M/s. Jammu & Kashmir Bank Ltd., Srinagar V. The Deputy Commissioner of Income tax, Jammu

CO 9/ASR/2010

• Counselvise Citation: [2012] 124 COUNSELVISE.COM (IT) 7365 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 31-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 18-09-2012
• Assessment Year: 2002-2003
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Earning of tax free income; Proportionate interest; Retrospective amendment
• Section: 14A; 263; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.136(ASR)/2010 ASSESSMENT YEAR:2002-03 PAN :AAACT6167G DEPUTY COMMISSIONER OF INCOME TAX VS. JAMMU & KASH MIR BANK LTD. CIRCLE-1, JAMMU. M.A. ROAD, SRINAGAR. (APPELLANT) (RESPONDENT) C.O. NO.9(ASR)/2010 (ARISING OUT OF I.T.A. NO.136(ASR)/2010) ASSESSMENT YEAR:2002-03 PAN :AAACT6167G JAMMU & KASHMIR BANK LTD. VS. DEPUTY COMMISSIONER O F INCOME TAX M.A. ROAD, SRINAGAR. CIRCLE-1, JAMMU. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SH. TARSEM LAL, DR ASSESSEE BY: SH. R.K. GUPTA, CA DATE OF HEARING: 26/12/2012 DATE OF PRONOUNCEMENT:31/12/2012 ORDER PER BENCH ; THIS APPEAL OF THE REVENUE ARISES FROM THE ORDER O F THE CIT(A), JAMMU, DATED 30.12.2009 FOR THE ASSESSMENT YEAR 200 2-03. THE ASSESSEE HAS ALSO FILED CROSS OBJECTION. ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 2 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE ACTION OF THE LD. CIT(A) TO ALLOW RELI EF FOR STATISTICAL PURPOSES IS PRE-MATURED KEEPING IN VIEW THE FACT TH AT THE ORDER OF HONBLE ITAT AGAINST THE ORDER U/S 263 OF CIT, J & K HAS NOT ATTAINED FINALITY, AS THE DEPARTMENT HAS PREFER RED AN APPEAL BEFORE THE HONBLE HIGH COURT OF J & K, JAMMU AND T HE DECISION IS AWAITED. 2. THAT THE LD. CIT(A) HAS ERRED IN DIRECTING THE A .O. TO RESTRICT THE DISALLOWANCE U/S 14A TO THE EXTENT OF RS.8.10 L ACS BY APPLYING THE YARD STOCK OF MAKING PRO-RATA DISALLO WANCE BASED ON THE COST INFLATION INDEX AND QUANTUM OF EXEMPTIO N ON THE BASIS OF DISALLOWANCE CONFIRMED IN A.Y.1992-93 WITH OUT APPRECIATING THAT THE EXEMPT INCOME U/S 10(15), 10( 23) AND 10(23G) AMOUNTING TO RS.36,10,19,907/- HAS BEEN EAR NED AFTER INVESTMENT. 3. THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE THA T THE ASSESSEE HAS UTILIZED FUNDS AVAILABLE WITH BANK FOR EARNING OF T HE SAID EXEMPT INCOME AND THEREFORE, THE AO HAS RIGHTLY WOR KED OUT THE DISALLOWANCE OF RS.7,05,00,000/- AND RS.2,26,0 0,000/- ON ACCOUNT OF PROPORTIONATE INTEREST AND MANAGEMENT EX PENSES ATTRIBUTABLE TO EARNING OF THE SAID EXEMPT INCOME. 4. THAT THE LD. CIT(A) HAS TOTALLY IGNORED THE FACT THAT SUB-SECTION (2) AND (3) OF SECTION 14A ARE RETROSPECTIVE IN NAT URE AND SO IS THE RESULTANT RULE 8D. HENCE THE DISALLOWANCE U/S 1 4A WAS REQUIRED TO BE COMPUTED WITH REFERENCE TO THE MANDA TE OF THERE PROVISIONS. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND OR ALTER THE GROUND OF APPEAL BEFORE THE APPEAL IS HEARD. 3. THE ASSESSEE IN ITS C.O. HAS RAISED FOLLOWING GR OUNDS: 1. THAT THE WORTHY CIT(A) IS UNJUSTIFIED IN HOLDIN G THAT A SUM OF RS.8.10 LACS SHOULD BE DISALLOWED U/S 14A OF THE IN COME TAX ACT, 1961 THOUGH THE WORTHY CIT(A) WAS SATISFIED TH AT EVEN ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 3 THIS MUCH AMOUNT HAD NOT BEEN INCURRED IN RELATION TO EARNING INCOME & NOT FORMING PART OF TOTAL INCOME. 2. THE APPELLANT CRAVES, LEAVE TO ALTER AND ADD TO SUBSTITUTE ANY GROUND OF APPEAL BEFORE OR AT THE TIME OF HEARING. 4. THE BRIEF FACTS IN THE APPEAL OF THE REVENUE AND C.O. OF THE ASSESSEE ARE THAT THE A.O. DURING THE ASSESSMENT PROCEEDINGS HAD HELD THAT PROPORTIONATE DISALLOWANCE U/S 14A HAS TO BE MADE B ECAUSE IT DID NOT AGREE WITH THE ASSESSEE COMPANY THAT THERE WAS NO EXPENDI TURE INVOLVED IN EARNING THE EXEMPT INCOME. THE ASSESSEE COMPANY HAD PROVIDE D THE DETAILS OF THE INVESTMENTS IN TAX FREE SECURITIES AND INFRASTRUCTU RAL ADVANCES AS UNDER: THE AMOUNT OF TOTAL FUNDS AVAILABLE RS.14,032.71 CRORES WITH THE BANK OUT OF IT NON INTEREST BEARING FUNDS ARE RS.2,974. 17 CRORES INTEREST BEARING FUNDS ARE RS.11,058.54 CRORES TOTAL INVESTMENT AND ADVANCES BY THE BANK RS.12,17 6.42 CRORES OUT OF IT THE AMOUNT INVESTED IN TAX RS. 250 .00 CRORES FREE SECURITIES AND INFRASTRUCTURAL ADVANCES AMOUNT INVESTED IN EARNING TAXABLE INCOME RS.11,92 6.42 CRORES 4.1 THE ASSESSEE COMPANY HAD AVERTED BEFORE THE A. O. THAT IT NOT ONLY HAD INVESTED ITS INTEREST FREE FUNDS IN TAX FREE SECURI TIES AND INFRASTRUCTURAL ADVANCES BUT HAD ALSO UTILIZED THE EXCESS IN OTHER ADVANCES AND INVESTMENTS AND INCOME FROM SUCH INVESTMENTS FORM PART OF TOTAL INCOME UNDER CHAPTER IV OF THE I.T. ACT. SECONDLY EVEN IF ANY DISALLOWAN CE WAS TO BE MADE, THEN IT ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 4 WAS NOT TO BE MADE BY PROPORTIONATE ALLOCATION OF I NTEREST AND MANAGEMENT EXPENSES VIS-A-VIS EXEMPT AND TAXABLE INCOME BUT RE STRICTED TO THOSE EXPENSES WHICH WERE DIRECTLY INCURRED IN RELATION T O EARNING EXEMPT INCOME OF RS.36,10,19,907/-. IT WAS ALSO SUBMITTED BEFORE THE AO THAT THERE WAS NO RELATED COST WHICH COULD BE STATED TO HAVE BEEN INC URRED TO EARN THE EXEMPTED INCOME. HOWEVER, THE A.O. DID NOT ACCEPT T HIS REASONING DISMISSING IT TO BE PURE GUESS WORK. HE ALSO DUBBED THIS EXPLANATION THAT ONLY ASSESSEES OWN FUNDS WERE ENOUGH TO BE INVESTE D IN THE EXEMPTED INCOME AS EMPTY ARGUMENT. THE ASSESSING OFFICERS ARGUMENT IS BASED ONLY ON THE REASON THAT ASSESSEE BANK IS HAVING BOT H INTEREST BEARING AND AS WELL AS OWN FUNDS IN A COMMON POOL. THE AO ALSO DID NOT ACCEPT ASSESSEE COMPANYS RELIANCE ON NUMBER OF JUDICIAL PRONOUNCEM ENTS DELIVERED BY INCOME TAX APPELLATE TRIBUNAL AND HONBLE HIGH COUR TS. THE AOS DISMISSAL OF THESE AUTHORITIES WAS THAT THESE DECIS IONS WERE DELIVERED IN TERMS OF THE THEN PREVAILING SECTION 80M OF THE A CT. HE ALSO OBSERVED THAT SOME OF THESE DECISIONS RATHER CONFIRM THE VIEW THA T PROPORTIONAL DISALLOWANCE ON THE EXPENDITURE INCURRED FOR EARNIN G OF EXEMPTED INCOME HAS TO BE MADE. THE AO WAS FURTHER OF THE OPINION T HAT IT WAS NOT POSSIBLE TO SEGREGATE THE NON INTEREST BEARING FUNDS FROM INTER EST BEARING FUNDS. HE ALSO MADE ANOTHER IMPORTANT OBSERVATION THAT IF NO EXPEN DITURE IS ATTRIBUTED TO ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 5 THIS EXEMPTED INCOME THE ASSESSEE WOULD AVAIL DEDUC TION OF 100% EXPENDITURE. HE ALSO REFERRED TO C.B.D.T. CIRCULAR NO.780 WHICH STATES THAT ONLY NET INCOME HAS TO BE EXEMPTED. THE AO ALSO GLA NCED OVER SECTION 10(34) AND HAS HELD THAT INCOME DEFINED THERE HAS O NLY INCOME AND NOT THE GROSS RECEIPT. ACCORDINGLY, THE AO HELD THAT THERE IS TO BE AN EXPENDITURE WHICH HAS TO BE ATTRIBUTED TO THIS EXEMPTED INCOME. THE AO BUTTRESSED HIS STAND TO THE EFFECT THAT EXPENDITURE IS TO BE ATTRI BUTED TO THE EXEMPTED EARNING BY REFERRING TO WHAT HE STATES AS MANAGEMEN T EXPENSES AND IN THIS CONNECTION HAS REFERRED TO HONBLE SC DECISION IN T HE CASE OF CIT VS. UNITED GENERAL TRUST PVT. LTD. 200 ITR 488 AND HELD THAT W HILE ALLOWING DEDUCTION U/S 80M, THE PROPORTIONATE DISALLOWANCE HAS TO BE E FFECTED ON MANAGEMENT EXPENSES. IN BRIEF A.O. WAS OF THE OPINION THAT EXE MPTED INCOME HAS TO BE NETTED AFTER CONSIDERING PROPORTIONATE DISALLOWANCE . THE AO HAS REFERRED TO ASSESSMENT YEARS 2003-04 AND 2004-05 AND ORIGINAL A SSESSMENT MADE FOR THE ASSESSMENT YEAR UNDER APPEAL BEFORE INVOKING SECTIO N 263, THEREFORE, AFTER ADOPTING A FORMULA FOR COMPUTING THE PROPORTIONATE INTEREST COST AND MANAGEMENT COST HE MADE DISALLOWANCES OF RS.7,05,00 ,000/- AND RS.2,26,00,000/- RESPECTIVELY. 