DY.CIT , CIRCLE -7(1) (1) , MUMBAI V. M/S. NATIONAL STOPCK EXCHANGE OF INDIA LTD, MUMBAI

ITA 1467/MUM/2022

AI Insights

The case involves multiple appeals by both the National Stock Exchange of India Ltd. (NSE) and the Deputy Commissioner of Income-tax concerning various disallowances made under the Income Tax Act. The appeals cover several assessment years, with common issues such as disallowance under section 14A read with Rule 8D, amortization of lease premium, and treatment of maintenance charges. The Tribunal's decisions were based on the applicability of Rule 8D, the nature of expenditures as capital or revenue, and the specific circumstances surrounding each assessment year. The Tribunal's rulings emphasized the need for objective satisfaction by the Assessing Officer regarding the correctness of the assessee's claims, particularly in relation to the accounts of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 37603 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: misc
• Other Referred Cases: Godrej and Boyce Manufacturing Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom), Sun Pharmaceuticals Ltd. vs. DCIT, 329 ITR 479 (Guj), Maxopp Investment Ltd. vs. CIT(A) (2018) 402 ITR 640 (SC), CIT vs. Raychem RPG Ltd. In ITA No. 4176 of 2009, dt. 04.07.2011, CIT vs. Pruthvi Brokers and Share Holders [2012] 349 ITR 336 (Bom), CIT vs. Asian Paints Ltd., in ITA No. 1564 of 2016, dt. 06.04.2019
• Laws Referred To: Income Tax Act
• Result in Favour of: Matter Remanded
• Court: TRIBUNAL
• Assessee Lawyers: PASSING A SPEAKING; INVOKING PROVISIONS OF RULE D III BEING . OF AVERAGE; RECTIFYING ITS
• Keywords: Business income; Revised return; Revenue expenditure; Business expenditure; Question of law; Depreciation; Capital expenditure; Earning of tax free income; Wholly owned subsidiary; Rule 8D
• Section: 14A; 2(A)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No. 1089/MUM/2022 Assessment Year: 2006-07 National Stock Exchange of India Ltd., Exchange Plaza, Bandra Kurla Complex, Bandra(East), Mumbai – 400051 (PAN : AAACN1797L) Vs. Deputy Commissioner of Income-tax, Circle – 7(1)(1), Mumbai (Appellant) (Respondent) ITA No. 1467/MUM/2022 Assessment Year: 2006-07 Deputy Commissioner of Income-tax, Circle – 7(1)(1), Mumbai Vs. National Stock Exchange of India Ltd., Exchange Plaza, Bandra Kurla Complex, Bandra(East), Mumbai – 400051 (PAN : AAACN1797L) (Appellant) (Respondent) Present for: Assessee : Shri J.D.Mistry, Sr. Advocate and Shri Harsh Kapadia Revenue : Shri Kailash C. Kanojiya, CIT DR and Ms Monika H. Pande, Sr.AR Date of Hearing : 09.12.2024 Date of Pronouncement : 28.02.2025 2 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. ITA Nos. 1090, 1091, 1092 and 1094/MUM/2022 Assessment Years: 2010-11, 2011-12, 2012-13 and 2015-16 National Stock Exchange of India Ltd., Exchange Plaza, Bandra Kurla Complex, Bandra(East), Mumbai – 400051 (PAN : AAACN1797L) Vs. Deputy Commissioner of Income-tax, Circle – 7(1)(1), Mumbai (Appellant) (Respondent) Present for: Assessee : Shri J.D.Mistry, Sr. Advocate and Shri Harsh Kapadia Revenue : Ms Monika H. Pande, Sr.AR Date of Hearing : 10.12.2024 Date of Pronouncement : 28.02.2025 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: All these captioned six appeals filed by both, assessee and revenue are against the orders of Ld. CIT(A) passed against the assessment orders passed by Addl.CIT/DCIT, Mumbai. Consolidated details of these appeals are tabulated below: 3 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. Sr. No. ITA No. Order of CIT(A) Assessment order Assess- ment year Appeal by No. Date Passed by Date Passed u/s. 1. 1089/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 39461(1) 30.03.20 22 Addl. CIT 24.12.20 08 143(3) 2006- 07 Assessee 2. 1467/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 39461(1) 30.03.20 22 Addl. CIT 24.12.20 08 143(3) 2006- 07 Revenue 3. 1090/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 08755(1) 30.03.20 22 Dy. CIT 28.02.20 13 143(3) 2010- 11 Assessee 4. 1091/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 41332(1) 30.03.20 22 Dy. CIT 20.02.20 14 143(3) 2011- 12 Assessee 5. 1092/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 45378(1) 30.03.20 22 Dy. CIT 30.03.20 15 143(3) 2012- 13 Assessee 6. 1094/MUM/2 022 ITBA/NFA C/S/250/ 2021- 22/10421 34803(1) 30.03.20 22 Dy. CIT 29.12.20 17 143(3) 2015- 16 Assessee 4 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 2. In this bunch of six appeals Revenue is in appeal only for Assessment Year 2006-07, rest all being by the assessee. 3. Issues involved in all these six appeals are mostly common. We will first take up appeal for Assessment Year 2006-07 as the lead case whereby our observations and findings on the common grounds shall apply mutatis mutandis to other assessment years. In respect of disallowance made u/s.14A r.w.r. 8D, the issue is common to all the Assessment Years in appeal before us. However, this issue has to be dealt vis-à-vis period prior to introduction of Rule 8D and in Assessment Years post its introduction. Thus, we will take up Assessment Year 2006-07 relating to period prior to Rule 8D and all other four years being period after introduction of Rule 8D. Further, within this post period of introduction of Rule 8D, in Assessment Year 2015-16, assessee pointed out factual aspects of inadvertent mistake committed by it while making suo moto disallowance, which shall be dealt specific to this Assessment Year. Summary of all the issues to be dealt in this set of six appeals is tabulated below vis-à-vis their respective grounds in each of the assessment years. M/s. National Stock Exchange of India Limited Sr. No. Grounds of appeal Assessment Years 2006-07 2010-11 2011-12 2012-13 2015-16 I Assessee's Appeals 1. Disallowance u/s. 14A r.w.r. 8D GOA No. 1 GOA No. 1 GOA No. 1 GOA No. 1 GOA No. 3 2. Amortization of Lease Premium GOA No. 2 GOA No. 2 GOA No. 2 GOA No. 2 GOA No. 1 3. Recovery of Maintenance Charges GOA No. 3 GOA No. 3 GOA No. 3 GOA No. 3 GOA No. 2 4. Amount paid from Investment Compensation Reserve GOA No. 4 5 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. II Department Appeal 1. Disallowance of Computer Software Expenses GOA No. 1 2. Disallowance of amount paid to NSE.IT Limited on account of Onsite Maintenance for Hardware and on account of Software support and Maintenance Charges GOA No. 2 4. General facts, common for dealing with these appeals are that the assessee is in the business of running a stock exchange. The main object of the assessee is to facilitate, promote, assist, regulate and manage in public interest, dealings in securities of all kinds and to provide specialized advanced, automated and modern facilities for trading, clearing and settlement of securities and to ensure trading in a transparent, fair and open manner. 