TMI Blog2009 (6) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... his composite order. For convenience, the facts are being taken from ITA No.580(Del)2009. 3. Briefly, the assessee company earned tax from dividend of ₹ 2,49,68,690/-. The AO required the assessee to show cause as to why proportionate expenses attributable to exempt income be not disallowed u/s 14 of the I.T.Act. The assessee company had paid interest of ₹ 22,91,200/-on commercial borrowals. The AO observed that these funds were raised to meet the day to-day capital requirements of the assessee and that they had no relation with the tax free investment. The response of the assessee was not found tenable since the assessee was found passing on interest to its customers from the funds received from them. The AO observed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that hence, the same should not be allowed; that otherwise also, the application of Rule 8D is not mandatory, the same being applicable only when the assessee's method is not accepted; that in this case, the AO had made an addition which was, at the stage, before the ld. CIT(A), acceptable to the assessee; that therefore, the disallowance be not enhanced; that the assessee had made investments in debt mutual funds with the growth option, which did not give dividend and capital gains are not exempt from tax; that the scheme being a growth scheme, no dividend was payable; that the capital gain is taxable; and that therefore, the investments from which the income formed part of the total income, were not to be included. 5. The learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not have the satisfaction of the claim of the assessee, it is necessary for him to give a finding regarding the working of the disallowance. Reliance has been placed, in this regard, on Wimco Seedlings Ltd. v. DCIT(Assessment) , 293 ITR (AT)216(Delhi). It has been submitted that the assessee is a debt free company, and that the expenditure attributable is merely 1/10th. 7. Per contra, the ld. DR, supporting the order under appeal, has submitted that Rule 8D of the I.T. Rules is a machinery provision and so, it has rightly been held to be retrospective in nature; that it was therefore, that both the AO and the ld. CIT(A) were satisfied; that therefore, there is no need for any experts satisfaction hi the case of invocation of machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. 9. A perusal of section 14A(2)(supra), evinces that the amount of expenditure incurred in relation to income not includible in the total income shall be determined by the AO if the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income not includible in the total income. This satisfaction is to be arrived at by the AO having regard to the accounts of the assessee. It is note-worthy that the determination of the amount of expenditure incurred in relation to the income which is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of expenditure so incurred. It is only when the AO is satisfied about the claim of the assessee of having incurred such expenditure, that the question of determining such expenditure would arise, and not otherwise. If, at the outset, the AO is not satisfied about such claim of the assessee, there would be no expenditure incurred in relation thereto income not forming part of the assessee's total income under the Act, the amount whereof would be required to be determined. 10. Now Rule 8D is the method prescribed , in pursuance of section 14A(2) of the Act, in accordance with which the AO shall determine the amount of expenditure incurred in relation to income for forming part of the total income of the assessee under the Act. Once t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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