ACIT, Pune V. Bajaj Auto Finance Ltd, Pune

ITA 1273/PUN/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79961 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Keywords: Depreciation; Earning of tax free income; Bad and doubtful debts
• Section: 143(3); 14A; 133(6); 37(1); 32; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO.1175/PN/2012 (ASSESSMENT YEAR : 2007-08) BAJAJ FINANCE LTD. (EARLIER KNOWN AS BAJAJ AUTO FINANCE LTD.) , 4 TH FLOOR, SURVEY 208/1-B, VIMAN NAGAR, PUNE 411 014. PAN : AABCB1518L . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. . RESPONDENT ITA NO.1273/PN/2012 (ASSESSMENT YEAR : 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. . APPELLANT VS. BAJAJ AUTO FINANCE LTD. C/O BAJAJ AUTO LTD., BOMBAY-PUNE ROAD, AKURDI, PUNE. PAN : AABCB1518L . RESPONDENT ITA NO.1676/PN/2012 (ASSESSMENT YEAR : 2008-09) BAJAJ FINANCE LTD. (FORMERLY KNOWN AS BAJAJ AUTO FINANCE LTD.) , 4 TH FLOOR, SURVEY 208/1-B, VIMAN NAGAR, PUNE 411 014. PAN : AABCB1518L . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. . RESPONDENT ITA NO.2234/PN/2012 A.Y. : 2007-08 ITA NO.1709/PN/2012 (ASSESSMENT YEAR : 2008-09) ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE- 8, PUNE. . APPELLANT VS. BAJAJ AUTO FINANCE LTD. C/O BAJAJ AUTO LTD., BOMBAY-PUNE ROAD, AKURDI, PUNE. PAN : AABCB1518L . RESPONDENT ASSESSEE BY : MR. KIRIT KAMDAR & MR. NIKHIL MUTHA DEPARTMENT BY : MR. NARENDRA KUMAR DATE OF HEARING : 03-06-2014 DATE OF PRONOUNCEMENT : 30-06-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED ARE TWO SETS OF CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE PERTAINING TO THE ASSESSMENT YEARS 2007-08 AND 2008-09. SINCE SOME OF THE ISSUES INVOLVED ARE COMMON AND RELATE T O THE SAME ASSESSEE, THE APPEALS HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CONSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVIT Y. 2. FIRST, WE SHALL TAKE-UP THE CROSS-APPEALS FOR AS SESSMENT YEAR 2007-08 BY THE ASSESSEE AND REVENUE VIDE ITA NO.1175/PN/201 2 AND ITA NO.1273/PN/2012 RESPECTIVELY, WHICH ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 30.03.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 30.12.2009 PAS SED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT). 3. THE GROUNDS OF APPEAL RAISED IN THE APPEAL OF TH E ASSESSEE ARE AS FOLLOWS :- ITA NO.2234/PN/2012 A.Y. : 2007-08 BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE, BAJAJ AUTO FINANCE LTD. [HEREINAFTER REFERRED TO AS 'APPELLANT '] RESPECTFULLY SUBMITS THAT THE HON'BLE CIT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT, ON THE FOLLOWING GROUNDS WHICH ARE WITHOUT PREJUDICE TO EA CH OTHER: 1. DEPRECIATION ON THE ASSETS GIVEN ON LEASE UNDER FINANCIAL LEASE THE HON'BLE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING DEPRECIATION ON THE ASSETS G IVEN ON LEASE UNDER FINANCIAL LEASE AGREEMENTS AMOUNTING TO RS.21 ,76,76,824/-. 2. ADHOC DISALLOWANCE OUT OF COMMISSION PAID 2.1 THE HON'BLE CIT (A) ERRED IN CONFIRMING THE AC TION OF THE ASSESSING OFFICER IN DISALLOWING COMMISSION ON AN A DHOC BASIS TO THE EXTENT OF RS.1,01,70,446/- BEING 2% OF THE T OTAL COMMISSION PAID OF RS.51,35,22,303/-. 2.2 THE HON'BLE CIT(A) ERRED IN NOT FOLLOWING HIS P REDECESSOR'S ORDER FOR AY 2006-07, WHEREIN, UNDER SIMILAR FACTS & CIRCUMSTANCES, THE ADDITION WAS TOTALLY DELETED. 4. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS INTER-ALIA, ENGAGED IN T HE BUSINESS OF AUTO FINANCE, LEASING, ETC.. THE ASSESSEE IS A NON-BANK ING FINANCIAL COMPANY REGISTERED WITH THE RESERVE BANK OF INDIA AND ACCOR DINGLY CARRIES ON ITS BUSINESS OF AUTO FINANCE AND LEASING OF TWO WHEELER S AND CONSUMER DURABLES, ETC.. 5. IN SO FAR AS THE FIRST GROUND OF APPEAL IS CONCE RNED, IT RELATES TO ASSESSEES CLAIM FOR DEPRECIATION ON THE ASSETS WHI CH HAVE BEEN LEASED OUT. THE ASSESSING OFFICER HAS DISALLOWED ASSESSEES CLA IM FOR DEPRECIATION ON THIS COUNT AMOUNTING TO RS.21,76,76,824/-. THE PRI MARY REASON WEIGHING WITH THE ASSESSING OFFICER TO DISALLOW THE CLAIM WAS THA T THE ASSETS WERE LEASED OUT IN TERMS OF A FINANCIAL LEASE. THE STAND OF TH E ASSESSING OFFICER IS IN LINE WITH THAT OF HIS PREDECESSOR FOR THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR OF 2006-07. THE CIT(A) HAS ALSO AFFIRMED THE STAND OF THE ASSESSING OFFICER BY NOTICING THAT IN THE PRECEDING ASSESSMENT YEAR OF 2 006-07, SIMILAR ISSUE WAS DECIDED BY THE THEN CIT(A) AGAINST THE ASSESSEE. A CCORDING TO THE REVENUE, IN CASES OF FINANCIAL LEASES, IT IS THE LESSEE, WHO IS TO BE TREATED AS OWNER OF THE ASSET, SO AS TO BE ENTITLED TO THE CLAIM OF DEP RECIATION AND THEREFORE NO ITA NO.2234/PN/2012 A.Y. : 2007-08 DEPRECIATION CAN BE ALLOWED TO THE ASSESSEE-LESSOR IN CASE OF A FINANCIAL LEASE. 6. AT THE TIME OF HEARING BEFORE US, IT WAS A COMMO N GROUND BETWEEN THE PARTIES THAT THE PUNE BENCH OF THE TRIBUNAL IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2004-05 TO 2006-07 BY WAY OF A CON SOLIDATED ORDER DATED 29.11.2013 VIDE ITA NOS.576 & 577/PN/2009 AND ITA N O.1092/PB/2010 RESPECTIVELY HAS HELD THE ISSUE IN FAVOUR OF THE AS SESSEE. THE FOLLOWING PORTION OF THE ORDER OF THE TRIBUNAL DATED 29.11.20 13 IS RELEVANT :- 7. WE HAVE HEARD THE PARTIES AND PERUSED THE RECOR D. IN THIS CASE, THERE IS NO DISPUTE ABOUT THE FACTS THAT THE NATURE OF TRANSACTION BETWEEN THE ASSESSEE AND ITS CUSTOMERS AS PER THE T ERMS OF THE AGREEMENT WITH ITS CUSTOMERS/CLIENTS IS IN NATURE OF THE FIN ANCIAL LEASING. NOW THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD. VS. CIT, 350 ITR 527 (SC). IN THE SAID CASE THE ASSESSEE IS NON-BANKING FINANCE COMPA NY WHICH IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE, LEASING, REAL EST ATE, ETC. THE ASSESSEE COMPANY AS A PART OF ITS BUSINESS LEASED OUT ITS VEHICLES TO THE CUSTOMERS AND HAS NO PHYSICAL AFFILIATION WITH THE VEHICLES. IN FACT, LESSEES WERE REGISTERED AS THE OWNERS OF THE VEHICLES, IN THE CE RTIFICATE OF REGISTRATION ISSUE UNDER THE MOTOR VEHICLES ACT, 1988. THE ASSESSEE C OMPANY CLAIMED THE DEPRECIATION ON THE VEHICLES WHICH WERE CLAIMED TO HAVE BEEN LEASED OUT AND FINANCE BY THE ASSESSE. MOREOVER, THE DEPRECIATION WAS ALSO CLAIMED AT HIGHER RATE BY TAKING THE STAND THAT THE VEHICLES W ERE USED IN THE BUSINESS OF RUNNING THEM ON HIRE. THE ASSESSING OFFICER DISALL OWED THE CLAIM OF THE DEPRECIATION ON THE LEASED VEHICLES. 