IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER AND SHRI VIVEK VARMA, JUIDICIAL MEMBER I.T.A. NO.1124/M/2012 ASSESSMENT YEAR: 2008-2009 SHRI UMESH B. DHARNIDHARKA, 503, STOCK EXCHANGE PLAZA, DALAL STREET, FORT, MUMBAI 400 023. PAN: AABPD 4546 K VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-12(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUNIL HIRAWAT RESPONDENT BY : SHRI O.P. MEENA, SR. AR DATE OF HEARING: 20.2.2013 DATE OF ORDER: 8.3.2013 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 17.2.2012 IS A GAINST THE ORDER OF CIT (A)- 23, MUMBAI DATED 2.11.2011 FOR THE ASSESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GRO UNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN LAW, THE LD CIT (A) HAD FAI LED TO APPRECIATE THAT BEFORE INVOKING RULE-8D, THE ASSESSING OFFICER MUST RECORD HER NON- SATISFACTION AS ENVISAGED U/S 14A OF THE IT ACT. U NDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, SHE SHOULD NOT UPHELD THE DISALLOWANCE OF RS. 6,31,477/- MADE BY THE AO. 2. ON FACTS AND IN LAW, THE ASSESSING OFFICER HAD E RRED IN CONFIRMING THE DISALLOWANCE OF RS. 6,31,477/- WITHOUT CONSIDERING THE FACT THAT THE TOTAL EXPENSES CLAIMED BY THE APPELLANT DOES NOT JUSTIFY THE DISALLOWANCE OF RS. 6,31,477/- U/S 14A OF THE ACT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, THE DISALLOWANCE OF RS. 6,31,477/- IS ON A VERY HIGH SIDE. 3. AT THE OUTSET, SHRI SUNIL HIRAWAT, LD COUNSEL FO R THE ASSESSEE MENTIONED THAT THE ISSUE UNDER CONSIDERATION RELATES TO APPLYING T HE PROVISIONS OF RULE-8D OF INCOME TAX RULES, 1962 TO THE CASE OF THE ASSESSEE, WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE INCURRED NIL EXPENDITURE IN EARNIN G OF THE DIVIDEND INCOME OF RS. 37,91,240/-. BRINGING OUR ATTENTION TO PAGE 13 OF THE PAPER BOOK, LD COUNSEL MENTIONED THAT DIVIDEND INCOME OF RS. 34,48,750/- W AS EARNED BY WAY OF A SINGLE 2 CHEQUE AMOUNT AND EXPENDITURE INCURRED IS HARDLY AN Y AMOUNT AND SO IS THE CASE WITH OTHER 24 DIVIDEND CHEQUES RECEIVED BY THE ASSE SSEE IN THE YEAR UNDER CONSIDERATION. FOR THE FACT THAT THE AO HAS NOT GI VEN REASONS FOR REJECTION OF THE ASSESSEES CLAIM, LD COUNSEL RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S. AUCHTEL PRODUCTS LTD. VS. ACIT VIDE ITA NO.318 3/M/2011 (2003-04) ORDER DATED 30.4.2012 AND ALSO IN THE CASE OF ACIT VS. TARUN CH ANDMAL JAIN VIDE ITA NO.6310/M/2011 (AY:2008-2009) ORDER DATED 10.8.2012 AND FAIRLY MENTIONED THAT THE ISSUE MAY BE SET ASIDE IN TUNE WITH THE CONTENT S OF PARA 15 OF THE TRIBUNALS ORDER IN THE CASE OF M/S. AUCHTEL PRODUCTS LTD (SUP RA). 4. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE S AID DECISIONS RELIED UPON BY THE ASSESSEE IN THE CASE OF M/S. AUCHTEL PRODUCTS L TD (SUPRA) AND THE RELEVANT PARA 15 FROM THE ORDER OF THE TRIBUNAL WHICH IS REPRODUC ED HERE UNDER: 15. A BARE PERUSAL OF THE ABOVE PROVISIONS INDICATE S THAT THE AO SHALL DETERMINE THE AMOUNT DISALLOWABLE AS PER RULE 8D, I F HE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RE SPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. EVEN IF THE ASSESSEE CL AIMS THAT NO EXPENDITURE WAS INCURRED IN RESPECT OF EXEMPT INCOME, THE AO IS SUPPOSED TO FOLLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM. TO PUT IT SIMPLY, THE FURTHER DISALLOWANCE U/S 14A IS CALLED FOR WHEN THE AO IS NOT SATISFIED WITH THE ASSESSEES CLAIM OF HA VING INCURRED NO EXPENDITURE OR SOME AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME. SATISFACTION OF THE AO AS TO THE INCORRECT CLAIM MADE BY THE ASSESS EE IN THIS REGARD IS SINE QUA NON FOR INVOKING THE APPLICABILITY OF RULE 8D. SUCH SATISFACTION CAN BE REACHED AND RECORDED ONLY WHEN THE CLAIM OF THE ASS ESSEE IS VERIFIED. IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PA RTICULAR EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GET S SATISFIED, THEN THERE IS NO REQUIREMENT TO STILL PROCEED WITH THE COMPUTATIO N OF AMOUNT DISALLOWABLE AS PER RULE 8D. FROM THE ASSESSMENT ORDER, IT IS OBSE RVED THAT THE AO SIMPLY KEPT THE ASSESSEES SUBMISSIONS ON RECORD WITHOUT A PPRECIATING AS TO WHETHER THESE WERE CORRECT OR NOT. HE PROCEEDED ON THE PREM ISE AS IF THE DISALLOWANCE AS PER RULE 8D IS AUTOMATIC IRRESPECTIVE OF GENUINE NESS OF THE ASSESSEES CLAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEM PT INCOME. IT IS AN INCORRECT COURSE ADOPTED BY THE AO. THE CORRECT SEQUENCE, IN OUR CONSIDERED OPINION, FOR MAKING ANY DISALLOWANCE U/S 14A IS TO, FIRSTLY, EXAMINE THE ASSESSEES CLAIM OF HAVING INCURRED SOME EXPENDITURE OR NO EXPENDITU RE IN RELATION TO EXEMPT INCOME. IF THE AO GETS SATISFIED WITH THE SAME, TH EN THERE IS NO NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D. IT IS ONLY WH EN THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH 3 EXPENDITURE OR NO EXPENDITURE HAVING BEEN INCURRED IN RELATION TO EXEMPT INCOME, THAT THE MANDATE OF RULE 8D WILL OPERATE. IN THE INSTANT CASE, THE AUTHORITIES BELOW HAVE DIRECTLY GONE TO THE SECOND STAGE OF COMPUTING DISALLOWANCE U/S 14A AS PER RULE 8D WITHOUT RENDERI NG ANY OPINION ON THE CORRECTNESS OR OTHERWISE OF THE ASSESSEES CLAIM IN THIS REGARD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND REST ORE THE MATTER TO THE FILE OF AO TO RE-COMPUTE DISALLOWANCE, IF ANY, IN ACCORDANC E WITH OUR ABOVE OBSERVATIONS AFTER DULY EXAMINING THE ASSESSEES CL AIM IN THIS REGARD. 6. CONSIDERING THE ABOVE, WE SET ASIDE THE MATTER T O THE FILES OF THE AO WITH IDENTICAL DIRECTIONS IN THE MATTER. ACCORDINGLY, G ROUND NO.1 AND 2 RAISED BY THE ASSESSEE ARE SET ASIDE. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MARCH 2013 SD/- SD/- (VIVEK VARMA) (D. KA RUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 8.3.2013 AT :MUMBAI OKK COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR F, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI