9911796707
TMI Blog2012 (9) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee reads as under: "1 The learned CIT(A) erred in not following the decision of Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. Vs. DCIT. (2010) 328 ITR 81 (Bom) by confirming the order of Assessing officer where by A.O. had applied Rule 8D for making disallowance u/s. 14A though the decision of Bombay High Court specifically states that Rule 8D is not applicable for A.Y. 2007-08 and further it is for the Assessing officer to determine a reasonable method and has further not followed the procedure as laid down by the Bombay High Court, hence the order of learned CIT(A) may be quashed. 2. The learned CIT(A) failed to appreciate that S. 14A does not apply where no nexus has been produced by the learned A.O. between interest paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Y. 2006-07. As further held by the Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) the quantum of disallowance u/s 14A for the years earlier to A.Y. 2008-09 has to be worked out by adopting some reasonable method. Keeping in view this decision of the Hon'ble Bombay High Court, we set aside the orders of authorities below on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh in the light of the decision of Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra). As further submitted by the learned counsel for the assessee in this context, investment in the shares which fetched the dividend income having been made by the assessee out of its own f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year 2008-09 being I.T.A. No.6819/M/2011. 7. Grounds of appeal raised by assessee are as under: "1 The learned CIT(A) erred in confirming disallowance of ₹ 18,87,811 u/s.14A r.w. Rule 8D without appreciating that no expenditure directly or indirectly including interest expenditure of ₹ 4,13,530 was incurred for earning exempt income and hence, disallowance u/s.14A r.w. Rule 8D may be deleted. 2. The AO failed to appreciate that interest expenditure of ₹ 4,13,530 has no nexus with earning of exempt income as the investments on which exempt income is earned is out of own funds and hence disallowance u/s.14A r.w Rule 8D may be deleted. 3. The ld CIT(A) failed to appreciate that disallowance u/s.14A r.w Rule 8D i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of exempt income, the AO is supposed to follow the mandate of Rule 8D if he is not satisfied with the correctness of the assessee's claim. In other words, disallowance u/s.14A is called for when the AO is not satisfied with the assessee's claim of having incurred no expenditure or some amount of expenditure in relation to exempt income. Therefore, it was held that satisfaction of the AO as to the incorrect claim made by the assessee is sine qua non for invoking the applicability of Rule 8. Such satisfaction can be reached and recorded only when the claim of the assessee is verified. If the assessee proves before the AO that it incurred a particular expenditure in respect of earning the exempt income and the AO gets satisfied, then ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the amount disallowable is the expenditure incurred by the assessee in relation to exempt income. It is relevant to note down the provisions of sub-sections (2) and (3) of section 14A which have been inserted w.e.f. assessment year 2007-08 reading as under : "(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on record without appreciating as to whether these were correct or not. He proceeded on the premise as if the disallowance as per Rule 8D is automatic irrespective of the genuineness of the assessee's claim in respect of expenses incurred in relation to exempt income. It is an incorrect course adopted by the AO. The correct sequence, in our considered opinion, for making any disallowance u/s.14A is to, firstly, examine the assessee's claim of having incurred some expenditure or no expenditure in relation to exempt income. f the AO gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X
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