate the expenses which are required to be disallowed u/s 14A of the Act of ₹ 5.00 lakhs and accordingly directed the AO to restrict the disallowance to ₹ 5.00 lakhs. Accordingly, the AO granted relief in respect of balance amount of the impugned addition. Aggrieved the Revenue has filed this appeal before us. 5. Before us, the Ld D.R placed strong reliance on the decision rendered by the Hon ble jurisdictional Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd (2010)(328 ITR 81) and submitted that the application of provisions of sec. 14A is mandatory. On the contrary, the Ld A.R placed strong reliance on the decision rendered by the Co-ordinate bench in the case of Raj Shipping Agencies Ltd Vs. Addl. CIT (2013)(38 taxmann.com 345)(Mum), wherein the Tribunal after considering hosts of decisions including the decision rendered in the case of Godrej and Boyce Mfg. Co. Ltd (supra) has held that the AO is required to examine the accounts of the assessee first and then if he is not satisfied with the correctness of the claim, then only he can invoke rule 8D. The Ld A.R also submitted that the similar view taken by the Kolkatta bench of Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of Section 14A. Sub- section (3) applies to cases where the assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act. In other words, sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the said Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 32. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard. If one examines sub-rule (2) of Rule 8D, we find that the method for determining the expenditure in relation to exempt income has three components. The first component being the amount of expenditure directly relating to income which does not form part of the total income. The second component being computed on the basis of the formula given therein in a case where the assessee incurs expenditure by way of interest which is not directly attributable to any particular income or receipt. The formula essentially apportions the amount of expenditure by way of interest [other than the amount of interest included in clause (i)] incurred during the previous year in the ratio of the average value of investment, income from wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 was free to adopt any reasonable and acceptable method. 8. We further notice that the co-ordinate bench of Tribunal has also considered thee decisions rendered in the following cases, wherein similar view has been expressed:- (a) CIT Vs. Hero Cycles Ltd (2010)(323 ITR 518) (b) Justice Sam P Bharucha Vs. Addl. CIT (53 SOT 192) (c) Relaxo Footwears Ltd Vs. Addl CIT (50 SOT 102) (d) Priya Exhibitors (P) Ltd Vs. Asst. CIT (54 SOT 356) We have already noticed that an identical view expressed by the Kolkatta bench of Tribunal has since been approved by the Hon ble Calcutta High Court. 9. In the instant case, we notice that the assessing officer has not examined the claim made by the assessee in proper perspective, which is clear from the following observations made by him:- The above reply of the assessee has been perused carefully but is not acceptable. The provisions of sec. 14A r.w.r. 8D are very clear in this matter. The provisions say that if the assessee is having exempt income and the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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