5. BEFORE THE LD. CIT(A), THE ASSESSEE MADE THE SUB MISSIONS AND EXPLANATION WHICH WERE MADE BEFORE THE A.O. THE LD. CIT(A) AFTER ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 6 CONSIDERING THE EXPLANATION OF THE ASSESSEE AND THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE HIM VIDE PARA 9 OF HIS ORDER OBSERVED THAT THERE IS NO DENIAL TO THE FACT THAT THE ASSESSEE CO MPANY HAD ENOUGH FUNDS OF ITS OWN . A PORTION OF WHICH WOULD HAVE BEEN EASILY INVESTED IN THE EXEMPTED INCOME WHICH HAS BEEN DONE BY THE ASSESSE E COMPANY. THE FIGURES OF THE ASSESSEE-COMPANYS OWN FUNDS, INTERE ST BEARING FUNDS AND VOLUME OF INVESTMENT MADE IN EXEMPTED INCOME ARE PA RT OF THE ORDER OF THE A.O. THE AO HAS NOT DISCHARGED HIS ONUS BY HOLDING THAT THIS IS AN EMPTY ARGUMENT OF THE ASSESSEE THAT THE ASSESSEE HAS ITS OWN FUNDS AND THE AO HAS NOWHERE CONTROVERTED THE FACTS OF THE ASSESSEE COMP ANY HAVING ENOUGH FUNDS TO INVESTMENT AND FRACTION OF THE SAME IS EX EMPTED INCOME. THE LD. CIT(A) FURTHER OBSERVED THAT HE WAS OF THE VIEW TH AT THE EXPENDITURE HAS TO BE ALLOWED WHICH IS INCURRED BY THE ASSESSEE IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. THE AO HAS TO ESTABLISH THE FACT THAT THE EXPENDITURE HAS BEEN IN CURRED BY THE ASSESSEE. THE SAME CAN BE ESTABLISHED BY ESTABLISHING NEXUS BETW EEN INVESTMENT MADE AND EXEMPTED INCOME EARNED FROM SAME AND THEN EXPE NDITURE IF ANY. THE STATUTE HAS NOT LEFT IT TO THE WISHES AND IDEAS OF THE AO TO DETERMINE WHAT THE EXPENDITURE WAS WITHOUT ESTABLISHING AND IDENTI FYING THE SAME. THE CIT(A) RELYING UPON THE JUDGMENT OF VARIOUS COURTS OF LAW AND REMAND ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 7 REPORT OF THE AO WAS OF THE VIEW THAT PART OF THE EXPENDITURE CAN BE DISALLOWED IN THE FORM OF NOTIONAL PROPORTIONATE IN TEREST AND ALLOWED THE APPEAL OF THE ASSESSEE AGAINST DISALLOWANCE OF RS.7 .05 CRORES MADE BY THE AO. 6. AS REGARDS THE DISALLOWANCE OF RS.2.26 CRORES, T HE LD. CIT(A) FOLLOWING THE ORDER OF THE ITAT IN ASSESSEES OWN CASE RETAINED DISALLOWANCE OF RS.8.10 LACS OUT OF TOTAL DISALLOW ANCE OF RS.2.26 CRORES MADE BY THE A.O. 7. THE LD. DR, MR. TARSEM LAL, MAINLY RELIED UPON T HE ORDER OF THE ASSESSING OFFICER. HE ARGUED THAT THE ASSESSEE IS H AVING INTEREST FREE FUNDS IS PURELY A GUESS WORK AND NOT SUPPORTED BY ANY CREDIB LE EVIDENCE. THE ASSESSEE HAS NOT BEEN ABLE TO PIN-POINT ANY FUND UT ILISED THROUGH ITS EXEMPTED INCOME OUT OF OWN FUNDS AND NOT OUT OF INT EREST BEARING FUNDS. THE DECISIONS RELIED UPON BY THE LD. CIT(A) ARE NOT APPLICABLE IN THE PRESENT FACTS AND CIRCUMSTANCES OF THE CASE. HE FURTHER ARG UED THAT THE ASSESSEE WAS REQUIRED TO GIVE THE ACTUAL DATA DATE-WISE IN THE F ORM OF CASH FLOW STATEMENT WHERE INVESTMENT CAN BE MADE TO THE AVAILABILITY OF INTEREST FREE ADVANCES. THEREFORE, THE LD. CIT(A) IS NOT JUSTIFIED IN ACCEP TING THE CONTENTION OF THE ASSESSEE WHICH IN FACT HAS NOT BEEN SUPPORTED BY TH E FACTS. IF THE ORDER OF THE LD. CIT(A) IS ACCEPTED THAT WILL TANTAMOUNT TO DOUB LE DEDUCTION I.E. ONE IN ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 8 THE FORM OF EXEMPTED INCOME AND OTHER THE DEDUCTION OF EXPENSES INCURRED IN RELATION TO THE EXEMPTED INCOME. HE INVITED OUR ATTENTION TO THE CIRCULAR OF CBDT BEARING NO.780 WHERE IT IS EVIDENT THAT IT IS THE NET INCOME WHICH IS ALLOWABLE AND NOT THE GROSS RECEIPTS WHICH INTER -ALIA MEANS THAT THE EXPENDITURE IN RELATION TO THE EARNING OF THAT INCO ME HAS TO BE REDUCED TO ARRIVE AT NET INCOME WHICH WOULD BE EXEMPT. REPEATI NG HIS ARGUMENT THAT THE ASSESSEE WAS ACTUALLY REQUIRED TO GIVE ENTRY-WI SE DETAIL OF TAX FREE INVESTMENT BY THE ASSESSEE BANK AND ITS SOURCES. TH E ASSESSEE HAS FAILED TO PROVE ANY DIRECT NEXUS OF INVESTMENT AND INCOME IS CLAIMED TO BE EXEMPT AND ITS SOURCE OF NON INTEREST BEARING FUNDS. THE A SSESSEE HAS FAILED TO DISCHARGE ITS ONUS WITHOUT LINKING THE SOURCE OF IN VESTMENT TO NON-INTEREST BEARING FUNDS. 