TMI Blog2015 (3) TMI 441X X X X Extracts X X X X X X X X Extracts X X X X ..... on to income which does not form part of the total income. Ld. CIT(A) further observed that the language of sub section 14A(1) is abundantly clear that relation has to be seen between the exempt income and expenditure incurred in relation to it. The AO has not shown any relation between the exempt income and expenditure incurred. Therefore, Ld. CIT(A) has rightly held that the AO has not followed the directions of the ITAT and the Hon. High Court of Court of Delhi in the assessee's case and the AO has to consider the two cases of Godrej Boyce Mfg. Co. Ltd [2010 (8) TMI 77 - BOMBAY HIGH COURT] and Maxopp Investment Ltd [2011 (11) TMI 267 - Delhi High Court] while deciding the issue, but the AO did not consider the two judgments while finalizing the matter. We find that Ld. CIT(A), in view of the above, has rightly deleted the addition made by the AO of ₹ 1,OO,94,103/- which does not need any interference on our part. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the Appeal filed by the Revenue. - Decided in favour of assessee. - I.T.A. No. 5439/DEL/2012 - - - Dated:- 16-2-2015 - Shri H.S. Sidhu And Shri J.S. Reddy JJ. For the Appellant : Sh. B.R.R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) vide order Appeal No. 217/08-09 dated 12.5.2009 restricted the disallowance as per clause (ii) of Rule 8D to ₹ 93,11,704/- as against ₹ 1,30,09,324/- thereby giving the assessee a relief of ₹ 36,11,704/-. However, on the issue of unpaid statutory liability, the Ld. CIT(A) deleted the disallowance of ₹ 4,49,365/- u/s. 43B. The total was assessed as a result of this CIT(A) order vide order u/s. 250 w.r.s. 143(3) of the I.T. Act dated 23.7.2009 at a profit u/s. 115JB of ₹ 1,58,26,025/-. Against this order of the Ld. CIT(A) the revenue went in appeal before the ITAT and the asessee had also filed cross objection. The ITAT vide its order in ITA No. 3476/Del/2009 CO No. 339/Del/2009 (ITA No. 3476/Del/2009) restored the matter back to the file of the AO. Also in assessee s own case for A.Y. 2005-06 and A.Y. 2006-07 the Hon ble High Court in ITA No. 1024/2011 and ITA No. 8903/2011 remanded the issue of Section 14A of the Act to the AO to decide in accordance with the directions as held in the judgment of Hon ble High Court in ITA No. 687/2009 titled Maxopps Investment Ltd. vs. CIT, New Delhi Judgment dated 18.11.2011. Thereafter, the AO in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between taxable and non-taxable income of an indivisible business; (d) The basic principle of taxation is to tax net income. This principle applies even for the purposes of Section 14A and expenses towards non-taxable income must be excluded; (e) Once a proximate cause for disallowance is established - which' is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. All expenditure incurred in relation to income which does not form part of the total income under the provisions of the Act has to be disallowed under Section 14A. Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. Memorandum Explaining the Provisions of the Finance Bill, 2006 states that this amendment will take effect from 1st April, 07, and will accordingly apply in relation to the AY 07-08 and subsequent years - CBDT has clarified the position vide Circular No.l4 of 2006 that the amendment would be applicable from the AY 07-08 onwards . This can be regarded as a reasonable interpretation of the provision - Even in the absence of sub-ss. (2) and (3) of s. 14A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 80. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only 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. 31. 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 exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing was free to adopt any reasonable and acceptable method. 42. Thus, the fact that we have held that subsections (2) (3) of section 14A and Rule would operate prospectively (and, not retrospectively) does not mean that the assessing officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort (supra) to the following effect:- The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. So, even for the pre-Rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he exempt income and expenditure incurred in relation to it. The AO has not shown any relation between the exempt income and expenditure incurred. The AO has not applied the two decisions in the matter to determine the disallowance u/s 14A. I would again reiterate that the crux of the matter is that the AO has not followed the directions of the Hon. ITAT and the Hon. High Court of Court of Delhi in the appellant's case. The AO was to consider the two cases of Godrej Boyce Mfg. Co. Ltd and Maxopp Investment Ltd while deciding the issue. The AO did not consider the two judgments while finalizing the matter. In view therefore I am deleting the addition made by the AO of ₹ 1,OO,94,103/-. 7. We find that this Tribunal in ITA No.494/Del/2011 in Revenue s Appeal for AY 2007-08 has considered the similar issue. The Tribunal vide its Order dated 10.9.2014 vide para no. 15 to 16 has adjudicated the issue as under:- 15. We have carefully considered the submissions of both the sides and perused relevant material placed before us. Now, it is settled law that Rule 8D is applicable for and from AY 2008-09 and not for earlier years. While taking this view, the CIT(A) has relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not satisfied with the correctness of the claim of the assessee in relation to the incurring of expenditure for earning of exempt income. As per sub-section (3), the Assessing Officer is empowered to determine the expenditure even when the assessee claims that no expenditure has been incurred by him in relation to earning of exempt income provided the Assessing Officer is not satisfied with the correctness of the claim of the assessee. From a combined reading of sub-section (2) (3) of Section 14A, it is evident that first the assessee has to state whether any expenditure was incurred by him for earning of exempt income, if yes, then, he has to specify the expenditure which was incurred for earning of exempt income. Thereafter, the Assessing Officer is required to examine the assessee s claim with regard to incurring of no expenditure or with regard to the amount of expenditure claimed to have been incurred by the assessee for earning of exempt income. If the Assessing Officer is satisfied with the claim of the assessee, then, no further action under 16 ITA-729, 730 494/D/2011 Section 14A is required except to disallow the amount of expenditure, if any, which assessee claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure incurred in relation to income which does not form part of the total income. Ld. CIT(A) further observed that the language of sub section 14A(1) is abundantly clear that relation has to be seen between the exempt income and expenditure incurred in relation to it. The AO has not shown any relation between the exempt income and expenditure incurred. The AO has not applied the two decisions in the matter to determine the disallowance u/s 14A. Therefore, Ld. CIT(A) has rightly held that the AO has not followed the directions of the ITAT and the Hon. High Court of Court of Delhi in the assessee's case and the AO has to consider the two cases of Godrej Boyce Mfg. Co. Ltd and Maxopp Investment Ltd while deciding the issue, but the AO did not consider the two judgments while finalizing the matter. We find that Ld. CIT(A), in view of the above, has rightly deleted the addition made by the AO of ₹ 1,OO,94,103/- which does not need any interference on our part. Accordingly, we uphold the order of the Ld. CIT(A) and dismiss the Appeal filed by the Revenue. 9. In the result, the Appeal filed by the Revenue stands dismissed. Order pronounced in the Open Court on 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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