8. WHEN THE MATTER REACHED BEFORE THE HON'BLE SUPRE ME COURT IT IS HELD THAT THE ASSESSEE DID USE THE VEHICLES IN T HE COURSE OF ITS LEASING BUSINESS AND THE TRUCKS WERE NOT USED BY THE ASSESS EE IS NOT RELEVANT FOR THE PURPOSE OF SEC. 32 OF THE INCOME-TAX ACT. ON THE R EQUIREMENT OF THE ISSUE OF THE OWNERSHIP, THE HON'BLE SUPREME COURT HELD THAT THE ASSESSEE IS THE OWNER OF THE VEHICLES AND AS THE OWNER, IT USE THE ASSETS IN THE COURSE OF ITS BUSINESS AND SATISFY BOTH THE REQUIREMENTS OF SEC. 32 OF THE ACT AND IS ENTITLED TO CLAIM DEPRECIATION IN RESPECT OF ADDITI ONS MADE TO THE TRUCKS WHICH WERE LEASED OUT. IN THE PRESENT CASE, THE ASSESSIN G OFFICER HAS NOT DISPUTED THE NATURE OF THE TRANSACTIONS BETWEEN THE ASSESSEE COMPANY AND ITS CUSTOMERS ARE FINANCE LEASE. MOREOVER AS PER THE T ERMS OF THE AGREEMENT, THE OWNERSHIP IS RETAINED BY THE ASSESSEE COMPANY. WE ALSO FIND THAT THERE IS A CLAUSE IN THE AGREEMENT THAT - DURING THE SUB SISTENCE OF THIS LEASE AGREEMENT AND TILL THE ASSET IS DELIVERED BACK TO T HE LESSOR IN GOOD ORDER AND CONDITION, THE LESSEE SHALL KEEP THE ASSETS IN THE EXCLUSIVE CONTROL AND POSSESSION OF THE LESSEE AND SHALL BE OPERATED BY A UTHORIZED/TRAINED PERSONS. IN OUR OPINION THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD. VS. CIT (SUPRA). WE, ACCORDINGLY, ALLOW THE RELEVANT G ROUNDS TAKEN BY THE ASSESSEE. ITA NO.2234/PN/2012 A.Y. : 2007-08 7. IN THE AFORESAID PRECEDENTS, THE TRIBUNAL NOTED THAT THE ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD. (SUPRA). AS PER THE PARITY OF REASONING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF I. C.D.S. LTD. (SUPRA), THE ASSESSEE COMPANY BEING THE OWNER OF ASSETS, IS ENTI TLED TO DEPRECIATION EVEN WHERE THE ASSETS HAVE BEEN LEASED OUT IN TERMS OF A FINANCIAL LEASE. THE TRIBUNAL HAS NOTED THE TERMS AND CONDITIONS OF THE LEASE ARRANGEMENT AND OBSERVED THAT DURING THE SUBSISTENCE OF THE LEASE, THE ASSESSEE-LESSOR CONTINUED TO RETAIN THE OWNERSHIP OF THE ASSETS. S ECONDLY, THE REQUIREMENT OF PUTTING TO USE OF THE ASSETS FOR THE PURPOSES OF BU SINESS ALSO STANDS FULFILLED, INASMUCH AS ASSESSEE HAS USED THE ASSETS IN THE COU RSE OF HIS BUSINESS OF LEASING. IN THIS MANNER, THE TRIBUNAL, FOLLOWING T HE RATIO OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF I.C.D.S. LTD. (SUPRA) HELD THE ASSESSEE ELIGIBLE FOR THE CLAIM OF DEPRECIATION ON LEASED AS SETS. THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE YEAR UNDER CONSIDE RATION ARE SIMILAR TO THOSE CONSIDERED BY THE TRIBUNAL IN THE ASSESSEES OWN CA SE FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2006-07 (SUPRA) AND THER EFORE FOLLOWING THE SAID PRECEDENT, THE PRESENT GROUND OF APPEAL RAISED BY T HE ASSESSEE IS ALLOWED. ACCORDINGLY THE ORDER OF THE CIT(A) IS SET-ASIDE AN D THE ASSESSING OFFICER IS DIRECTED TO ALLOW DEPRECIATION AMOUNTING TO RS.21,7 6,76,824/- ON ASSETS LEASED OUT UNDER FINANCIAL LEASE. THUS, ASSESSEE S UCCEEDS ON FIRST GROUND. 8. THE SECOND GROUND RAISED BY THE ASSESSEE RELATES TO AN AD-HOC DISALLOWANCE OF RS.1,01,70,446/- SUSTAINED BY THE C IT(A) OUT OF COMMISSION EXPENDITURE. IN THIS CONTEXT, IT MAY BE NOTED THAT THE ASSESSING OFFICER MADE A TOTAL DISALLOWANCE OF RS.2,56,76,115/- AGAINST WH ICH THE CIT(A) DELETED A SUM OF RS.1,54,05,669/- AND RETAINED THE BALANCE AD DITION OF RS.1,01,70,446/-. ON THIS ASPECT, REVENUE IS ALSO AGGRIEVED AND BY WAY OF GROUND OF APPEAL NO.3 IN CROSS-APPEAL, IT HAS ASSAI LED THE PART-RELIEF ALLOWED BY THE CIT(A). IN THIS BACKGROUND, THE GROUND OF A PPEAL NO.2 OF THE ASSESSEE ITA NO.2234/PN/2012 A.Y. : 2007-08 AND THE GROUND OF APPEAL NO.3 OF THE REVENUE ARE CR OSS-GROUNDS, WHICH RELATE TO THE SAME ISSUE AND ARE THUS TAKEN-UP TOGE THER. 9. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT ASSESSE E HAD CLAIMED MARKETING COMMISSION OF RS.29,81,36,221/- AND RECOVERY COMMIS SION OF RS.21,53,86,082/- AGGREGATING TO RS.51,35,22,303/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REQUI RED THE ASSESSEE TO FURNISH THE NAME AND ADDRESSES OF THE PARTIES, WHER E THE RECEIPT OF COMMISSION EXCEEDED RS.25,000/-. IN RESPONSE, ASSE SSEE FURNISHED THE NAME AND ADDRESSES OF THE PARTIES WHICH WAS SUBJECT ED TO VERIFICATION BY THE ASSESSING OFFICER. THE ASSESSING OFFICER RECORDS I N THE ASSESSMENT ORDER THAT NOTICES U/S 133(6) OF THE ACT WERE ISSUED TO C ERTAIN PARTIES ON A RANDOM BASIS; AND, OUT OF WHICH NOTICES IN RESPECT OF 22 P ARTIES WERE RETURNED UN- SERVED, WHOSE DETAILS HAVE BEEN ENUMERATED IN PARA 5 OF THE ASSESSMENT ORDER. ON BEING SHOW-CAUSED, ASSESSEE OBTAINED CON FIRMATIONS FROM 9 PARTIES AND ALSO INFORMED THE ASSESSING OFFICER THA T IT HAS WRITTEN TO THE REMAINING PARTIES ALSO, SEEKING CONFIRMATIONS. HOW EVER, FOR ALL THE PARTIES, ASSESSEE FURNISHED LETTERS FROM THE RESPECTIVE BANK S CONFIRMING THAT PAY ORDERS HAVE BEEN ISSUED TO THE RESPECTIVE PARTIES O N THE RELEVANT DATES, AND ALSO FILED COPIES OF THE TDS CERTIFICATES EVIDENCIN G DEDUCTION OF TAX AT SOURCE ON COMMISSION PAYMENTS. CONSIDERING THE EVIDENCES FILED, THE ASSESSING OFFICER HELD THAT THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTABLE IN TOTALITY . THEREFORE, 5% OF THE TOTAL COMMISSION OF RS.51,35,2 2,303/- WAS DISALLOWED BY THE ASSESSING OFFICER ON AN AD-HOC BASIS, WHICH CAM E TO RS.2,56,75,115/-. 10. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFOR E THE CIT(A) CHALLENGING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, BOTH ON FACTS AND IN LAW. ONE OF THE POINTS CANVASSED BY THE ASSESSE E WAS THAT A SIMILAR ADDITION MADE BY THE ASSESSING OFFICER IN THE PRECE DING ASSESSMENT YEAR OF 2006-07 WAS DELETED BY THE THEN CIT(A) AND IT WAS F URTHER CONTENDED THAT THE ITA NO.2234/PN/2012 A.Y. : 2007-08 TRANSACTIONS IN THIS YEAR HAVE ALSO BEEN CARRIED OU T WITH THE SAME PARTIES. THE CIT(A) WAS NOT SATISFIED WITH THE STAND OF THE ASSESSEE BECAUSE ACCORDING TO HER, THERE WAS NO PLAUSIBLE EXPLANATIO N FOR NON-FURNISHING OF CONFIRMATIONS FROM THE REMAINING PARTIES. NEVERTHE LESS, THE CIT(A) WAS OF THE VIEW THAT THE DISALLOWANCE MADE BY THE ASSESSING OF FICER AT 5% OF THE TOTAL EXPENDITURE WAS ON A HIGHER SIDE AND SHE HAS REDUCE D IT TO 2% OF THE EXPENDITURE, WHICH CAME TO RS.1,01,70,446/-, THEREB Y ALLOWING THE ASSESSEE A RELIEF OF RS.1,54,05,669/-. 11. IN THIS BACKGROUND, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT FOR 22 PARTIES, WHICH HAVE BEEN REFERRED BY TH E ASSESSING OFFICER IN THE ASSESSMENT ORDER, THERE WAS NO DISPUTE WITH RESPECT TO 9 OF THE PARTIES, FOR WHICH ASSESSEE HAD FURNISHED THE REQUISITE CONFIRMA TIONS. THE BALANCE OF 13 PARTIES, WHICH HAVE BEEN TABULATED IN THE ASSESSMEN T ORDER, ARE STATED TO BE THOSE PARTIES WITH WHOM ASSESSEE HAS UNDERTAKEN TRA NSACTIONS OF COMMISSION PAYMENTS IN THE IMMEDIATELY PRECEDING ASSESSMENT YE AR 2006-07 AS WELL AS IN THE SUBSEQUENT ASSESSMENT YEAR 2008-09. THE LEA RNED COUNSEL POINTED OUT THAT THE DISALLOWANCE OF PAYMENT TO SUCH PARTIE S MADE IN THE PRECEDING ASSESSMENT YEAR OF 2006-07 STOOD DELETED BY THE THE N CIT(A) AND SO FAR AS THE SUBSEQUENT ASSESSMENT YEAR 2008-09 IS CONCERNED , NO SUCH DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER HIMSELF. IT WAS THEREFORE CONTENDED THAT THE PART DISALLOWANCE MADE BY THE CIT(A) WAS U NJUSTIFIED AND RATHER THE ENTIRE EXPENDITURE WAS ALLOWABLE. 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE ASSAILED THE ORDER OF THE CIT(A) AN D SUBMITTED THAT THE ASSESSING OFFICER WAS JUSTIFIED IN MAKING DISALLOWA NCE TO THE EXTENT OF 5% OF THE TOTAL EXPENDITURE AS A TEST CHECK OF THE PARTIE S REVEALED THAT THE ASSESSEE COULD NOT OBTAIN THE REQUISITE CONFIRMATIONS FOR 13 OUT OF 22 PARTIES. ITA NO.2234/PN/2012 A.Y. : 2007-08 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. UNDISPUTEDLY, THE EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENTS HAS B EEN INCURRED BY THE ASSESSEE IS IN THE COURSE OF ITS BUSINESS. SIMILAR EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN THE PAST AS ALSO IN THE SUBSEQUENT ASSESSMENT YEARS, AS IS EMERGING FROM THE IMPUGNED ORDER OF CI T(A) AS WELL AS ASSERTED BY THE COUNSEL FOR THE ASSESSEE, A FACT WHICH IS UN CONTROVERTED. THE ASSESSING OFFICER CARRIED OUT A VERIFICATION EXERCI SE ON A TEST CHECK BASIS AND WAS NOT SATISFIED AND THEREFORE HE HAS MADE AN AD-H OC DISALLOWANCE. IN OUR CONSIDERED OPINION, AD-HOC DISALLOWANCE IS UNSUSTAI NABLE BECAUSE THE RESULT OF THE VERIFICATION EXERCISE DID NOT SHOW ANY FALSI TY OR IN-GENUINENESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE. NO DOUB T, OUT OF THE 22 PARTIES WHOSE NOTICES HAVE COME BACK UN-SERVED, ASSESSEE WA S ABLE TO OBTAIN CONFIRMATION FROM 9 PARTIES ONLY. SO HOWEVER, IT I S ALSO RELEVANT TO NOTE THAT FOR ALL 22 PARTIES, ASSESSEE FURNISHED OTHER RELEVANT E VIDENCES, WHICH WAS WITHIN ITS COMMAND, NAMELY, LETTERS FROM BANK EVIDENCING I SSUANCE OF PAY ORDERS IN FAVOUR OF ALL THE PARTIES ON THE RESPECTIVE DATES, AS ALSO TDS CERTIFICATES EVIDENCING DEDUCTION OF TAX AT SOURCE. THE ASSESSE E ALSO POINTED OUT THAT THERE WERE TRANSACTIONS BY WAY OF COMMISSION PAYMEN TS WITH SUCH PARTIES IN THE PAST ASSESSMENT YEAR 2006-07 AS WELL AS FOR SUB SEQUENT ASSESSMENT YEAR 2008-09 WHEREIN SUCH AMOUNTS STOOD ALLOWED, AS DETA ILED BY THE LEARNED COUNSEL BEFORE US. UNDER THESE CIRCUMSTANCES, THE ACTION OF THE ASSESSING OFFICER TO DISALLOW PART OF THE EXPENDITURE, AND TH AT TOO, ON AN AD-HOC BASIS, IS UNWARRANTED. IN THE COURSE OF HEARING, IT HAS BEEN ASSERTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT FOR ASSESSMENT YEAR 2 006-07 SIMILAR AD-HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS DELE TED BY THE CIT(A) AND THE DEPARTMENT DID NOT PREFER ANY APPEAL ON THIS AS PECT BEFORE THE TRIBUNAL. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES , WE FIND THAT THERE IS NO DIRECT CLINCHING EVIDENCE TO SHOW THAT THE CLAIM MA DE BY THE ASSESSEE WAS FALSE OR BOGUS AND THEREFORE THE AD-HOC DISALLOWANC E MADE BY THE ASSESSING OFFICER IS QUITE UNJUSTIFIED. IN THIS VIEW OF THE MATTER, THE CIT(A) OUGHT TO HAVE ITA NO.2234/PN/2012 A.Y. : 2007-08 DELETED THE ENTIRE ADDITION RATHER THAN ALLOWING PA RT-RELIEF, THAT TOO, ON AN AD- HOC BASIS. IN CONCLUSION, WE HOLD THAT THE INCOME- TAX AUTHORITIES WERE NOT JUSTIFIED IN MAKING THE IMPUGNED DISALLOWANCE AND A CCORDINGLY, WE SET-ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE ENTIRE ADDITION. IN THE RESULT, WHEREAS THE GROUND OF APP EAL NO.2 OF THE ASSESSEE IS ALLOWED THE CROSS-GROUND OF APPEAL NO.3 OF THE REVE NUE IS DISMISSED. 14. THUS, THE APPEAL OF THE ASSESSEE IN ITA NO.1175 /PN/2012 FOR ASSESSMENT YEAR 2007-08 IS ALLOWED. 