8. THE LD. DR FURTHER ARGUED IN RELATION TO THE DEL ETION OF THE DISALLOWANCE OF MANAGEMENT EXPENDITURE IN THE FORM OF MANAGEMENT EXPENSES THAT EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHOULD BE GIVEN A WIDER MEANING AND IT CANNOT BE CONSTRUED IN A NARROW OR RESTRICTED MANNER. THE NARROW INTERPRETATION TO THE SAID EXPRESSION WILL R EALLY DEFEAT THE OBJECT BEHIND THE PROVISIONS OF SECTION 14A OF THE ACT, WH ICH IS NOT THE INTENTION OF THE LEGISLATURE TO THE EXPENDITURE INCURRED IN REL ATION TO EXEMPT INCOME ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 9 AGAINST TAXABLE INCOME . THE LD. DR, MR. TARSEM LAL FINALLY ARGUED AND SUGGESTED THE BENCH TO RESTORE THE MATTER TO THE FI LE OF THE AO SO THAT ENTRY- WISE DETAIL OF THE INVESTMENT OUT OF INTEREST FREE FUND IS GIVEN BY THE ASSESSEE AND THE AO COULD RE-ASSESS THE SAME AFTER VERIFYING SUCH DETAILS TO BE SUBMITTED BY THE ASSESSEE AS AN ALTERNATIVE PRO POSITION. 9. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE, MR. R.K. GUPTA, CA, AT THE OUTSET ARGUED THAT GROUND NO.1 OF THE RE VENUE IS INFRUCTUOUS AS THE ADDITION MADE IN THIS RESPECT HAS ALREADY BEEN DELETED BY THE AO BY GIVING EFFECT TO THE ORDER OF THE ITAT AND THEREFOR E, NEEDS TO BE DISMISSED. 10. AS REGARDS GROUND NO.4, IT WAS ARGUED BEFORE US WITH RESPECT TO GROUND NOS. 2 & 3 BY THE LD. COUNSEL FOR THE ASSESS EE MR. R.K. GUPTA, CA THAT THERE IS NO DOUBT THAT THERE IS AMENDMENT IN S ECTION 14A BUT THE SAME IS WITH EFFECT FROM ASSESSMENT YEAR 2007-08 AND NOT FO R THE YEAR PRIOR TO THE SAID ASSESSMENT YEAR. HE REFERRED TO THE CLARIFICAT ORY NOTE TO THE FINANCE BILL 2006 IS SPECIFIC REFERENCE TO CLAUSE 7 WHICH WAS PL ACED ON RECORD. HE FURTHER ARGUED ACCORDINGLY THAT THIS AMENDMENT IN SECTION 14A WILL TAKE EFFECT FROM IST APRIL, 2007 AND WILL ACCORDINGLY APPLY TO THE A SSESSMENT YEAR 2007-08 AND SUBSEQUENT YEARS. THE METHOD AS INDICATED IN SE CTION 14A(2) STANDS NOTIFIED THROUGH RULE 8D BY CBDT ON 24.03.2008 AND HAS BEEN INSERTED BY ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 10 IT (FIFTH AMENDMENT) RULES, 2008 AND THIS RULE IS A PPLICABLE W.E.F. ASSESSMENT YEAR 2008-09 AND ONWARDS. THEREFORE, TO MAKE DISALLOWANCE AS PER THE PRESCRIBED METHOD IN RULE 8D OF THE INCOM E TAX RULES, 1962 IS NOT APPLICABLE IN THE IMPUGNED YEAR. MR. R.K. GUPTA, TH E LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED UPON THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DEP UTY CIT (2010) 328 ITR (BOM) 81, PLACED AT PB 261-302 WHERE IT HAS BEE N HELD THAT RULE 8D SHALL BE PROSPECTIVE AND NOT RETROSPECTIVE. THIS DE CISION OF THE HONBLE HIGH COURT HAS BEEN FOLLOWED BY VARIOUS BENCHES OF THE ITAT AND IN VIEW OF NO CONTRARY JUDGMENT ON THE ISSUE, MR. R.K. GUPTA PRAY ED TO DISMISS THE GROUND OF THE REVENUE. 11 WITH REGARD TO GROUNDS NO. 2 & 3, THE LD. COUNSE L FOR THE ASSESSEE MR. R.K. GUPTA, CA RELIED UPON THE FINDINGS OF THE LD. CIT(A) AND THE SUBMISSIONS MADE BEFORE THE A.O. AND THE LD. CIT(A) . HE ARGUED THAT THERE IS NO DISPUTE ABOUT THE APPLICABILITY OF SECTION 14 A OF THE ACT BUT ONLY THOSE EXPENSES WHICH HAVE BEEN INCURRED IN RELATION TO EA RNING THE EXEMPT INCOME HAVE TO BE DISALLOWED FOR COMPUTING THE INCOME UNDE R CHAPTER IV OF THE ACT. HE RELIED UPON THE DECISION OF THE ITAT, AMRIT SAR BENCH IN ASSESSEES OWN CASE, CONFIRMING THE ACTION OF THE LD. CIT(A) I N ITA NO.68(ASR)/1997 FOR THE ASSESSMENT YEAR 1992-93 WHERE IT HAS HELD T HAT THERE CANNOT BE ANY ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 11 INTEREST COST WHICH CAN BE ATTRIBUTED AS RELATED TO EARN THIS INCOME TO ARRIVE AT NET AMOUNT OF DIVIDEND INCOME WHICH IS TO BE ALL OWED FOR CLAIMING DEDUCTION. THE ITAT, AMRITSAR BENCH, IN THE SAID CA SE HAD CONFIRMED THE ORDER OF THE LD. CIT(A) FOR RELATED COST TO EARN DI VIDEND INCOME AT RS.25,000/- THAT TOO ON ACCOUNT OF THE SALARY OF ON E CLERK FOR HANDLING THE DIVIDENDS CHEQUES. THE SAID MATTER HAS NOT BEEN AGI TATED BY THE REVENUE BEFORE THE HONBLE HIGH COURT. 