5. Grounds raised by assessee and Revenue in their respective appeals for Assessment Year 2006-07 are taken up for adjudication seriatim. We first take up the appeal by the assessee in ITA No. 1089/Mum/2022. Ground No.1 is in respect of disallowance made u/s. 14A r.w.r. 8D. Assessee has earned Rs.13,91,29,296/- exempt income during the year which includes interest on tax free bonds of Rs.6,86,47,061/- and dividend of Rs.7,04,82,235/-. Assessee has suo moto allocated 0.1% of this exempt income as expense attributable to earning of this exempt income for making disallowance u/s.14A. Assessee claimed that in order to take care of possible administrative overheads, it has itself made disallowance u/s.14A. However, ld. Assessing Officer applied Rule 8D for computing the disallowance u/s. 14A as under: 6 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. a) Component u/r. 8D(2)(i) – Rs.1,39,129/- b) Component u/r. 8D(2)(ii) - Nil c) Component u/r. 8D(2)(iii) - Rs.1,70,21,055/- 5.1. Thus, ld. Assessing Officer made a disallowance of Rs.1,71,60,184/- u/s. 14A r.w.r. 8D. Ld. CIT(A) upheld the said disallowance. It is important to note that the year under consideration is Assessment Year 2006-07, which is prior to the year when Rule 8D was introduced. Computation mechanism provided in Rule 8D cannot be applied prior to this introduction which was effective from 24.03.2008 relevant to Assessment Year 2008-09. It is a settled position of law that Rule 8D is prospective in operation, i.e., to be applied on and from Assessment Year 2008-09, as held by Hon'ble Jurisdictional High Court of Bombay in the case of Godrej and Boyce Manufacturing Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom). The present issue is a legacy issue in the case of assessee, which has come up before the Coordinate Bench of ITAT from Assessment Year 2001-02 up to Assessment Year 2007-08, whereby disallowance at the rate of 1% of the exempt income has been sustained u/s. 14A, consistently for all these years. 5.2. We refer to findings arrived at by the Coordinate Bench in assessee’s own case in Assessment Year 2007-08 in ITA No. 2687/Mum/2011, dated 16.10.2019 in para-2.4, whereby ld. Assessing Officer is directed to disallow 1% of exempt income to work out disallowance u/s. 14A of the Act. Respectfully following the judicial precedents, we direct the ld. Assessing Officer to disallow 1% of exempt income to arrive at disallowance u/s.14A, since Rule 8D computation mechanism is not applicable in the year under 7 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. consideration. Accordingly, ground No.1(a) to 1(c) taken up by the assessee are partly allowed. 6. Ground no.2(a) to 2(d) is in respect of disallowance of Rs.1,28,37,644/- being proportionate amortization of lease premium paid to Bombay Metro Regional Development Authority for lease hold land. In this respect, assesse contended that it had made a disclosure in note no.3 to its computation of total income filed with the return of income which reads as under: \"Lease premium past in respect of leasehold Land acquired by the assessee from the BMR.DA. (Bombay Metropolitan Regional Devolvement Authority) is being amortized over the lease period of 80 years. The company has been claiming proportionate amortization of lease premium as an allowable revenue deduction but has been disallowed by the Income Tax Department in the past. The appeals for earlier years are pending before ITAT and/or CITY/Appeal” 6.1. However, ld. Assessing Officer disallowed the claim of amortization of lease premium by treating it as capital expenditure which was confirmed by ld. CIT(A). We note that identical issue had been dealt by Coordinate Bench of ITAT in assessee’s own case in past several years, whereby the matter has been restored to the file of ld. Assessing Officer for deciding it in light of decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ltd., 329 ITR 479 (Guj). 6.2. Fact of the matter is that assessee had capitalized lease hold land and reported it as asset in its balance sheet and at the same time claimed amortization on the amount so capitalized. In the order of Coordinate Bench of ITAT for Assessment Year 2008-09, in ITA No.1739/Mum/2013, dated 16.10.2019, a reference is made of the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals (supra) while setting aside the matter to the file of ld. Assessing Officer. Relevant extract of the decision of Coordinate Bench, in this respect is extracted below- 8 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. \"3.1. We have heard the rival submissions. We find that similar issue wax subject matter of adjudication by this tribunal in the case of IOT Infrastructure & Energy Services Ltd (formerly Indian Oil Tanking Limited) in ITA Nos 1901 & 2585/Mum/2009 for Asst Year 2004-05 ITA Nos. 34778 3241/Mum/2009 for Asst Year 2005-06; ITA No. 2208/Mum/2010 for Ast Year 2006-07, ITA No. 7035/Mum/2010 for Asst Year 2007-08 and ITA No 7430/Mum/2011 for Asst Year 2008-09 dated 17.5.2013 wherein it was held as under:- “19. As regards the premium and other charges paid in respect of leasehold land, the Id. Counsel for the assessee has submitted that although a similar issue has been decided by the Tribunal against the assessed in A.Y. 1999- 2000, the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ind. reported in (2010) 329 TR 479 rendered subsequently on a similar issue is in favour of the assessee. A perusal of the judgment passed by the Hon'ble Gujarat High Court in the said case shows that the Tribunal in that case had found on analysis of the relevant lease agreement that the land in question was not acquired by the assessee. The lease Deed was registered because as per the Registration Act it was compulsory to do so. There was no change in the ownership of the land and the lease rent payable was very nominal. Keeping in view all these facts, it was held by the Tribunal that the benefit accrued to the assessee was only in the nature of an advantage for carrying on the business by paying nominal rent of the land and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. Keeping in all these findings of fact recorded by the Tribunal, which were not specifically disputed by the Revenue, the Hon'ble Gujarat High Court did not find any infirmity in the order of the Tribunal deleting the disallowance made on account of lease rent paid by the assessee to GIC treating the same as Revenue expenditure. In our opinion, before the ratio of the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ind. Ltd. (supra) is applied in the present case, the relevant facts are required to be verified, we therefore restore this issue to the file of the A.O. for deciding the same afresh in the light of the decision of Hon'ble Gujarat High Court in the case of San Pharmaceuticals Ind. Ltd. (supra) after verifying the relevant facts Ground No. 4 & 5 of the assessee's appeal are accordingly treated as allowed for statistical purpose. 3.2. Respectfully following the same, we restore this issue to the file of ld. AO for deciding the issue in the light of decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals India Ltd reported in 329 ITR 479 (Accordingly, the Ground Nos. 2(a) to 2(d) raised by the assessee are allowed for statistical purposes.\" 6.3. Respectfully following the aforesaid decision of Coordinate Bench, this present issue raised by the assessee is restored back to the file of ld. Assessing Officer for deciding afresh in terms of direction given above by the Coordinate Bench. Accordingly, ground no. 2(a) to 2(d) are allowed for statistical purposes. 9 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 7. Ground no.3(a) to 3(d) are in respect of treating maintenance and other charges received from licensees as income from house property, amounting to Rs.1,05,72,994/-. Fact of the matter is that assessee had let out part of its premises to various clients like ONGC, SEBI, National Securities Clearing Corporation, Lucent Technologies, etc. and earned rental income. This rental income also included maintenance charges received by the assessee. In this respect, assessee explained that the maintenance charges recovered from licensees were towards various facilities like securities, etc., in the nature of reimbursement of cost incurred by it and therefore cannot be treated under the head ‘income from house property’. It was claimed that assessee received maintenance charges of Rs.1,68,94,128/- against which assessee had incurred expenses resulting in Nil amount to be included in regular business income. However, ld. Assessing Officer rejected the claim of assessee and held that deduction of 30% of annual value would cover such expenses. Ld. CIT(A) confirmed the treatment given by ld. Assessing Officer in this respect. 