TMI Blog2013 (4) TMI 932X X X X Extracts X X X X X X X X Extracts X X X X ..... on of ITAT in the case of Ciba Research (India) Ltd. in ITA No.6392 6112/Mum/11. Ld. AR has placed before us a copy of the said order which is dated 29/11/2012 in ITA No.6285/Mum/11 and a copy was also given to Ld. DR. 3. We have heard both parties on this issue. Since similar matter was decided by the Tribunal in assessee s own case in aforementioned order dated 29/11/2012 for assessment year 2008-09 and facts and circumstances are same, respectfully following the same we restore this issue to the file of AO with similar directions. For the sake of completeness the said order is reproduced below: The appeal is filed by the assessee against the order of CIT(A) 9, Mumbai, dated 05.07.2011, wherein the following grounds have been raised: 1. The Learned CIT(A) in confirming disallowance of ₹ 28,31,068/- u/s 14A r.w. Rule 8D over and above disallowance already made the appellant of ₹ 35,63,498/-. 2. The Learned CIT(A) ought not to have confirmed disallowance of ₹ 28,31,068/- u/s 14A r w Rule 8D. 3. The disallowance of ₹ 28,31,068/- u/s 14A r.w Rule 8D requires to be deleted. 2. The facts are that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use, before applying the formula, the AO has to show his dissatisfaction against the computation made by the assessee. We have, in our own order in the case of CIBA Research (India) Ltd., ITA no. 6392 6112/Mum/2011, have observed, We have considered the above arguments of both the parties and perused the papers filed before us. It is an undisputed fact that the grounds/objections raised by both the parties of the litigation revolves around the applicability of the provisions of Rule 8D of the IT Rules, 1962 and the section 14A of the Act. We have perused the above extracted portion from the impugned order and find the AO is directed to work out the disallowances as per the decision of the jurisdictional High Court after affording an opportunity to the appellant of being heard. We do not find any mistake in the said direction of the CIT (A). Nevertheless, it is a fact that the CIT(A) has not addressed to the arguments raised by assessee. Thus, the order of the CIT(A) is deficient to the extent that he has not addressed to the issues i.e. if the disallowance are called for at all when the assessee has not spent any expenditure what so ever for earning of the impugned d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 14A has been dealt with in a judgment of the Supreme Court in CIT v. Walfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1, delivered on July 6, 2010 (Civil Appeal No. 4927 of 2010). In Walfort, the assessee who was a member of the stock exchange, purchased units of a mutual fund on March 24, 2000, upon which it became entitled to a dividend of ₹ 1.82 crores. As a result of a payout of the dividend, the NAV of the mutual fund which was ₹ 17.23 per unit on March 24, 2000, stood reduced to ₹ 13.23 per unit on March 27, 2000. The assessee in the return claimed a deduction of ₹ 1.82 crores as exempt from tax under section 10(33) but also claimed a set off of the loss incurred on the sale of the units. This was disallowed by the Assessing Officer on the ground that the transaction was in the nature of dividend stripping. The disallowance was deleted by the Tribunal whose decision was confirmed by the High Court. The main issue before the Supreme Court was whether the loss on the sale of the units could be considered as expenditure in relation to earning dividend income exempt under section 10(33) and hence disallowable under section 14A. The Revenue cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Walfort to evince Parliamentary intent not to allow deduction in respect of any expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act against taxable income. Section 14A is clarificatory of the position that expenses can be allowed only to the extent that they are relatable to the earning of taxable income. Only those expenses which are in respect of the earning of taxable income can be allowed. That section 14A broadens the theory of apportionment of expenditure between taxable and non-taxable income is evident from the following observations of the Supreme Court (page 17) : The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A. Reading section 14 in juxtaposition with sections 15 to 59, it is clear that the words `expenditure incurred' in section 14A refers to expenditure on rent, taxes, salaries, interest, etc., in respect of which allowances are provided for (see sections 30 to 37). On the facts, the Supreme Court held that an expenditure is a payout which relates to disbursement. A pay back to the assessee was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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. Insertion of sub-sections (2) and (3) to section 14A Sub-sections (2) and (3) of section 14A were inserted by an amendment brought about by the Finance Act of 2006 with effect from April 1, 2007. Sub-sections (2) and (3) provide as follows: 14A(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. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en incurred in relation to income which does not form part of the total income, there would be no warrant for taking recourse to the method prescribed by the rules. For, it is only in the event of the Assessing Officer not being so satisfied that recourse to the prescribed method is mandated by law. Sub-section (3) of section 14A provides for the application of sub-section (2) also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act. Under the proviso, it has been stipulated that nothing in the section will empower the Assessing Officer, for an assessment year beginning on or before April 1, 2001, either to reassess under section 147 or pass an order enhancing the assessment or reducing the refund already made or otherwise increasing the liability of the assessee under section 154. The circumstances in which the provisions of sub-sections (2) and (3) were introduced by an amendment have been adverted to in a circular of the Central Board of Direct Taxes dated December 28, 2006 (Circular No. 14 of 2006-[2006] 288 ITR (St.)9). The circular notes that in the exi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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