12. IT WAS ARGUED BY MR. R.K.GUPTA, CA THAT THE ASS ESSEE IS HAVING ITS OWN FUNDS WHICH HAVE BEEN UTILIZED BY THE ASSESSEE BANK FOR THE INVESTMENTS FOR YIELDING INCOME AND THEREFORE, THERE CANNOT BE ANY INTEREST COST WHICH CAN BE SAID TO BE RELATED TO EARN THE EXEMPT INCOME . HE FURTHER ARGUED THAT MANAGEMENT AND ADMINISTRATIVE COST OF THE ASSESSEE BANK IS FIXED, WHETHER ASSESSEES BANK EARNED EXEMPT INCOME OR NOT. MR. R. K. GUPTA, FURTHER INVITED OUR ATTENTION AT THE SUBMISSIONS MADE BEFOR E THE A.O. WHICH ARE AVAILABLE AT PAGES 16 TO 22 OF AOS ORDER IN PARTIC ULAR AT PAGE 21 BEING DATA FOR TOTAL FUNDS AVAILABLE WITH THE BANK, , NON INTE REST BEARING FUNDS, TOTAL INVESTMENT AND ADVANCES, INVESTMENT IN TAX FREE SEC URITIES AND INFRASTRUCTURAL ADVANCES AND AMOUNT INVESTED IN EARNING TAXABLE INC OME BUT HAS ALSO UTILIZED THE EXCESS IN OTHER ADVANCES AND INVESTMEN TS THE INCOME EARNED FROM WHICH FORMS PART OF THE TOTAL INCOME UNDER CH APTER-IV OF THE ACT. THE ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 12 FIGURES ARE FACTUAL AND NO CONTROVERSY HAS BEEN RAI SED ON THE ISSUE. THE NEXUS BETWEEN BORROWED FUNDS AND INFRASTRUCTURAL AD VANCES CAN BE SAID TO BE ESTABLISHED ONLY WHERE IT IS SHOWN THAT INTEREST FREE FUNDS ARE NOT AVAILABLE WITH THE ASSESSEE BANK. HE INVITED OUR AT TENTION TO THE INVESTMENT IN TAX FREE SECURITIES AND INFRASTRUCTURAL ADVANCES AT THE BEGINNING OF THE YEAR AND CLOSING OF THE YEAR. 13. MR. R.K. GUPTA, CA THE LD. COUNSEL FOR THE ASSE SSEE REFERRED TO THE ORDER OF THE A.O. AND THE LD. CIT(A) AND ARGUED THA T THE ORDER OF THE CIT(A) IN PARA 9 IS VERY RELEVANT WHERE EACH AND EVERY CON TENTION OF THE AO HAS BEEN DISCUSSED TO ARRIVE AT THE CONCLUSION THAT THE ORDER OF THE AO IS NOT A CORRECT ORDER. THE LD. COUNSEL FOR THE ASSESSEE FUR THER RELIED UPON THE DECISIONS OF VARIOUS COURTS OF LAW IN SUPPORT OF HI S ARGUMENTS AS UNDER: I) IMPULSE (INDIA) P. LTD. VS. ACIT (OSD) 22 SOT 368 ( DEL) II) CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 204 (P&H) III) CIT VS. SHAPOORJI PALLONJI & CO. LTD. (2009) 318 IT R 417 (BOM.) IV) ASSTT. CIT VS. STATE BANK OF TRAVANCORE (2009) 121 TTJ (COCH) 418. V) ASSTT.CIT VS. JINDAL SAW PIPES LTD. (2008) 118 TTJ 228 (DEL) VI) ASSTT. CIT VS. EICHER LTD. (2006) 101 TTJ (DEL) 369 VII) MARUTI UDYOG LTD. VS. DCIT (2005) 92 ITD 119 (DEL.) VIII) ESCORTS LTD. VS. ASSTT.CIT (2006) 102 TTJ 522 (DEL) IX) DCIT VS. BSES LTD. (2008) 113 TTJ 227 (MUM.) X) WIMCO SEEDLINGS LTD. VS. DY.CIT (2007) 109 TTJ 462 (DEL) XI) SAGAR DRUGS & PHARMACEUTICALS (P) LTD. VS. ADDL. CI T (ITA NO. 3179/AHD/2009) ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 13 XII) DCIT VS. JINDAL PHOTO LTD. (ITA NO.814(DEL) 2011) XIII) MINDA INVESTMENTS LTD. VS. DCIT (2011 138 TTJ (DEL) XIV) DCIT VS. MAHARASHTRA SEAMLESS LTD. (2011) 138 TTJ ( DEL) 244. XV) CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 XVI) CIT VS. PRINTERS HOUSE (P) LTD. 188 TAXMAN 70 (DEL) XVII) CIT VS. SIL INVESTMENTS LTD. (2012) 73 DTR (DEL) 23 3 XVIII) BUNGE AGRIBUSINESS (INDIA) (P ) LTD. VS. DCIT (2011 ) 142 TTJ (MUM) 81 XIX) RELIANCE INDUSTRIES LTD. VS. ADDL. CIT RANGE 3(3), MUMBAI ( ITA NO. 3082/MUM/06) XX) CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 31 3 ITR 340 (BOM). 13.1 FINALLY, MR. R.K.GUPTA, THE LD. COUNSEL FOR TH E ASSESSEE SUMMED UP HIS ARGUMENTS BY READING DECISIONS OF VARIOUS COURT S OF LAW AND PRAYED TO DISMISS THE APPEAL OF THE REVENUE AND ALLOW THE C.O . OF THE ASSESSEE. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS GROUND NO.1, THE SAME IS INFRUCTUOUS AS THE ADDITION MADE HAS ALREADY BEEN DELETED BY THE A.O. BY GIVING EFFECT T O THE ORDER OF THE ITAT AND ACCORDINGLY, THE APPEAL OF THE REVENUE IN GROUN D NO.1 IS DISMISSED. 