7.1. We note that this issue had come up before the Coordinate Bench in assessee’s own case in the past several years. We refer to the order for Assessment Year 2016-17 and 2017-18 in ITA No. 730 and 731/Mum /2023, dated 26.10.2023 whereby the issue has been restored back to the file of ld. CIT(A) with a specific direction to deal with all the contentions raised by the assessee by passing a speaking order, in accordance with the law. In this order, reference is also made to the orders of Coordinate Bench for Assessment Year 2004-05 and 2005-06, wherein similar directions were given. Relevant extracts from the said order are reproduced as under: 10 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. “31. Heard both the sides on this issue and perused the material on record. The Id. Counsel has referred submission made before the Id. CIT(A) stating that maintenance charges recovered were separate charges for proving facilities such as securities etc. The assessee explained before the Id. CIT(A) that these were the reimbursement of expenses incurred by the assessee. Before the Id. CIT(A) the assessee also submitted that in the case of the assessee itself for A.Y. 2005-06 the ITAT vide its combined order, ITA No. 3114/Mum/2009 dated 30.12.2011 has restored the matter back to the Id. CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order in accordance with the law. The assessee has also referred the relevant part of the ITAT order for A.Y. 2004-05 and A.Y. 2005-06 in its submission reproduced as under: \"Para 98 In Ground No.5, the assessee is aggrieved by the CIT(A)'s treating an amount of Rs. 1,39,91,621 being maintenance charges recovered from the licenses as \"income from house property\" Para 99. The relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has let out a part of its premises to various persons like ONGC, SEBI. National Securities Clearing Corp Ltd etc, and earned rental income from the same. The Assessing Officer further noticed that the total rentals received from these persons included rent (Rs. 12,05,13,061), maintenance charges (Rs. 1,39,91,621) and municipal taxes (Rs.2,43,72,366), but the assessee has not shown the amount of Rs.1,39,91,621 in the computation of income from house property. This amount was instead taken to the profits and gains from business and was shown as reduced from expenditure for maintenance, and only the net amount (excess of expenses over this receipt) was taken to the profit and loss account. The stand of the assessee was that the maintenance charges recovered was nothing but a reimbursement of expenses, and in fact a partial reimbursement. However, the Assessing Officer did not accept the said plea and included the maintenance expenses in the computation of income from house property. Aggrieved, assessee carried the matter in appeal but without any success. Elaborate arguments were advanced on the factual and legal aspects of this treatment, but the CIT(A) dismissed the arguments of the assessee by making a very brief observation to the effect that since the Assessing officer has based his conclusions on Hon'ble Supreme Court's judgment in the case of Shambhu Investments (263 ITR 143), the action of the Assessing Officer is sustained. The assessee is not satisfied and is in further appeal before us. Para 100. Having heard the rival contentions and having perused the material on record, we find that the CIT(A) has indeed been very superficial in his approach and has simply brushed aside contentions of the assessee The issue in appeal does not have much to do with the decision of Hon’ble Supreme Court in the case of Shambhu Investments (supra). It is a case where separate payment is being made and there is no dispute that the rent is to be treated as income from house property. The question really is whether a 5146 made these legal submissions which the CITIA) had no occasion to deal with separate payment is being made for other services whether the same could be treated as income from house property It is also to be examined whether such a payment is to be excluded for determination of annual value. There are decisions on the coordinate benches as also 11 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. Hon'ble Courts above dealing with fine points regarding these aspects. Learned counsel has, even before us, made these legal submissions which the CIT(A) had no occasion to deal with by way of a speaking order. In this view of the matter, we deem it fit and proper to remit the matter to the file of the CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order and in accordance with the law. We direct so. Para 101. Ground No. 5 is thus allowed for statistical purposes in theterms indicated above. Fara 111 In Ground No. 3, the assessee is aggrieved by the CIT(A)'s treating an amount of Rs. 1,62,05,179 being maintenance charges recovered from the licenses as \"income from house property\". Para 112 Following the discussions and the conclusions earlier in this order, with respect to identical issue for the immediately preceding year, we remit this issue to the file for adjudication de novo by way of a speaking order, in accordance with the law and after giving a due and fair opportunity to the 32. In view of the facts, provision of law and findings of the ITAT Mumbai on the similar issue and identical facts as referred above we restore this issue to the file of the Id. CIT(A) for deciding a fresh by way of speaking order after taking into consideration the detailed submission made by the assessee. Therefore, this ground of appeal is allowed for statistical purpose. 33. In the result ground no.1 of the appeal of the assessee is allowed and grounds no.2 to 3 of the appeals of the assessee are allowed for statistical purposes.” 7.2. In view of the above fact, provision of law and findings of Coordinate Bench in assessee’s own case on the same issue, we restore this issue to the file of ld. CIT(A) for deciding afresh, by way of passing a speaking order, after taking into consideration all the submissions and contentions made by the assessee. Accordingly, ground no. 3(a) to 3(d) are allowed for statistical purposes. 8. Ground No.4 relates to disallowance of Rs.11,47,000/- towards compensation paid to investors, out of amount transferred to Investor Compensation Reserve (ICR). Ld. Assessing Officer is of the view that Investor Protection Fund is already created under the guidelines of SEBI whereby mandatory subscription from the assessee is required at the rate of 1% of listing fees, 100% interest earned on 1% security 12 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. deposit kept by the issuer companies, difference of amount of auction over close cut price, sales proceeds of the return of securities and other sums specified under SEBI regulations. According to the ld. Assessing Officer, once a separate fund exists with mandatory contribution from the assessee, to take care of interest of investors from the defaulting members, further, charge to profit and loss account towards ICR has no relevance. He also noted that investor wise payment details and break-up were not provided to justify the expenditure so claimed by the assessee. He thus, treated it as not a genuine business transaction and made the disallowance. 