15. NOW, WE MAY TAKE-UP THE CROSS-APPEAL OF THE REV ENUE FOR ASSESSMENT YEAR 2007-08, WHEREIN THE FOLLOWING GROUND OF APPEA L HAVE BEEN RAISED :- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON OF RS.11,83,05,574/- MADE ON ACCOUNT OF BAD DEBTS BY OVERLOOKING THE FACT THA T THE ASSESSEE COMPANY COULD NOT PROVE THE BONAFIDE OF THE SAID BAD DEBTS AND THE ACCOUNTING ENTRIES THEREOF. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS .5,76,03,086/- MADE ON ACCOUNT OF INTEREST ON NON-PERFORMING ASSETS? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANC E OF RS.2,56,76,115/- MADE ON ACCOUNT OF COMMISSION PAID OF RS.1,01,70,446/-. 16. IN THE APPEAL OF THE REVENUE, THE FIRST GROUND RELATES TO THE DISALLOWANCE OF BAD DEBTS WRITTEN-OFF REPRESENTING SUNDRY DEBIT BALANCE WRITTEN-OFF, NORMAL BAD DEBTS WRITTEN-OFF AND LOSS ON SALE OF SEIZED GOODS AMOUNTING TO RS.11,83,05,574/-. 17. IN THIS REGARD, THE RELEVANT FACTS ARE THAT THE ASSESSING OFFICER NOTICED THAT ASSESSEE COMPANY HAS WRITTEN-OFF RS.59,15,27,8 73/- AS BAD DEBTS, THE BREAKUP OF WHICH IS AS UNDER :- 1 SUNDRY DEBIT BALANCES WRITTEN OFF RS.9,73,754/- 2 NORMAL BAD DEBTS WRITTEN OFF RS.19,04,54,343/- 3 LOSS ON SALE OF SEIZED GOODS RS.40,00,99,776/- TOTAL RS.59,15,27,873/- ITA NO.2234/PN/2012 A.Y. : 2007-08 18. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO FURNISH DETAILS VIZ. NAME AND ADDRESS OF THE DEBTORS, AMOUNT OF DEBT, DA TE ON WHICH THE DEBT WAS TAKEN, DATE ON WHICH THE DEBT TAKEN BAD AND EFFORTS MADE FOR RECOVERY OF THE DEBTS. AFTER CONSIDERING THE REPLIES OF THE ASSESS EE, THE ASSESSING OFFICER FOUND THAT (I) COMPLETE POSTAL ADDRESSES; AND, (II) EVIDENCE REGARDING EFFORTS MADE BY THE ASSESSEE FOR RECOVERY OF THE AMOUNTS WE RE NOT FURNISHED. THE ASSESSING OFFICER ALSO NOTED THAT IN THE IMMEDIATEL Y PRECEDING ASSESSMENT YEAR OF 2006-07, AN AMOUNT OF RS.28,08,237/- WAS DI SALLOWED ON THIS ISSUE. IN THIS BACKGROUND, THE ASSESSING OFFICER PROCEEDED TO DISALLOW 20% OF THE TOTAL DEBTS I.E. RS.11,83,05,574/- (20% OF RS.59,15,27,87 3/-) AND ADDED THE SAME TO ASSESSEES TOTAL INCOME. THE CIT(A) HAS DELETED THE ADDITION NOTICING THAT HIS PREDECESSOR IN THE ASSESSEES OWN CASE FOR ASSE SSMENT YEAR 2006-07 HAD DELETED A SIMILAR ADDITION. AGAINST SUCH ORDER OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. 19. AT THE OUTSET, IT WAS A COMMON POINT BETWEEN TH E PARTIES THAT FOR ASSESSMENT YEAR 2006-07, A SIMILAR DELETION MADE BY THE CIT(A) HAS SINCE BEEN AFFIRMED BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.1066/PN/2010 DATED 31.08.2012. THE RELEVANT DISCUSSION IN THE ORDER O F THE TRIBUNAL IS AS UNDER :- 44. THE FIRST GROUND IS WITH REGARD TO DISALLOWANC E OF BAD DEBTS WRITTEN OFF REPRESENTING SUNDRY DEBIT BALANCES WRIT TEN OFF AMOUNTING TO RS.28,08,02,837/-. THE CLAIM OF THE ASSESSEE WAS T HAT THE IMPUGNED SUMS WHICH ARE IRRECOVERABLE IN THE COURSE OF CARRYING O N FINANCING BUSINESS WERE ALLOWABLE AS BAD DEBTS U/S.36(1)(VII) OF THE ACT R. W.S. 36(2) OF THE ACT. THE MAIN REASONS CITED BY THE ASSESSING OFFICER WERE FI RSTLY THAT THE ASSESSEE DID NOT FURNISH DETAILS IN RESPECT OF CASES WHERE DEBTS WRITTEN OFF WERE BELOW RS.20,000/- EACH, SECONDLY THAT THE DEBTS HAD BECOM E BAD IN THE PRECEDING ASSESSMENT YEAR OF 2005-06 ITSELF BUT THE SAME HAVE BEEN WRITTEN OFF DURING THE CURRENT ASSESSMENT YEAR I.E., A.Y. 2006-07 AND THAT ASSESSEE CANNOT CHOOSE THE YEAR OF WRITE-OFF, THIRDLY THAT IT WAS N OT KNOWN AS TO WHAT EFFORTS WERE MADE BY THE ASSESSEE TO RECOVER SUCH BAD DEBTS . THE CIT(A) HAS SINCE ALLOWED THE CLAIM OF THE ASSESSEE. WHILE DOING SO, THE CIT(A) CONSIDERED THE REMAND REPORT OF THE ASSESSING OFFICER AND THEREAFT ER CONCLUDED THAT THE CLAIM OF THE ASSESSEE WAS ALLOWABLE IN TERMS OF THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 I TR 397 (SC) AND THAT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT OM AN INTERNATIONAL BANK 313 ITR 128 (BOM). AGAINST THE AFORESAID DECISION OF THE CIT(A), REVENUE IS IN APPEAL BEFORE US. ITA NO.2234/PN/2012 A.Y. : 2007-08 45. BEFORE US, THE POINT MADE OUT BY THE LD. DR IS THAT THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE CLAIM ON THE GROUND THAT ASSESSEE COULD NOT PROVE THAT THE DEBTS HAD BECOME BAD IN THE YEAR UNDER CONSIDERATION. ACCORDING TO THE LD. DR, THE BONAFI DES OF THE CLAIM ALSO COULD NOT BE PROVED AND THEREFORE, THE ASSESSING OFFICER HAD RIGHTLY DISALLOWED THE CLAIM. 46. ON THE OTHER HAND, LD. REPRESENTATIVE FOR THE R ESPONDENT ASSESSEE VEHEMENTLY POINTED OUT THAT THE RATIO OF T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) SQUAR ELY COVERS THE CONTROVERSY BEFORE US AND THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE. 47. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ASSESSEE ADMITTEDLY IS IN THE BUSINESS OF FINANCE A ND LEASING AND ADVANCING OF MONIES FOR HIRE PURCHASE OF VEHICLES, ETC. THE CLAIM OF THE ASSESSEE WAS IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. SECTION 36(1)(VII) AS IT STOOD FOR THE ASSESSMENT YEAR UNDER CONSIDERATION W AS INTERPRETED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A). AS PER THE HONBLE SUPREME COURT, AFTER 01.04.1989, IT IS NOT NECESSAR Y FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRECOV ERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN-OFF AS IRRECOVERABLE IN THE ACC OUNTS OF THE ASSESSEE. IN THE PRESENT CASE, THE AFORESAID ASPECT HAS BEEN FULFILL ED BY THE ASSESSEE, AS IS CLEARLY EMERGING FROM THE FINDINGS OF THE CIT(A). THE DEBTS IN QUESTION HAVE BEEN WRITTEN-OFF AS IRRECOVERABLE IN THE ACCOUNT BO OKS OF THE ASSESSEE AND THIS ASPECT IS ALSO NOT DISPUTED BY THE ASSESSING O FFICER. IN FACT, AS PER THE ASSESSING OFFICER, THE DEBTS HAD BECOME BAD IN THE PRECEDING ASSESSMENT YEAR AND ACCORDING TO HIM, IT IS INCORRECT THAT THE SAME HAVE BEEN CLAIMED AS WRITE-OFF IN THE INSTANT ASSESSMENT YEAR. BE THAT AS IT MAY, IT CLEARLY ESTABLISHES THAT THE DEBTS HAVE BEEN WRITTEN OFF IN THE ACCOUNT BOOKS AS IRRECOVERABLE, WHICH SQUARELY IS COVERED BY THE LEG AL POSITION PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. ( SUPRA). THE PLEA OF THE LD. DR TO THE EFFECT THAT THE BONAFIDES OF THE CLAI M ARE NOT ESTABLISHED IS CLEARLY UNTENABLE IN AS MUCH AS THE ASSESSING OFFIC ER ACCEPTS THE POSITION THAT SUCH DEBTS HAD BECOME BAD IN THE PRECEDING YEA R ITSELF. CONSIDERING THE OVERALL CIRCUMSTANCES OF THE CASE, WE THEREFORE, FI ND NO REASONS TO INTERFERE WITH THE CONCLUSION OF THE CIT(A) WHICH IS BASED ON THE LEGAL POSITION PROPOUNDED BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). THEREFORE, ON THIS GROUND REVENUE HAS TO FAIL. 20. IN THIS BACKGROUND, THE LEARNED REPRESENTATIVE APPEARING FOR THE ASSESSEE CONTENDED THAT THE IMPUGNED DEBTS HAVE BEE N WRITTEN-OFF PRIMARILY ON ACCOUNT OF NON-RECOVERY OF AMOUNTS FROM DELINQUE NT CUSTOMERS. EXPLAINING THE RECOVERY EFFORTS, THE LEARNED COUNSE L EXPLAINED THAT THE ASSESSEE HAS A COUNTRYWIDE NETWORK OF RECOVERY AGEN CIES AND DIRECT MARKET AGENTS (I.E. DMAS) COUPLED WITH ITS OWN IN-HOUSE CO LLECTION TEAMS. IT HAS ALSO BEEN EXPLAINED THAT THE MAJORITY OF DEBTS WRITTEN-O FF IS ON ACCOUNT LOSS ON SALE OF SEIZED GOODS WHICH REPRESENT CASES OF DEFAULTING HIRERS FROM WH OM THE ASSETS WERE SEIZED AND THEREAFTER SOLD. THE LOSS A RISING ON SALE OF SUCH ITA NO.2234/PN/2012 A.Y. : 2007-08 ASSETS IS WRITTEN-OFF AS BAD DEBTS. ACCORDING TO T HE LEARNED COUNSEL, THE FACT THAT THE MATURITY OF BAD DEBTS WRITTEN-OFF IS ON AC COUNT OF LOSS ON SALE OF SEIZED GOODS, THE SAME SHOWS THAT ASSESSEE HAS A RECOVERY MECHANISM IN RELATION TO COLLECTION OF OUTSTANDING DEBTS. IN THIS MANNER , THE LEARNED COUNSEL HAS SUBMITTED THAT HAVING REGARD TO THE FACTS AND CIRCU MSTANCES OF THE PRESENT YEAR, THE ENTIRE CLAIM IS ALLOWABLE KEEPING IN MIND THE PRECEDENT IN THE ASSESSEES OWN CASE PERTAINING TO ASSESSMENT YEAR 2 006-07 (SUPRA). IT WAS ALSO ASSERTED IN THE COURSE OF HEARING THAT THE ORD ER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2006-07 (SUPRA) ON THIS ASPECT HAS BEEN ACCEPTED BY THE REVENUE, SINCE NO APPEAL HAS BEEN FILED ON THIS ASP ECT BEFORE THE HONBLE HIGH COURT. 21. THE LEARNED DEPARTMENTAL REPRESENTATIVE APPEARI NG FOR THE REVENUE HAS NOT CONTROVERTED THE FACTUAL MATRIX BROUGHT OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE. 22. HAVING CONSIDERED THE RIVAL SUBMISSIONS, AS ALS O THE PRECEDENT IN THE ASSESSEES OWN CASE BY WAY OF THE ORDER OF THE TRIB UNAL DATED 31.08.2012 (SUPRA), WE FIND THAT THE IMPUGNED DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER ON MERE CONJECTURES AND SURMISES. IT IS QUITE CLEAR THAT THE CLAIM OF THE ASSESSEE FOR THE BAD DEBTS WRITTEN-OFF IS IN TERMS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. IT IS ALSO QUI TE CLEAR THAT THE DEBTS IN QUESTION HAVE BEEN ACTUALLY WRITTEN-OFF AS IRRECOVERABLE IN THE ACCOUNT BOOKS OF THE ASSESSEE. IT IS ALSO NOT DISPUTED BY THE REVENUE T HAT THE IMPUGNED DEBTS HAVE ARISEN IN THE COURSE OF CARRYING ON ASSESSEES BUSINESS OF FINANCING. IN THE BACKGROUND OF THE AFORESAID UNDISPUTED FACTS, I N OUR CONSIDERED OPINION, THE ISSUE IS SQUARELY COVERED BY THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A). THEREFORE, HAVING REGARD TO THE FACTUAL POSITION AND THE PARITY OF RE ASONING LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A), WE FIND NO ERROR ON ITA NO.2234/PN/2012 A.Y. : 2007-08 THE PART OF THE CIT(A) IN DELETING THE IMPUGNED ADD ITION. WE HEREBY AFFIRM THE ORDER OF THE CIT(A) AND ACCORDINGLY THE REVENUE FAI LS ON THIS GROUND. 23. THE SECOND GROUND IN THE APPEAL OF THE REVENUE IS WITH REGARD TO AN ADDITION OF RS.12,87,37,505/- REPRESENTING INCOME O N ACCOUNT OF NON- PERFORMING ASSETS. IN THIS REGARD, THE BRIEF FACTS ARE THAT ASSESSEE IS A NON- BANKING FINANCIAL COMPANY (NBFC), INTER-ALIA, ENGAG ED IN THE BUSINESS OF HIRE PURCHASE FINANCE AND LEASING OF TWO WHEELERS AND OT HER CONSUMER DURABLES, LIKE COMPUTERS, ETC.. IN RELATION TO CERTAIN HIRE PURCHASE TRANSACTIONS, ASSESSEE DID NOT ACCOUNT FOR THE INTEREST INCOME ON THE GROUND THAT THE SAME WERE CLASSIFIED AS NON-PERFORMING ASSETS (NPAS) FOL LOWING THE RESERVE BANK OF INDIA GUIDELINES. THE AMOUNT OF SUCH INTEREST I NCOME NOT ACCOUNTED FOR WAS RS.12,87,37,505/-. THE ASSESSING OFFICER NOTED THAT IN THE PRECEDING ASSESSMENT YEAR, SUCH CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE PREDECESSOR ASSESSING AUTHORITY. THEREFORE, FOLLOW ING THE STAND OF THE ASSESSING OFFICER IN THE EARLIER ASSESSMENT YEARS O N THIS ISSUE, THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE AND HELD THAT THE SUM OF RS.12,87,37,505/- WAS ASSESSABLE AS INCOME OF THE A SSESSEE. THE CIT(A) HAS DELETED THE ADDITION BY MAKING FOLLOWING DISCUS SION :- 12. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AS WELL AS REPLY OF THE APPELLANT. IT IS SEEN THAT IN A.Y. 20 06-07, THE APPEAL WAS DISMISSED ON THIS GROUND RELYING UPON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LIMITED REPORTED IN 320 ITR 527 FOR THE PROPOSITION THAT RBI DIRECTIONS HAVE NOTHIN G TO DO WITH THE COMPUTATION OF INCOME. THIS JUDGEMENT OF THE HON'BLE APEX COURT WAS FURTHER ANALYSED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. REPORTED IN 330 1TR 440 (DEL) AND DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. RECENTLY, PUNE TRIBUNAL IN THE CASE OF DC IT VS. ALFA LAVAL FINANCIAL SERVICES LTD. IN ITA NO. 138/PN/06 FOR A. Y. 2001-02 HELD THAT THE JUDGEMENT OF HON'BLE SUPREME COURT IN SOUTHERN TECH NOLOGIES LTD. (SUPRA) STANDS ON A DIFFERENT FOOTING THAN THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTHA CHAY VYAPAR LTD. (SUP RA). THE AFORESAID TWO DECISIONS OPERATE IN DIFFERENT FIELDS IN AS MUCH AS THE DECISION IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) RELATES TO DEDUC IBILITY OF A PROVISION FOR BAD DEBTS U/S.36(1)(VII) OR 37(1) OF THE ACT WHEREA S THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHA Y VYAPAR LD. (SUPRA) DEALS WITH ACCRUAL OF INCOME IN RELATION TO AN ASSET WHIC H HAS BEEN CLASSIFIED AS NON-PERFORMING ASSET IN TERMS OF PRUDENTIAL NORMS I SSUED BY RBI. THEREAFTER, ITA NO.2234/PN/2012 A.Y. : 2007-08 THE RATIO OF THE DECISION OF ITAT PUNE 'B' BENCH WH ICH IS JURISDICTIONAL TRIBUNAL IS FOUND IN PARA 9 OF THE ORDER WHICH IS REPRODUCED FOR THE SAKE OF CLARITY' ... THE ASSESSEE SHALL SATISFY THE ASSESSING OFFICER TH AT IT IS A CASE WHERE THE AMOUNT OFRS.19,95,596/- REPRESENTS U NRECOGNIZED INCOME ON A NON-PERFORMING ASSET CLASSIFIED IN TERM S OF PRUDENTIAL NORMS OF RBI AND IS NOT A CASE WHERE A PROVISION OF EQUIVALENT AMOUNT HAS BEEN DEBITED IN THE P&L A/C AND CLAIMED AS DEDU CTION U/S.36(1)(VII) OR 37(1) OF THE ACT. IN CASE, THE AS SESSEE SUCCEEDS IN DEMONSTRATING THE FORMER SITUATION THEN NO ADDITION WOULD BE WARRANTED IN TERMS OF THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VYAPAR LTD, (SUPRA) AND IN OTHER CASE, THE ASSESSING OFFICER SHALL TAKE APPROPRIATE DECISION. IN ACCORDANCE WITH OUR AFORESAID DISCUSSION AND LAW'. 13. THUS, IT CAN BE SEEN THAT THE HON'BLE JURISDICT IONAL TRIBUNAL HAS CLEARLY HELD THE RATIO THAT IF THE AMOUNT IN QUESTI ON REPRESENTS UNRECOGNIZED INCOME ON A NON-PERFORMING ASSET CLASSIFIED IN TERM S OF PRUDENTIAL NORMS OF RBI, THEN NO ADDITION WOULD BE WARRANTED IN TERMS O F THE JUDGEMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF VASISTH CHA Y VYAPAR LTD. (SUPRA). 14. IF THE FACTS OF THE PRESENT CASE ARE EXAMINED, IT IS SEEN THAT AMOUNT OF RS.12,87,37,505/- PERTAINS TO INTEREST ON NON-PERFORMING ASSETS, THEREFORE, THE ABOVE RATIO IS CLEARLY APPLICABLE ON THE FACTS OF THE CASE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE HON'BLE JURISDICTIONAL TRIBUNAL, THE CASE DY.CLT CIR.8, PURTE VS, ALFA LAV AL FINANCIAL SERVICES LD. (ITA NO.138/PN/06; A.Y. 2001-02), THE ASSESSING OFF ICER IS DIRECTED TO DELETED THE ADDITION OF RS.12,87,37,505/- BEING INTEREST PE RTAINING TO NON-PERFORMING ASSETS. ACCORDINGLY, THE GROUND TAKEN BY THE APPELL ANT IS ALLOWED. 24. AGAINST THE AFORESAID DECISION OF THE CIT(A), R EVENUE IS IN APPEAL BEFORE US. BEFORE US, THE PLEA OF THE LEARNED DEPA RTMENTAL REPRESENTATIVE IS THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2 006-07, THE TRIBUNAL IN THE APPEAL OF THE ASSESSEE VIDE ITA NO.1092/PN/2010 DATED 31.08.2012 FOLLOWING THE DECISION OF THE TRIBUNAL IN THE ASSES SMENT YEARS 1996-97 TO 1999-2000 AND 2000-01 TO 2003-04 VIDE ITA NOS.805/P N/2001 AND OTHERS ORDER DATED 31.03.2010 REMANDED BACK THE ISSUE TO T HE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION. THE RELEVANT DISCUSSI ON IN THE ORDER OF THE TRIBUNAL DATED 31.08.012 (SUPRA), WHICH IS A COMMON ORDER FO R ASSESSMENT YEARS 2004-05 TO 2006-07, IS AS UNDER :- 22. THE NEXT GROUND RAISED BY THE REVENUE IS WITH REGARD TO AN ADDITION OF RS.1,76,99,057/- REPRESENTING INCOME ON ACCOUNT OF NON- PERFORMING ASSETS. THE FACTS IN BRIEF ARE THAT ASS ESSEE HAD NOT ACCOUNTED FOR THE INTEREST INCOME PERTAINING TO CERTAIN HIRE PURC HASE TRANSACTIONS ON THE GROUND OF THE SAME BEING NON-PERFORMING ASSETS FOLL OWING THE RBI GUIDELINES. THE ASSESSING OFFICER NOTICED THAT IN THE PAST ASSE SSMENT YEARS 1996-97 TO 2003-04, SIMILAR ISSUE WAS SUBJECT MATTER OF CONSID ERATION IN THE ASSESSMENT ITA NO.2234/PN/2012 A.Y. : 2007-08 PROCEEDINGS, WHEREBY THE SAME WAS FOUND TO BE TAXAB LE. AS PER THE ASSESSING OFFICER, THE AMOUNT OF RS.1,76,99,057/- B EING INCOME ON HIRE PURCHASE TRANSACTIONS WHICH HAVE BEEN CLASSIFIED AS NON-PERFORMING ASSETS INDEED ACCRUED IN THE HANDS OF THE ASSESSEE AND WAS THUS, INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE. THE CIT(A) HAS DELE TED THE ADDITION FOLLOWING THE PRECEDENTS. 23. BEFORE US, IT WAS A COMMON POINT BETWEEN THE PA RTIES THAT THE ISSUE WAS SUBJECT MATTER OF CONSIDERATION BY THE TR IBUNAL IN THE A.Y.S 1996-97 TO 2003-04 VIDE ITA.NO.805/PN/2001 AND OTHERS DATED 31.03.2010 WHEREBY THE ISSUE HAS BEEN REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE- ADJUDICATION AFTER CONSIDERING THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT 32 0 ITR 577 (SC). IN THIS BACKGROUND THE LD. DR SUBMITTED THAT THE MATTE R BE REMANDED BACK TO THE FILE OF THE AO IN THE LIGHT OF THE PRECEDENTS. 24. THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITT ED THAT SUBSEQUENT TO THE ORDER OF THE TRIBUNAL DATED 31.03 .2010 (SUPRA), SIMILAR ISSUE WAS CONSIDERED BY HONBLE DELHI HIGH COURT IN THE FOLLOWING DECISIONS: CIT VS. M/S.VASISTH CHAY VYAPAR LTD. (330 ITR 440)( DEL) DIT VS BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. (335 ITR 182) (DEL). AND ALSO BY THE PUNE BENCH OF THE TRIBUNAL IN THE C ASE OF DCIT VS. ALFA LAVAL FINANCIAL SERVICES LTD. ITA.NO.138/PN/2006 DATED 30 .09.2011. 25. HAVING CONSIDERED THE RIVAL SUBMISSIONS ON THE ISSUE IN QUESTION, WE DEEM IT FIT AND PROPER TO RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION IN THE LIGHT OF THE PRECEDENT IN THE ASSESSEES OWN CASE IN TERMS OF THE DECISION OF THE TRIBUNAL DATED 31.03.2010 (SUPRA). THE AO IS DIRECTED TO RE-ADJUD ICATE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS CONTAINED IN THE ORDER OF THE T RIBUNAL DATED 31.03.2010 AND ALSO SUCH OTHER LEGAL POSITION AS PREVAILING AT THE TIME OF THE ENSUING REMAND PROCEEDINGS. THE AO SHALL TAKE INTO CONSIDE RATION THE SUBMISSIONS AND MATERIAL THAT THE ASSESSEE MAY DEEM FIT TO PUT FORTH IN SUPPORT OF ITS RETURN OF INCOME, AND HE SHALL THEREAFTER ADJUDICATE THE I SSUE AFRESH IN ACCORDANCE WITH LAW. THUS ON THIS GROUND REVENUE SUCCEEDS FOR STATISTICAL PURPOSES. 