14.1. AS REGARDS GROUND NO.4, IN VIEW OF THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MF G. CO. LTD. VS. DEPUTY CIT (2010) 328 ITR (BOM) 81, THE RULE 8D IS PROSPECTIVE IN NATURE AS ARGUED BY THE LD. COUNSEL FOR THE ASSESSEE AND N OT RETROSPECTIVE. THE RELEVANT PART OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 14 OF GODREJ & BOYCE MFG. CO. LTD. VS. DEPUTY CIT (SUP RA) IN THE HEAD NOTE IS REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: SUB-SECTION (2) AND (3) OF SECTION 14A WERE INSERT ED BY AN AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT OF 2006 W.E.F. APRIL 1, 2007. UNDER SUB-SECTION (2) , THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY A ASSESSEE IN REL ATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. S UB-SECTION (2) WAS INSERTED SO AS TO PROVIDE A UNIFORM METHOD APP LICABLE WHERE THE A.O. IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. PARLIAMENT HAS PROVIDED AN ADEQUATE SAFEGUARD TO T HE INVOCATION OF THE POWER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME BY ADOPTION OF THE P RESCRIBED METHOD. THE INVOCATION OF THE POWER IS MADE CONDITIONAL ON THE OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE. THESE SAFEGUARDS WHICH ARE IMPLICIT IN THE REQUIREM ENTS OF FAIRNESS AND FAIR PROCEDURE UNDER ARTICLE 14 MUST BE OBSERVE D BY THE AO WHEN THE ARRIVES AT HIS SATISFACTION UNDER SUB-SECTION ( 2) OF SECTION 14A. SUB-RULE (1) OF RULE 8D OF THE INCOME-TAX RULE, 196 2, HAS ALSO INCORPORATED THE ESSENTIAL REQUIREMENTS OF SUB-SECT ION (2) OF SECTION 14A BEFORE THE ASSESSING OFFICER PROCEEDS TO APPLY THE METHOD PRESCRIBED UNDER SUB-RULE (2). THE PROVISIONS OF S UB-SECTION (2) AND (3) OF SECTION 14A OF THE ACT, ARE CONSTITUTIONALLY VALID. THE PROVISION OF RULE 8D OF THE RULES, ARE NOT ULTRA VIRES THE PR OVISION OF SECTION 14A, MORE PARTICULARLY SUB-SECTION (2) AND DO NOT O FFEND ARTICLE ARTICLE 14 OF THE CONSTITUTION. DIFFERENT DATES HAVE BEEN PROVIDED IN THE PROVISION OF SECTION 14A AND RULE 8D FOR THEIR ENFORCEMENT. SUB-SECTION (1) OF SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM APRIL 1, 19 62, TO OVERCOME THE DECISION OF THE SUPREME COURT. AT THE SAME TIME, T HE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NO N-TAXABLE INCOME HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SE CTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECTION 15 TO 59, IT HAS BEEN OBSERVED THAT THE WORDS EXPENDITURE INCURRED IN SECTION 14A REFER TO EXPENDITURE ON RENT, TAX, SALARY, INTEREST, ETC. , IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR. THIRDLY, SUB-SECTION ( 2) AND (3) WERE ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 15 INTRODUCED BY A LEGISLATIVE AMENDMENT BROUGHT ABOUT BY THE FINANCIAL ACT OF 2006. RULE 8D HAS ESSENTIALLY PUT INTO PLAC E AN ARTIFICIAL METHOD OF ESTIMATING THE EXPENDITURE THAT CAN BE RE GARDED AS BEING RELATABLE TO INCOME THAT DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUB-SECTION (4) OF SECTION 295 EMPOWERS T HE RULE-MAKING AUTHORITY TO GIVE RETROSPECTIVE EFFECT TO SUBORDINA TE LEGISLATION. HOWEVER, UNLESS EXPRESSLY OR BY NECESSARY IMPLICATI ON, A CONTRARY PROVISION IS MADE, NO RETROSPECTIVE EFFECT IS TO BE GIVEN TO ANY RULE SO AS TO PREJUDICIALLY AFFECT THE INTEREST OF THE ASSE SSEE. THE RULE WERE NOTIFIED TO COME INTO FORCE ON MARCH 24, 2008. IT IS A TRITE PRINCIPLE OF LAW THAT THE LAW WHICH WOULD APPLY TO AN ASSESSM ENT YEAR IS THE LAW PREVAILING ON THE FIRST DAY OF APRIL. CONSEQUE NTLY, RULE 8D WHICH HAS BEEN NOTIFIED ON MARCH, 24 2008, WOULD APPLY WI TH EFFECT FROM ASSESSMENT YEAR 2008-09. ITO V. DAGA CAPITAL MANAGEMENT P. LTD [2009] 312 IT R (AT) 1 (MUMBAI) [SB] IMPLIEDLY DISAPPROVED ON THIS POINT. FOR THE ASSESSMENT YEAR 2002-03, THE ASSESSEE CLAIM ED A DIVIDED OF RS. 34.34 CRORES AS BEING EXEMPT FROM THE TOTAL TAX ABLE INCOME. THE ASSESSEE CONTENDED THAT IT HAD NOT INCURRED ANY EXP ENDITURE FOR EARNING THE DIVIDEND INCOME AND THAT NO DISALLOWANC E WAS WARRANTED. THE ASSESSING OFFICER MADE A DISALLOWANCE RS. 6.92 CRORES TOWARDS EXPENSES ATTRIBUTED TO THE EARNING OF THE DIVIDEND INCOME. THE COMMISSIONER (APPEALS) FOLLOWING EARLIER DECISIONS IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 