9. Before the ld. CIT(A), assessee contended that it is pursuant to the direction of Hon'ble High Court of Andhra Pradesh that assessee was required to compensate the investors, who had suffered loss due to trading in shares of Maruti Organic Ltd., which was suspended by the assessee for investigation purposes. It was on this account that ICR was created by the assessee. Assessee furnished the details of investors to whom the compensations were paid which forms part of the paper book at page 153. Assessee distinguished the Investor Protection Fund, which ld. Assessing Officer referred to from the ICR created by the assessee under the direction of Hon'ble High Court of Andhra Pradesh. It was submitted that Investor Protection Fund is required to be set up by the Stock Exchanges under the stipulation of Central Government. It contemplates to create a compensation fund to take care of legitimate investment claims, which are not of speculative nature of the clients of a defaulting member. In the case of ICR, it is trading members of the stock exchanges who are compensated, more particularly under the direction of Hon'ble High Court of Andhra Pradesh given in the case of P. Ravindra and others vs. National Stock Exchange of India Ltd. in Writ Petition Nos. 23584, 25746,25758, 13 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 25762, 25776, 25805 and 25806 of 2000 and 6741 of 2001, dated 21.10.2003. 10. In this judgement, Hon'ble Court directed the respondent, i.e., assessee to pay such of those individual sellers of shares in Maruti Organic Ltd., who are the petitioners in these various writ petitions, by compensating in full by paying market value of share on the relevant date of the sale. Relevant extract as contended in para-50 in this respect is reproduced below: “50. In this context, in view of the statement made by the learned Senior Counsel Sri Rafeeq Dada appearing for the respondent-Stock Exchange that such of those genuine sellers who have no part in the manipulation of the market will be compensated, I deem it appropriate to direct the respondents to pay such of those individual sellers of the shares in Maruti Organics Limited, who are the petitioners in these various writ petitions other than those sellers who are already identified in the report to have manipulated the market on the basis of which the impugned action is taken, shall be compensated in full by paying the market value of the share on the relevant date of the sale. In my view, having regard to the fact that the shares of the MOL are quoted not only in the respondent-Stock Exchange but also in certain other Stock Exchanges, the average value of the said share on the relevant date as quoted in the various other Stock Exchanges of the country should be paid as compensation.” 11. Ld. CIT(A) has dismissed the ground raised by the assessee by holding that reserve created by the assessee partakes the character of appropriation of profit and therefore cannot be allowed, since it gives an impression of duplicate claim as assessee failed to substantiate the difference between mandatory contribution towards Investor Protection Fund and that created for ICR. Assessee also contended that similar claim was made by the assessee in Assessment Year 2008-09 of Rs.65.32 lakhs, while computing its income and reported in the return filed for that year. Assessment Year 2008-09 was subjected to scrutiny assessment u/s. 143(3), wherein ld. Assessing Officer has accepted the claim made by assessee in this respect whereby no disallowance has been made. The assessment was 14 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. completed by order dated 22.12.2010. Assessee furnished relevant documents and evidences in this respect which are placed on record. 12. We have heard both the parties and perused the material on record. We have also gone through the order of Hon'ble High Court of Andhra Pradesh (supra) as well as financial statements of the assessee in this respect. Assessee has claimed this expense being incurred wholly and exclusively for the purpose of its business, allowable u/s.37(1). The present case of claim towards ICR is specific to transaction undertaken by various trading members in the shares of Maruti Organic Ltd., a Hyderabad based company through a number of trading members to manipulate the market. This script was indefinitely suspended and investigation was undertaken. It revealed that there was an organised attempt to commit frauds by a group of buyers. Some of the clients and trading members filed petition in the Hon'ble High Court of Andhra Pradesh. Under the directions of Hon'ble High Court, executive committee of the assessee decided that any genuine investor who is inadvertently affected by the decision of annulment and who establishes their bonafides would be compensated to the extent of purchase value or the sale value, whichever is the lower, subject to their satisfying the exchange about the genuineness of the transaction. Assessee received 67 claims which were scrutinised independently, out of which claims in respect of 14 selling clients were considered for payment. Accordingly, Board of Directors of the assessee approved the admissible claims to be paid from ICR created by it. Thus, assessee explained about the claim of expenditure made by it towards ICR which is in pursuance of the direction of Hon'ble High Court of Andhra Pradesh to compensate genuine claims of the investors. We also note that similar claim has been accepted by the Department in the subsequent year, i.e. 15 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. Assessment Year 2008-09. Assessee has also furnished investor wise break up of compensation paid in this respect, details of which is placed in paper book. Considering the facts on record, explanation furnished as discussed above, we allow the claim made by the assessee. Accordingly, ground no.4 taken by the assessee is allowed. In the result, appeal of the assessee is partly allowed. 13. We now take up appeal by the Revenue in the same assessment year i.e. 2006-07. Ground no.1 is towards deletion of disallowance of Rs.61,66,568/-, on account of computer software expenses which according to the Revenue are capital expenditure on which depreciation is allowable. From the details of purchase of software called by the ld. Assessing Officer, he found out that eight items of purchase of software deserves to be treated as capital expenditure which is tabulated below: Nature of items Amount Software update subscription charges for Oracle licences 33,01,841 Purchase of all fusion Erwin data modeler 4.1.4 3,34,083 Procurement of web logic server -advantage edition 8.1 software 9,19,194 Dragon natural speaking software Version 7.0 11,833 Software expenses for licence to use fee for the prowess service charges 50,000 Reversal of prepaid towards systematic Anti virus desktop licence 6,77.196 Renewal of Lotus Notes licence 8,17,085 Procurement of FX client server version 5.1 55,336 Total 61,66,568 16 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 13.1. He treated expenses towards purchase of these software as capital in nature and allowed depreciation at the rate of 25% as applicable to intangible assets. On appeal before the ld. CIT(A), he found that these expenditures relate to subscription and renewal charges only. He thus, accepted the contention of the assessee that expenses incurred by the assessee on software expenses are periodical and recurring and therefore revenue in nature. Claim of the assessee was allowed by disregarding the depreciation given by the ld. Assessing Officer while making the addition. 