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TMI Blog2015 (7) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 37,87,806/- under Section 14A of the Incometax Act, 1961 read with Rule 8D of Income-tax Rules, 1962. The Ld. D.R. further submitted that the assessee-company engaged itself in the business of manufacturing and exporting leather gloves. During the year under consideration, the assessee claimed investments of Rs. 3.43 Crores in the balance sheet in the year ended 31.03.2011 in the partnership firm M/s M.A. Khizar Hussain & Sons. The assessee-company claimed the income received from the said partnership firm was exempted. The assessee claimed that the provisions of Section 14A read with Rule 8D are not applicable in respect of investments made in the capital account of the partnership firm. The assessee also claimed that no expenditure w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other way except to determine the expenditure incurred for earning the exempt income. 4. Referring to Rule 8D of the Income-tax Rules, 1962, the Ld. D.R. submitted that where the Assessing Officer is not satisfied with regard to the correctness of the claim of the expenditure or the claim made by the assessee that no expenditure was incurred in relation to income which does not form part of total income, then he shall determine the amount of expenditure in relation to such income in accordance with sub-Rule (2) of Rule 8D. Referring to sub-Rule (2) of Rule 8D, the Ld. D.R. submitted that no expenditure was incurred directly in earning the income. Therefore, first limb of Rule 8D(2) may not be applicable. Referring to second limb of Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferring to his own order for the assessment years 2008-09, 2009-10 and 2010-11, allowed the claim of the assessee. The Ld.counsel further submitted that this Tribunal also confirmed the order of the CIT(Appeals) for the assessment years 2008-09, 2009-10 and 2010-11. Therefore, the CIT(Appeals) has rightly allowed the claim of the assessee. 6. We have considered the rival submissions on either side and perused the relevant material on record. We have also carefully gone through the provisions of Section 14A of the Act. For the purpose of convenience, we are reproducing Section 14A hereunder:- "[Expenditure incurred in relation to income not includible in total income. 14A. For the purposes of computing the total income under this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot the case of the assessee that the income earned on the investments made in the capital account of the partnership was included in the total income of the assessee. Admittedly, the income of Rs. 56,72,766/- does not form part of total income of the assessee. Therefore, the Assessing Officer has no option except to determine the expenditure in view of the mandate of the Parliament by using the word "shall determine". 7. We have also carefully gone through the provisions of Rule 8D of Income-tax Rules, 1962 which reads as follows:- "METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (1) Where the Assessing Officer having regard to the accounts of the assessee of the previous year, is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e from which does not or shall not form part of the total income, as appearing in the balance-sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the "total assets" shall mean, total assets as appearing in the balance-sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets." Under Rule 8D(1), when the Assessing Officer having regard to the accounts of the assessee of the previous year is not satisfied with the correctness of the claim of expenditure made by the assessee or the claim made by the assessee that no expenditure was incurred in relation to the total income, then he shall determine the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered opinion that the method prescribed in sub-Rule (2) of Rule 8D has to be adopted. Since the Parliament and Rule making authority employed the language "shall determine", it is obligatory on the part of the Assessing Officer to determine the expenditure as provided in sub-Rule (2) of Rule 8D. Therefore, estimation of expenditure at 10% may not be in accordance with provisions of sub-Rule (2) of Rule 8D. 8. We have also carefully gone through the order of this Tribunal in the assessee's own case in I.T.A. Nos.195 to 197/Mds/2014 dated 28.03.2014. This Tribunal found that the assessee has interest-free own funds to the extent of Rs. 42.95 Crores and out of these, the investments were made. Therefore, this Tribunal found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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