1998-99 AND 1999-2000 HELD THAT NO EXPENDITURE WAS ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND RECEIVED AND CONSEQUENTLY DELETED THE DISALLOWANCE. THE ASS ESSEE CLAIMED THAT A MAJOR PORTION OF ITS DIVIDEND AMOUNTING TO RS. 19 .86 CRORES WAS RECEIVED FROM GROUP COMPANIES AND OF THE TOTAL SHAR ES, 95 PER CENT. CONSISTED OF BONUS SHARES FOR WHICH NO COST HAD BE EN INCURRED. THE SHARES OF GS WERE STATED TO HAVE BEEN ACQUIRED SEVE RAL YEAR EARLIER, THE ASSESSEE BEING A PROMOTER OF THAT COMPANY. DURI NG THE YEAR IN QUESTION, THE ASSESSEE CLAIMED THAT IT HAS NOT INVE STED ANY AMOUNT IN INVESTMENTS ON WHICH INCOME WAS EXEMPT UNDER SECTIO N 10(33) AND IT HAD DISPOSED OF SOME OF ITS INVESTMENTS AT A SUBSTA NTIAL PROFIT. THE TRIBUNAL NOTED THAT THE ASSESSING OFFICER HAD NOT E XAMINED THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REFER ENCE TO THE ACCOUNTS OF THE ASSESSEE, HAVING REGARD TO THE PROVISIONS OF SECTION 14A(2). THE PROCEEDINGS WERE REMANDED TO THE ASSESSING OFFI CER FOR A FRESH ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 16 EXAMINATION ON THE BASIS OF THE PROVISIONS OF SECTI ON 14A(2). ON APPEAL TO THE HIGH COURT: HELD, THAT THE PROVISION OF RULE 8D OF THE RULE WHI CH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR O ASSESSMENT Y EAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFI CER HAD TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EX PENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HE ASSESSING OFFIC ER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOU LD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CON TEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REAS ONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETE RMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPOR TUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 14.2 ACCORDINGLY IN VIEW OF THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V S. DEPUTY CIT (SUPRA) WHICH HAS BEEN FOLLOWED BY VARIOUS BENCHES OF THE I TAT AND IN VIEW OF NO CONTRARY DECISION BROUGHT ON RECORD BY THE LD. DR, THE GROUND NO.4 OF THE REVENUE IS DISMISSED. 15. FURTHER, AT THE OUTSET, THE ASSESS EE HAS SUBMITTED DETAILS BEFORE THE A.O. THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS FOR MAKING ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 17 INVESTMENT IN TAX-FREE SECURITIES AND INFRASTRUCTUR AL ADVANCES. THE AO IN FACT HAS NOT ACCEPTED THESE DETAILS AND THE EXPLANATION OF THE ASSESSEE IN RIGHT SPIRIT AND HAS REJECTED THE SAME THAT THE ASSESSEE WAS REQUIRED TO GIVE ENTRY- WISE DETAILS TO PROVE THAT THE ASSESSEE IS HAVING I NTEREST FREE FUNDS AND THE SAME WERE INVESTED IN THE EXEMPT SECURITIES. THIS A PPROACH OF THE AO CANNOT BE ACCEPTED ESPECIALLY FOR THE REASONS THAT THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS HAVING INTEREST FREE FUNDS OF RS.2265.25 CRORES AT THE BEGINNING OF THE YEAR AND RS.2736.65 CRORES AT THE END OF THE YEAR, WHICH INDICATES AN INCREASE OF INTEREST FREE FUNDS TO TH E EXTENT OF RS.471.40 CRORES. BESIDES, THIS A CLEAR EXPLANATION WAS GIVEN BEFORE THE AO THAT THE PROFITS OF THE YEAR AFTER DECLARING DIVIDEND AND DIVIDEND TAX AMOUNTING TO RS.237.52 CRORES WERE ALSO PUMPED IN SUCH ACCOUNTS. THUS, INT EREST FREE FUNDS TO THE EXTENT OF RS.708.92 CRORES WERE AVAILABLE TO ASSESS EE BANK FOR MAKING INVESTMENT WHICH FAR EXCEEDED INVESTMENT IN TAX FRE E SECURITIES CAN BE SAID TO BE ESTABLISHED ONLY WHEN IT IS SHOWN THAT INTERE ST FREE FUNDS ARE NOT AVAILABLE WITH THE ASSESSEE BANK WHEREAS REVERSE IS TRUE IN THIS CASE, THE BORROWED FUNDS ARE NOT AVAILABLE FOR INVESTMENT IN TAX FREE SECURITIES AND INFRASTRUCTURAL ADVANCES. THE AO HAS NOT BROUGHT ON RECORD THAT INTEREST FREE FUNDS ARE NOT AVAILABLE WITH THE ASSESSEE BANK. TH E ASSESSEE IS HAVING BORROWED FUNDS TO THE EXTENT OF RS.11058.54 CRORES WHEREAS INVESTMENT AND ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 