14. Before us, assessee reiterated its submission made before the ld. CIT(A) and substantiated the same by referring corroborative material placed in the paper book. It also claimed that similar expenses have been allowed in the case of its associate company, i.e., National Stock Clearing Corporation Ltd., by ld. CIT(A), which has not been contested at higher forum. Reliance was also placed on decision of Hon’ble Jurisdictional High Court of Bombay in the case of CIT vs. Raychem RPG Ltd. In ITA No. 4176 of 2009, dt. 04.07.2011, wherein substantial question of law raised by the Revenue on this issue was- \"(a) Whether on the facts and circumstance of the case and in law, the Hon'ble ITAT was justified in deleting the additions in respect of disallowance of software expenditure to the extent of Rs. 23,62,368/- as capital expenditure as software used for the first time will have to be considered as capital in nature?” 17 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 14.1. While answering this question, Hon’ble Court referred to the decision of Tribunal for Assessment Year 2001-02, wherein the expenditure was allowed as revenue. It answered substantial questions of law in favour of assessee by holding that software expenditure is allowable as revenue expenditure. Relevant extracts are as under: 2. As regards the first question, ITAT relying upon on its order in the assessee's own case relating to Assessment year 2001-02 held that the software expenditure was a revenue expenditure. The appeal filed by the Revenue for the assessment year 2001 and 2002 has been dismissed for want of removal of office objections and thus the order passed by the ITAT for the Assessment year 2001-2002 has attained finality. Moreover, the Tribunal in its order relating the assessment year 2001-02 has allowed expenditure as revenue expenditure by recording thus: \"7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit making apparatus of the assessee and hence the same is to be disallowed a revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an Enterprises Resources Planning (ERP) package and hence it facilitate the assessee's trading operations or enabling the management to conduct the assessee's business more efficiently or more profitably but it is not in the nature of profit making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs.20.60 lakhs is of revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the LD AR of the assessee.\" 3. In our view, no fault can be found in the aforesaid order of ITAT holding that software expenditure was allowable as revenue expenditure. 15. In the given set of facts as discussed above and considering the judicial precedents, we do not find any reason to interfere with the findings arrived in by ld. CIT(A) in treating the expenses incurred by assessee towards software licences as revenue in nature. Ground no.1 taken by the Revenue is dismissed. 18 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 16. Ground no.2 is towards deleting the disallowance of Rs.7,32,90,427/- paid to NSE.IT Ltd. in the name of comprehensive onsite maintenance for hardware and Rs.6,52,61,510/- on account of software support and maintenance charges. According to the Revenue, no documentary evidences in the form of investors were presented either during the assessment proceedings or in the remand proceedings and that new evidences produced are in violation of Rule 46A. Fact of the matter is that assessee has debited Rs.32,39,89,000/- towards repairs and maintenance of trading and telecommunication system. Out of this, assessee made payment to its subsidiary company, i.e., NSE.IT Ltd. which is tabulated as under: Amount Purpose Comprehensive onsite maintenance for stratus machine and development of onsite engineer 732,90,427 Software support and maintenance charges for FY 2005-06 6,52,61,510 Total 13,85,51,937 16.1. Ld. Assessing Officer noted that in addition to the above payments, assessee has also made payment of Rs.4,70,96,616/- under the head ‘IT management and consultancy charges’. Assessee furnished necessary details along with agreements entered by it with NSE.IT Ltd. and corroborated the same by furnishing all the required documentary evidences in the form of invoices. However, ld. Assessing Officer questioned the scope of agreements vis-à-vis payments made by the assessee and alleged that these have been claimed by inflating the expenditure to reduce the taxable income. He thus, made the addition of Rs.13,85,51,937/- by disallowing the two payments of 19 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. Rs.7.32 crores and Rs.6.52 crores by treating them as not genuine business expenditure. 16.2. Before ld. CIT(A), assessee has elaborately explained the arrangement made by it with its subsidiary company, i.e. NSE.IT Ltd. in reference to the agreements entered into by it. It was submitted that Schedule 1 of the agreement, dated 02.03.2006 effective for the period from 01.10.2005 to 31.03.2007 specified the four heads under which payments had to be made by the assessee. i) Software development ii) Software maintenance iii) Software testing iv) Facility management and operations 16.3. Assessee explained each of the claim made under each of the four above stated heads, for which ld. Assessing Officer had mis- interpreted and misread the four categories against which assessee had made claim of expenditure. It was submitted that amount of Rs.6,52,61,510/- was made for services towards software support and maintenance which was debited under the head ‘Repairs and maintenance’. Amount of Rs.4,70,96,616/- pertains to facility management and operation services which was debited under the head ‘IT management and consultancy charges’. Copies of invoices for both these categories were placed on record for which remand report was called by the ld. CIT(A). According to the assessee, ld. Assessing Officer has erroneously presumed that these amounts have been paid for different purposes in terms of this contractual obligations, possibly because of the similarity in the nomenclature used for these payments. 20 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 16.4. For amount of Rs.7,32,90,427/-, which relates to onsite maintenance of stratus machines and various other server machine related hardware, an agreement dated 13.10.2005 was placed on record. Schedule 1 of this agreement described the nature of service being annual maintenance of various server machines. Relevant invoices were also furnished which were subjected to remand report from the ld. Assessing Officer. 16.5. To summarize, assessee made following payments to its subsidiary company, i.e., NSE.IT Ltd. and claimed as business expenditure- Sr. No. Nature Debited under the Head Amount 1. Comprehensive onsite maintenance for stratus machine and development of onsite engineer Repairs and Maintenance 7,32,90,427 2. Software support and maintenance charges Repairs and Maintenance and 6,52,61,510 3. Total 13,85,51.937 4. Facility management and operation service IT Management and Consultancy Charges 4,70,96,616 17. We have heard both the parties and perused the material on record. It is noted that NSE.IT Ltd. is a wholly owned subsidiary of assessee, which looks after various systems and telecom related activities of the assessee and IT related business for the securities market in particular, and financial services industries, in general. All these system and telecom requirements of assessee are outsourced to NSE.IT Ltd., for which agreements are in place as referred above. These agreements cater to various services rendered by NSE.IT Ltd. to the assessee which are categorized into different nomenclature as 21 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. listed above. Assessee has made payment to NSE.IT Ltd. pursuant to these agreements on receipt of benefits of various services rendered by it. Having perused the aforesaid agreements placed on record and the explanation given by the assessee for each of the payments made by it, pursuant to these agreements, which even ld. CIT(A) has found to be legitimate business expenditure incurred by the assessee for the purpose of its business, we do not find any reasons to interfere with the findings arrived at by ld. CIT(A). Accordingly, ground raised by the Revenue is dismissed. 