18 ADVANCES ARE TO THE TUNE OF RS.11926.42 CRORES. THE AO HAS NOT CONTROVERTED THE FACT THAT THE ASSESSEE-COMPANY IS NOT HAVING EN OUGH FUNDS TO MAKE INVESTMENT IN TAX FREE SECURITIES. AS A MATTER OF F ACT, SECTION 14A REQUIRES TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO SUCH EXEMPT INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UND ER THE ACT. THEREFORE, THE ONUS LIES ON THE AO TO ESTABLISH THAT IN FACT T HERE WAS SOME EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE. THE A.O. IN THE PRESENT CASE HAS NOT BROUGHT ON RECORD ANY SUCH EXPENDITURE WHICH HAS AC TUALLY BEEN INCURRED BY THE ASSESSEE ON ACCOUNT OF INTEREST EXPENDITURE OR EVEN THE MANAGEMENT OR ADMINISTRATIVE EXPENDITURE FOR EARNING THE EXEMPT I NCOME. THE LD. CIT(A) HAS RIGHTLY HELD IN PARA 9 OF HIS ORDER THAT STATUT E HAS NOT LEFT SUCH DECISION ON THE WISHES AND IDEAS OF THE AO TO DETERMINE WHA T EXPENDITURE HAS BEEN INCURRED WITHOUT ESTABLISHING AND IDENTIFYING THE SAME. THE DECISIONS RELIED UPON BY THE LD. CIT(A) AND BY THE LD. COUNSEL FOR T HE ASSESSEE HAVE IN FACT LAID DOWN THE FOLLOWING PROPOSITION: I) ONLY THE EXPENDITURE INCURRED ON NON-TAXABLE RECEIP TS, WILL BE COVERED BY SECTION 14A OF THE ACT. EXPENDITURE ASSU MED OR DEEMED TO BE INCURRED ON NON-TAXABLE RECEIPTS CANNO T BE DISALLOWED. II) SECTION 14A HAS NOT CONFERRED SPECIFIC POWERS ON TH E ASSESSING OFFICER TO ESTIMATE THE EXPENDITURE WHICH THE ASSES SEE WOULD ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 19 HAVE, IN THE OPINION OF THE AO, INCURRED IN RELATIO N TO EXEMPTED INCOME. III) THE BURDEN OR ONUS LIES ON THE AO TO PROVE THE NEXU S BETWEEN THE EXPENDITURE TO BE DISALLOWED ON NON-TAXABLE REC EIPTS. IV) SECTION 14A DOES NOT ABSOLVE THE AO OF THE BURDEN O F PROVING, ON THE BASIS OF POSITIVE EVIDENCE OR MATERIAL ON RE CORD, THAT THE ASSESSEE HAS IN FACT INCURRED THE EXPENDITURE WHICH HAS NEXUS WITH THE EXEMPTED INCOME. V) THUS, IT IS DUTY OF THE AO TO PIN-POINT SUCH EXPEN DITURE ON THE BASIS OF THE MATERIAL ON RECORD. VI) IF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE ARE MORE THAN THE IMPUGNED INVESTMENTS, THEN, NO DISALLOWANC E CAN BE MADE U/S 14A OF THE ACT. 16. THE ARGUMENTS MADE BY THE LD. COUNSEL FOR THE A SSESSEE AND SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW BY HI M ARE CONVINCING TO THE BENCH THAT ADMINISTRATIVE AND OTHER EXPENSES ARE FI XED IRRESPECTIVE OF THE FACT WHETHER OR NOT TAX FREE INCOME IS EARNED AND THEREFORE, THESE EXPENSES CANNOT SAID TO BE RELATABLE TO EXEMPT INCOME. EVE RY YEAR IS AN INDEPENDENT YEAR AND IN THE PRESENT CASE, AS HELD BY US THERE I S NOTHING ON RECORD BROUGHT OUT BY THE AO THAT THE ASSESSEE HAS ACTUALLY INCURR ED ANY COST OR EXPENDITURE IN RELATION TO THE EXEMPT INCOME, THEREFORE, NO DIS ALLOWANCE ON ACCOUNT OF INTEREST, MANAGEMENT OR ADMINISTRATIVE CASE CAN BE MADE BY THE AO. THEREFORE, THE LD. CIT(A) HAS RIGHTLY ALLOWED THE A PPEAL OF THE ASSESSEE IN ITA NO.136(ASR)/2010 CO NO.09(ASR)/2010 20 RELATION TO DELETING THE ADDITION OF RS.7.05 CRORES BEING THE PROPORTIONATE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES. THERE FORE, THE LD. CIT(A) IS NOT JUSTIFIED IN RETAINING DISALLOWANCE EVEN OF RS. 8.10 LACS OUT OF RS.2.26 CRORES DISALLOWED BY THE A.O. THE A.O. IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE ACCORDINGLY. THUS, ALL THE GROUNDS OF THE REVENUE ARE DISMISSED AND SOLITARY GROUND OF THE ASSESSEE IN C.O. IS ALLO WED. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IN I TA NO.136(ASR)/2010 IS DISMISSED AND THE C.O. NO.09(ASR)/2010 OF THE ASSE SSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31ST DECEMBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31ST DECEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:JAMMU &KASHMIR BANK LTD. SRINAGAR. 2. THE DEPUTY CIT,CIRCLE-1, JAMMU. 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.