18. In the result, appeal of the Revenue is dismissed. 19. Now we take up the remaining four assessment years. Issue relating to amortization of lease premium and recovery of maintenance charges from licensees, have already been dealt by us in ground no.2 and 3 in the appeal of assessee in Assessment Year 2006-07. These issues are also common to Assessment Year 2010-11, 2011-12, 2012- 13 and 2015-16, for which their respective grounds are already tabulated above. The factual matrix and applicable law, remains the same for these Assessment Years and therefore our observations and findings arrived at for Assessment Year 2006-07, on these issues applies mutatis mutandis for the remaining four years also. Accordingly, respective grounds of appeals raised by the assessee in these four Assessment Years on the said two issues are adjudicated in terms of our findings given in ground no.2 and 3 for Assessment Year 2006-07. 20. Now we take up disallowance u/s.14A r.w.r.8D for the four Assessment years which is a period post introduction of Rule 8D. For this we take up appeal for Assessment Year 2010-11, wherein 22 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. assessee had claimed, following incomes as exempt in its return filed for the year. Nature of income Amount (Rs) Exemption Section Interest on tax free bonds 8,03,04,610 10(15) Dividend on mutual funds 153,08,75,011 10(35) TOTAL 161,11,79,621 21. Assessee made suo moto disallowance in its computation for Rs.1,72,84,507/- u/s.14A towards expenditure incurred in relation to aforesaid tabulated exempt income. Assessee worked out this suo moto disallowance out of employee and other administrative costs taking it as reasonable expenses incurred in relation to earning of exempt income. For this purpose, assessee took total annual salary of two of its Assistant Managers and Chief Manager, who were handling investment of the assessee, 25% of annual salary of Manager, 20% of annual salary of Sr. Vice President, 10% of annual salary of Director, 5% of annual salary of two Senior Management persons. In addition to this, it also took proportionate administrative expenses which included insurance, rates and taxes, printing, postage, telephone, stationary, travelling and conveyance, electricity charges, auditors renumeration, depreciation, etc., by applying ratio of said salary to the total salary incurred during the year. Assessee also considered notional rent for space occupied by the concerned investment department for working out this suo moto disallowance. Assessee thus, demonstrated reasonable nexus of incurring of these expenditures in relation to exempt income earned by it. Detailed working of suo moto disallowance presented by it before the authorities below is extracted below: 23 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 24 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 25 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 26 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. 21.1. All along proceedings before the authorities below, assessee had contended that, Rule 8D can be invoked only if ld. Assessing Officer is not satisfied with the correctness of the claim of assessee in respect of expenditure incurred in relation to exempt income “having regard to the accounts of the assessee”. According to the assessee, section 14A(2) does not ipso facto empowers the Assessing Officer to apply the method prescribed in Rule 8D straight away without considering whether the claim made by the assessee in respect of expenditure incurred is correct or otherwise without having regard to the accounts of the assessee. Application of Rule 8D is not compulsory or mandatory unless accounts and records of the assessee have been examined by the Assessing Officer to find out any incorrectness or defect or shortcomings in the suo moto disallowance claimed by the assessee. Thus, there is a pre-requisite of recording of satisfaction by the Assessing Officer having regard to the accounts of the assessee for invoking Rule 8D for which inaccuracy ought to be pointed out on the method of apportionment or allocation of expenses by the assessee. Without discharging this onus, Assessing Officer is not entitled to make disallowance by invoking Rule 8D. There is no room for any presumption at the end of Assessing Officer for taking such an action. However, Assessing Officer rejected the submissions made by the assessee as the suo moto working of disallowance was not in accordance with Rule 8D and disallowed Rs.6,89,96,788/- over and above the suo moto disallowance of Rs.1,72,84,507/- made by the assessee by invoking provisions of Rule 8D(2)(iii) being 0.5% of average value of investments. For making this disallowance, ld. Assessing Officer held that – a) the estimate made by the assessee has no scientific basis nor it is mandated by law. 27 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. (b) the partial disallowance u/s. 14A made by the assessee is not commensurate with the nature of investment activity of the assessee. (c) the working of the assessee leaves out various other resources that the organization has to deploy in the owning and manage- ment of the investments; 22. Ld. Assessing Officer also noted that in view of the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Godrej and Boyce Manufacturing Company Ltd. vs. DCIT, from Assessment Year 2008-09 and onwards, Rule 8D will apply and no estimate can be resorted to. Ld. CIT(A) also confirmed the disallowance made by ld. Assessing Officer. While doing so, he observed that “Where the entire exercise of estimating the possible expenditure incurred for earning for exempt income is such that a fair estimate is not possible, the obvious recourse is to resort to the readymade formula prescribed u/r 8D.” 23. We have heard both the parties and perused the material on record. We have gone through the detailed submissions made before us as well as the orders of the authorities below. The facts narrated above are undisputed. The sole issue is in respect of disallowance made u/s.14A, by invoking Rule 8D vis-à-vis dissatisfaction recorded by the ld. Assessing Officer, whether it being in compliance with provisions contained in section 14A(2). For this purpose, we perused the order of ld. Assessing Officer for his observations and findings. We note that in para 4.5, it is observed that basis of computation of disallowance u/s.14A by the assessee is not acceptable, since it is based on percentage of various expenses and it leads to leaving out various other resources that the organisation has deployed in the owning and management of business. However, there is no specific pointing out of which resource and which expense has been left out 28 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. while computing the disallowance by assessee. It is also observed by the ld. Assessing Officer that there is no basis for percentage rate taken by the assessee without mentioning as to what could be the correct basis for computing the disallowance. Further, in para 4.6, it is stated by the ld. Assessing Officer that it is not practical to have the expenditure incurred of Rs.1,72,84,507/- for earning the income of Rs.153,08,75,011/- and managing the assets of Rs.10,611.39 lakhs in tax free bonds, Rs.1,68,541.85 lakhs in Mutual funds and Rs.14,451.12 lakhs in subsidiary companies. On this, he further, states in para 4.7 that the estimate so made by the assessee has not scientific basis nor it is mandated by any law. According to him, there is a very clearly laid down procedure u/r. 8D for the quantification of disallowance and thus proceeded to compute the disallowance by applying Rule 8D, whereby total quantum of disallowance was arrived at the above figure in Rule 8D(2)(iii). 23.1. Also, from the perusal of observations of the ld. CIT(A) in para – 5.4, we note that disallowance has been sustained primarily on a view that where a fair estimate is not possible, the obvious recourse is to formula prescribed in Rule 8D. However, there is no specific detailing as to how the fair estimate is not possible when assessee has furnished details of its working corroborated by all the evidences. 23.2. We take note of the working of suo moto disallowance made by the assessee, details of which are already extracted above and reflects adoption of scientific approach. Provisions of section 14A(2) requires the Assessing Officer to invoke Rule 8D only if he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure, in relation to the exempt income having regard to the accounts of the assessee. Even Rule 8D postulates similar condition 29 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. as mentioned in section 14A(2) wherein also the satisfaction to be arrived at by the ld. Assessing Officer on the correctness of the claim of expenditure made by the assessee is “having regard to the accounts of the assessee”. There is no change in Rule 8D(1) even though method of computation of disallowance has been substituted with a different method. 23.3. We note that if the ld. Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income after “having regard to the accounts of the assessee”, he can determine the amount of such expenditure for making disallowance under section 14A. The satisfaction arrived at by ld. Assessing Officer in terms of the provisions is not just a mere disagreement with the submissions made by the assessee but has to be an objective satisfaction by taking into consideration the methodology adopted by the assessee for the claim made by it and then arriving at a satisfaction accepting or rejecting the same “having regard to the accounts of the assessee”. 23.4. In the present case before us, ld. Assessing Officer has not taken into consideration the elaborate details and scientific basis adopted while arriving at the suo moto disallowance but has proceeded merely on his own presumptions to invoke section 14A r.w.r. 8D. Ld. Assessing Officer has failed to record reasons as to why the rate of percentage adopted by assessee on various expenses incurred for earning exempt income is not acceptable having regard to the accounts of the assessee. He has rejected the working of accounts of assessee without pointing out specific expenditure, which has not been considered or quantified by the assessee. Since no proper satisfaction has been recorded by the ld. Assessing Officer in terms of 30 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. the provisions of section 14A(2) of the Act, “having regard to the accounts of the assessee”, about the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income, we do not find any reason for upholding the disallowance made by the AO under section 14A read with Rule 8D. We delete the disallowance made by the ld. Assessing Officer and direct to adopt the suo moto disallowance made by the assessee under section 14A of the Act. Accordingly, ground taken by the assessee in this respect is allowed. 24. Similar issue had come up in the associate company of the assessee in the case of DCIT vs. National Stock Exchange Clearing Ltd., before the Coordinate Bench of ITAT of Mumbai in ITA No. 6726 and 6727/Mum/2019 for Assessment Year 2010-11 and 2011-12, dated 03.01.2022. National Stock Exchange Clearing Ltd. is a wholly owned subsidiary of the assessee which acts as a separate clearing house for clearing and settlement of all trades executed on the assessee. In this case also, suo moto disallowance was made on identical methodology as adopted by the assessee, details of which are already extracted above. Ld. Assessing Officer had invoked Rule 8D for the purpose of making disallowance u/s.14A disregarding the suo moto disallowance computed by the assessee in that case, without recording satisfaction as mandated in section 14A(2). The Coordinate Bench examined the manner in which ld. Assessing Officer had recorded his dissatisfaction in respect of suo moto disallowance made by the assessee u/s.14A and held that the dissatisfaction so recorded by the ld. Assessing Officer is not in accordance with mandate as envisaged u/s.14A(2) of the Act. It thus, upheld the suo moto disallowance claimed by the assessee u/s.14A since dissatisfaction 31 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. recorded by the Assessing Officer fell short of the mandate for recording the same u/s.14A(2). 24.1. In the present case before us, findings arrived at by Coordinate Bench in the case of National Stock Exchange Clearing Ltd. squarely applies as the methodology adopted is identical for making suo moto disallowance and reasoning given by Assessing Officer for invoking Rule 8D are also on similar lines. 25. The above finding arrived at by us is further fortified by the decision of Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT(A) (2018) 402 ITR 640 (SC) while emphasising on aspect of recording of satisfaction by the ld. Assessing Officer for which it observed as under: \"41. Having regard to the language of section 14A(2) of the Act, read with rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, the nature of the loan taken by the assessee for purchasing the shares/ making the investment in shares is to be examined by the Assessing Officer 25.1. Further, on the same issue, Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. v. DCIT, (2017) 394 ITR 449, observed as under: \"37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read 32 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.\" (emphasis supplied) 25.2. We also find that the Hon'ble jurisdictional High Court of Bombay in CIT v. M/s Asian Paints Ltd., in ITA No. 1564 of 2016, vide order dated 06/04/2019, for the assessment year 2008-09, while dismissing the appeal filed by the Revenue on a similar issue held that in the absence of recording of satisfaction in terms of section 14A(2) of the Act, invocation of Rule 8D is not permissible. Relevant findings of the Hon'ble Court, are reproduced as under:- \"4. Regarding question no.(c) :- (a) In its return of income, the respondent made a suo-moto disallowance of Rs.15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs. 1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exempt income. Thus, adding Rs.1.10 crores to the income of the respondent. (b) Being aggrieved, the respondent filed an appeal to the CIT(A) but without success. (c) On further appeal, the impugned order of the Tribunal while allowing the appeal held that before invoking the provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Rules, the disallowance of expenditure to earn exempt income cannot be sustained. (d) This issue is no longer res integra as the Apex Court in Gorej & Boyce Mfg. Co. Ltd. v. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under “Whether such determination is to be made on application of the formula prescribed under rule 8D or in best jusigment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not ssible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It only thereafter that the provisions of section 14A (2) and (3) read with rule 8D of the Rules or a best dgment determination, as earlier prevailing, would become applicable.\" Thus, Rule 8D of the Rules cannot be invoked where the suo moto disallowance made by the respondent ssessee is not found to be satisfactory by the Assessing Officer having regard to the accounts of the assessee, In the absence 33 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. of recording the aforesaid fact of non- satisfaction in terms of Section 14A(2) of The Act, invocation of Rule 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained.\" 25.3. Thus, ground no. 1(a) to 1(c) taken by the assessee is allowed. Since similar facts exists in the case of for Assessment Year 2011-12 and 2012-13, ground no.1 in these two years are also allowed as held in ground no.1 for Assessment Year 2010-11. 26. For similar issue, vide ground no.3 in Assessment Year 2015-16, there is slight variation in the facts of the case, though the claim of assessee in respect of disallowance u/s.14A is based on identical application of methodology of computing the disallowance as in Assessment Year 2010-11 to Assessment Year 2012-13. The relevant facts for this purpose are that in the return filed by the assessee, it had under a mistaken interpretation of law, made suo moto disallowance of Rs.5,01,01,279/- by computing the same u/r. 8D. In the course of assessment proceedings, when it came to the knowledge of the assessee, it filed a revised computation of income, rectifying the computation of suo moto disallowance u/s.14A, by re-working on the scientific methodology it had been applying in the past years. Based on this methodology, the suo moto disallowance was worked out at Rs.88,32,868/-. Assessee requested the ld. Assessing Officer to consider the revised computation, for the purpose of disallowance u/s.14A which it had claimed by providing the details of computation made by it. In this respect, assessee made detailed submissions on its claim as made in preceding years, i.e. Assessment Year 2010-11 which has already been elaborately narrated in the above paragraphs by us, which relates to recording of satisfaction as mandated in Section 14A(2) by the ld. Assessing Officer for invoking Rule 8D having regard to the accounts of the assessee. However, ld. Assessing Officer 34 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. completed the assessment without taking into effect the revised computation made by the assessee. 26.1 Ld. CIT(A) took note of the fact that ld. Assessing Officer has not giving any reason for not considering the revised working of suo moto disallowance as furnished by the assessee as contained in para 7.9 of his order. Ld. CIT(A) observed that assessee had submitted detailed working of disallowance u/s. 14A, after considering direct expenditure, salary cost of personnel involved in investment activities and other proportionate administrative cost related thereto, in the same paragraph. On the approach adopted by the ld. Assessing Officer, he observed in para 7.16, and noted the submission made by the assessee that “not considering the working of the appellant without giving any non-satisfaction is incorrect and contrary to the facts of the case”. On perusing para 8.1 of the order of ld. CIT(A), we note that he has observed “there is no discussion in the assessment order on the ground agitated by appellant. The Assessing Officer did not choose to consider the revised computation submitted by the appellant. To this extent, the Assessing Officer’s approach cannot be held to be right”. Ld. CIT(A) despite noting this, sustained the disallowance made by the ld. Assessing Officer by observing that the claim made by the assessee while filing the revised computation is not in the form of return of income duly signed and verified which appears to be a mere change of opinion and such a claim not being embedded in a revised return of income filed for correcting any omissions and commissions, loses its legal sanctity. 27. Before us, ld. Counsel asserted that it was an inadvertent mistake while making suo moto disallowance u/s.14A for which instead of applying scientific methodology as adopted in preceding 35 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. years, it was computed by applying formula in Rule 8D which was corrected during the course of assessment proceedings by furnishing revised computation along with giving detailed working and explanation which is identical to preceding years. Ld. Counsel placed reliance on the decision of Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. CIT [2006] 284 ITR 323 (SC), whereby it was held that “nothing impinges on the power of the appellate authorities to entertain such a claim of the assessee”. 27.1. He also placed reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. Pruthvi Brokers and Share Holders [2012] 349 ITR 336 (Bom), wherein it was held that assessee is entitled to raise before appellant authorities’ additional grounds in terms of additional claims not made in return filed by it. 28. We have heard both the parties and perused the material on record and given thoughtful consideration to the submissions made before us. For this assessment year, the fact pattern and applicable law are identical to what we have already dealt in the preceding three Assessment Year, i.e., 2010-11, 2011-12 and 2012-13 in respect of disallowance made u/s.14A. The issue to be addressed for this specific Assessment Year vis-à-vis disallowance u/s.14A is in respect of inadvertent mistake made by the assessee while making suo moto disallowance for which initially, it applied Rule 8D and in the course of assessment proceedings, rectified it by adopting the methodology it had been applying in the preceding years. This change resulted into reduction of suo moto disallowance from Rs.5,01,01,279/- to Rs. 88,32,868/-. In this respect, we find that assessee by rectifying its inadvertent mistake has resorted to consistent application of methodology it has been applying in preceding years. Ld. Assessing 36 ITA Nos.1089 and ors /MUM/2022 National Stock Exchange of India Ltd. Officer has remained silent on the revised computation made by the assessee in the course of assessment proceedings, fact of which ld. CIT(A) has taken note of. However, ld. CIT(A) chose to sustain the disallowance computed as per Rule 8D. 28.1. We are in agreement with the contentions raised by the assessee to accept its revised computation by adopting the methodology, it has applied in the preceding years, for which we have already given our findings as noted above. For this, we place reliance on the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Having held so, the disallowance made u/s.14A is to be accepted to the extent of suo moto disallowance computed by the assessee made in its revised computation at a figure of Rs.88,32,868/- in terms of our observations and findings as given in grounds raised in appeal for Assessment Year 2010-11. Thus, ground no.3 for this year, raised by the assessee is allowed. 29. In the result, all the five appeals of the assessee are partly allowed and the appeal of the Revenue is dismissed. Order is pronounced in the open court on 28 February, 2025 Sd/- Sd/- (Saktijit Dey) (Girish Agrawal) Vice President Accountant Member Dated: 28 February, 2025 MP, Sr.P.S. Copy to : 1. The Appellant 2. The Respondent 3. DR, ITAT, Mumbai 4. 5. Guard File CIT BY ORDER, (Dy./Asstt.Registrar) ITAT, Mumbai "