25. IN THIS BACKGROUND, THE PLEA OF THE LEARNED DEP ARTMENTAL REPRESENTATIVE IS THAT THE MATTER BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-ADJUDICATION IN THE LIGHT OF THE AFO RESAID PRECEDENT BY WAY OF THE ORDER OF THE TRIBUNAL WHEREIN THE MATTER HAS BEEN S ENT BACK. ACCORDING TO HIM, THE CIT(A) ERRED IN DELETING THE ADDITION. 26. PER CONTRA , THE LEARNED REPRESENTATIVE FOR THE ASSESSEE ASSER TED THAT THE CIT(A) MADE NO MISTAKE IN DELETING THE ADDITION BECAUSE ALL THE ASPECTS, INCLUDING THOSE REQUIRED BY THE TRIBUNAL, WERE INDE ED CONSIDERED BY THE CIT(A) IN THE COURSE OF APPELLATE PROCEEDINGS AND O N THAT BASIS THE CIT(A) HAS ITA NO.2234/PN/2012 A.Y. : 2007-08 FOUND THE ADDITION TO BE NOT MAINTAINABLE. THE LEA RNED COUNSEL FURTHER POINTED OUT THAT FOR THE ASSESSMENT YEARS 2004-05 TO 2006-0 7, THE TRIBUNAL VIDE ORDER DATED 31.08.2012 (SUPRA) HAS REQUIRED THE ASSESSING OFFICER TO RECONSIDER THE ISSUE NOT ONLY IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) BUT ALSO IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) AS WELL AS THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ALFA LAVAL FINANCIAL SERVICES LTD. ( SUPRA). THE LEARNED COUNSEL REFERRED TO THE SUBMISSIONS PUT-UP BEFORE THE CIT(A ) WHICH HAVE BEEN REPRODUCED IN THE IMPUGNED ORDER, AND ON THAT BASIS IT IS SOUGHT TO BE DEMONSTRATED THAT THE AFORESAID LEGAL PRECEDENTS HA VE BEEN DULY CONSIDERED BY THE CIT(A) AND THEREAFTER HE HAS RECORDED A FIND ING THAT THE AMOUNT OF RS.12,87,37,505/- REPRESENTING INTEREST ON NPAS WAS NOT INCLUDIBLE IN THE TOTAL INCOME IN THIS YEAR. 27. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE ASSESSEE BEFORE US IS A NBFC, AND SUM AND SUBSTANCE OF THE D ISPUTE RELATES TO THE STAND OF THE ASSESSEE THAT INTEREST INCOME RELATING TO CERTAIN HIRE PURCHASE TRANSACTIONS DID NOT ACCRUE TO THE ASSESSEE BECAUSE SUCH TRANSACTIONS WERE CLASSIFIED AS NPAS FOLLOWING THE RBI GUIDELINES. W HEN THE MATTER CAME UP FOR THE FIRST TIME BEFORE THE TRIBUNAL FOR ASSESSMENT Y EARS 1996-97 TO 1999-2000 AND 2000-01 TO 2003-04, VIDE A COMMON ORDER DATED 3 1.03.2010 THE ISSUE WAS REMANDED BACK TO THE FILE OF THE ASSESSING OFFI CER TO BE CONSIDERED IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) AND ALSO ALLOWING THE ASS ESSEE TO DEMONSTRATE THE JUSTIFICATION AND CRITERION FOR IDENTIFICATION OF N PAS AND NON-ACCRUAL OF INCOME ON SUCH ADVANCES. SUBSEQUENTLY, WHEN SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IS ASSESSEES CASE FOR ASSESSMENT YEARS 20 04-05 TO 2006-07, THE TRIBUNAL BY WAY OF A COMMON ORDER DATED 31.08.2012 (SUPRA) AGAIN RESTORED THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICE R NOT ONLY IN TERMS OF THE ITA NO.2234/PN/2012 A.Y. : 2007-08 DECISION OF THE TRIBUNAL DATED 31.03.2010 (SUPRA) B UT ALSO REQUIRING THE ASSESSING OFFICER TO TAKE INTO CONSIDERATION SUCH OTHER LEGAL POSITION AS PREVAILING AT THE TIME OF ENSUING REMAND PROCEEDING S . THE AFORESAID DIRECTION WAS IN THE CONTEXT OF THE JUDGEMENTS OF T HE (I) HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. ( SUPRA) AND BRAHAMPUTRA CAPITAL FINANCIAL SERVICES LTD. (SUPRA); AND, (II) DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ALFA LAVAL FINANCIAL SE RVICES LTD. (SUPRA), WHICH WAS CITED BEFORE THE TRIBUNAL. THE AFORESAID PRECE DENTS WERE NOT AVAILABLE WHEN THE TRIBUNAL CONSIDERED THE ISSUE ON THE EARLI ER OCCASION VIDE ORDER DATED 31.10.2010 (SUPRA). 28. IN THE COURSE OF THE IMPUGNED APPELLATE PROCEED INGS BEFORE THE CIT(A) FOR THE PRESENT ASSESSMENT YEAR, ASSESSEE RELIED UP ON THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF M/S VASISTH CHAY VYAPAR LTD. (SUPRA) AS WELL AS THE DECISION OF THE PUNE BENCH OF THE TR IBUNAL IN THE CASE OF ALFA LAVAL FINANCIAL SERVICES LTD. (SUPRA) TO SUBMIT THA T THERE IS NO ACCRUAL OF INCOME IN RELATION TO ASSETS WHICH ARE CLASSIFIED A S NPAS IN TERMS OF RBI GUIDELINES. IN THIS CONTEXT, THE CIT(A) HAS FACTUA LLY CONCLUDED THAT THE AMOUNT OF RS.12,87,37,505/- PERTAINS TO INTEREST ON NPAS. THIS FINDING OF THE CIT(A) IS NOT DISPUTED BY THE REVENUE. IN THE BACKGROUND OF THIS UNDISPUTED FACTUAL POSITION, NOW WE HAVE TO EXAMINE THE ULTIMATE CONCL USION OF THE CIT(A). AS PER THE CIT(A), UNRECOGNIZED INCOME ON NPAS CLASSIF IED IN TERMS OF RBI GUIDELINES CANNOT BE ASSESSED ON ACTUAL BASIS. THE AFORESAID STAND OF THE CIT(A) IS DIRECTLY SUPPORTED BY THE JUDGEMENT OF TH E HONBLE DELHI HIGH COURT IN THE CASE OF BRAHAMPUTRA CAPITAL FINANCIAL SERVIC ES LTD. (SUPRA), WHICH IS ALSO A CASE OF A NBFC. THE CIT(A) HAS ALSO RELIED UPON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF ALFA LAVA L FINANCIAL SERVICES LTD. (SUPRA), WHICH IS ALSO A COPY OF A NBFC. THE REVEN UE HAS NOT BROUGHT TO OUR NOTICE ANY DECISION TO THE CONTRARY. ITA NO.2234/PN/2012 A.Y. : 2007-08 29. IN THE ABOVE BACKGROUND, THE LEARNED COUNSEL FO R THE ASSESSEE IS JUSTIFIED IN ARGUING THAT NO USEFUL PURPOSE WOULD B E SERVED BY REMANDING THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOL LOWING THE ORDERS OF THE TRIBUNAL OF EARLIER YEARS. IN THE PRESENT YEAR, AS OUR AFORESAID DISCUSSION SHOWS, THE FACTUAL FINDINGS OF THE CIT(A) REGARDING THE NATURE OF THE IMPUGNED IS NOT DISPUTED, AND, THE LEGAL POSITION ARTICULATE D BY THE CIT(A) HAS ALSO NOT BEEN ASSAILED BY THE REVENUE ON THE BASIS OF ANY CO NTRARY JUDGEMENT, WHEREAS THE STAND OF THE CIT(A) IS SUPPORTED BY THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT. 30. FOLLOWING THE AFORESAID DISCUSSION, WE HEREBY AFFIRM THE ORDER OF THE CIT(A) HOLDING THAT THE AMOUNT OF RS.12,87,37,505/- REPRESENTING UNRECOGNIZED INCOME ON NPAS CLASSIFIED AS PER THE R BI GUIDELINES CANNOT BE ASSESSED ON ACCRUAL BASIS. THUS, REVENUE FAILS ON THIS GROUND. 31. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO. 1273/PN/2012 FOR ASSESSMENT YEAR 2007-08 IS DISMISSED. 32. NOW, WE MAY TAKE-UP THE CROSS-APPEALS FOR ASSES SMENT YEAR 2008-09 BY THE ASSESSEE AND REVENUE VIDE ITA NO.1676/PN/201 2 AND ITA NO.1709/PN/2012 RESPECTIVELY, WHICH ARE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, PUNE DATED 31.05.2012 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 29.12.2010 PAS SED BY THE ASSESSING OFFICER U/S 143(3) OF THE ACT. 33. THE GROUNDS OF APPEAL RAISED IN THE APPEAL OF T HE ASSESSEE ARE AS FOLLOWS :- BASED ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, BAJAJ FINANCE LTD. [THE APPELLANT'] RESPECTFULLY SUBMITS THAT THE HON'BLE CIT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT, ON THE FOLLOWING GROUNDS WHICH ARE WITHOUT PREJUDICE TO EACH OTHER: ITA NO.2234/PN/2012 A.Y. : 2007-08 1. DEPRECIATION ON THE ASSETS GIVEN ON LEASE UNDER FINANCIAL LEASE 1.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTIO N OF THE ASSESSING OFFICER (AO) IN DISALLOWING DEPRECIATIO N ON ASSETS GIVEN ON LEASE UNDER FINANCE LEASE AGREEMENTS AMOUN TING TO RS.8,65,63,046/-. 2. DISALLOWANCE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX FULES, 1962 2.1 THE LEARNED CIT(A) ERRED IN UPHOLDING THE ACTIO N OF THE AO IN MAKING A DISALLOWANCE OF RS.71,13,261/- UNDER SECTI ON 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE, 1 962 (RULES). 2.2 THE LEARNED CIT(A) SHOULD HAVE APPRECIATED THE ARGUMENT, THAT THE AO HAS NOT RECORDED OBJECTIVE SATISFACTION FOR INVOKING RULE 8D FOR MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. 2.3 THE LEARNED CIT(A) ERRED IN NOT APPRECIATING TH E FACTS THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT MADE BY T HE APPELLANT IN THE RETURN OF INCOME WAS REASONABLE. 3. NOT GRANT OF TDS CREDIT 3.1 THE LEARNED CIT(A) ERRED IN DIRECTING THE AO TO ALLOW TDS CREDIT AS PER FORM 26AS AS AGAINST TDS CREDIT AS PER THE T DS CERTIFICATES. 34. IN SO FAR AS GROUND OF APPEAL NO.1 IS CONCERNED , IT RELATES TO ASSESSEES CLAIM OF DEPRECIATION ON ASSETS LEASED O UT IN THE COURSE OF BUSINESS OF HIRE-PURCHASE AND LEASING. THE SAID DI SPUTE IS IDENTICAL TO GROUND OF APPEAL NO.1 ADJUDICATED BY US IN EARLIER PARAS I N ASSESSEES APPEAL FOR ASSESSMENT YEAR 2007-08. FOLLOWING THE AFORESAID, THE GROUND OF APPEAL IS ALLOWED. 35. BY WAY OF GROUND OF APPEAL NO.2, ASSESSEE HAS A SSAILED THE ORDER OF THE CIT(A) UPHOLDING THE ACTION OF THE ASSESSING OF FICER IN MAKING A DISALLOWANCE OF RS.71,13,261/- U/S 14A OF THE ACT R .W. RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). IN THIS CO NTEXT, BRIEF FACTS ARE THAT THE ASSESSEE COMPANY HAD DECLARED AN INCOME OF RS.1,09, 58,664/-, WHICH WAS EXEMPT IN TERMS OF CHAPTER-III OF THE ACT. IN THE COMPUTATION OF INCOME FILED, ASSESSEE HAD OFFERED AN AMOUNT OF RS.57,600/- DISAL LOWABLE U/S 14A OF THE ACT ON THE GROUND THAT SUCH EXPENDITURE WAS INCURRE D IN RELATION TO EARNING OF THE AFORESAID EXEMPT INCOME. THE ASSESSING OFFICER DID NOT AGREE WITH THE ITA NO.2234/PN/2012 A.Y. : 2007-08 DISALLOWANCE WORKED OUT BY THE ASSESSEE AND INSTEAD HE APPLIED THE PROVISIONS OF RULE 8D OF THE RULES IN ORDER TO COMP UTE THE DISALLOWANCE U/S 14A OF THE ACT AT RS.71,70,861/-. SINCE THE ASSESS EE COMPANY HAD SUO-MOTU DISALLOWED A SUM OF RS.57,600/- IN THE RETURN OF IN COME, THE BALANCE OF RS.71,13,261/- (I.E. RS.71,70,861/- MINUS RS.57,600/-) WAS ADDED BACK TO THE TOTAL INCOME. THE ENHANCED DISALLOWANCE BY THE ASS ESSING OFFICER U/S 14A OF THE ACT WAS CARRIED BY THE ASSESSEE IN APPEAL BEFOR E THE CIT(A). 36. BEFORE THE CIT(A), ASSESSEE ASSAILED THE DISALL OWANCE BOTH IN LAW AND ON FACTS. ON FACTS, THE PLEA OF THE ASSESSEE WAS T HAT THE ASSESSING OFFICER FAILED TO APPRECIATE THAT THE DISALLOWANCE WORKED O UT BY THE ASSESSEE U/S 14A OF THE ACT AT RS.57,600/- WAS REASONABLE AND THAT T HE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER BY INVOKING RULE 8D OF THE RULES WAS WITHOUT ANY JUSTIFICATION. IN LAW, THE INVOKING OF RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT WAS ASSAILED ON THE GROUND THE ASSESSING OFFICER DID NOT RECORD THE NECESSARY SATISFACTION M ANDATED U/S 14A(2) OF THE ACT BEFORE INVOKING RULE 8D OF THE RULES. IN SUPPO RT OF THE PLEA THAT RECORDING OF AN OBJECTIVE SATISFACTION IS MANDATORY BEFORE AP PLYING RULE 8D OF THE RULES TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT, ASS ESSEE RELIED UPON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT, 328 ITR 81 (BOM) A S ALSO THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. VS. CIT, (2012) 247 CTR 162 (DEL). BOTH THE PLEAS OF T HE ASSESSEE HAVE BEEN DISMISSED BY THE CIT(A). ACCORDING TO THE CIT(A), THE PROVISIONS OF RULE 8D OF THE RULES ARE APPLICABLE FROM THE ASSESSMENT YEA R UNDER CONSIDERATION I.E. ASSESSMENT YEAR 2008-09 ONWARDS AND THEREFORE THE D ISALLOWANCE COMPUTED BY THE ASSESSEE BY ANY OTHER METHOD IS NOT ACCEPTAB LE. ACCORDING TO THE CIT(A), THE ACTION OF THE ASSESSING OFFICER TO INVO KE RULE 8D OF THE RULES IN ORDER COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT W AS JUSTIFIED ON FACTS AND IN ITA NO.2234/PN/2012 A.Y. : 2007-08 LAW. NOT BEING SATISFIED WITH THE ORDER OF THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 37. BEFORE US, THE SUM AND SUBSTANCE OF THE PLEA OF THE ASSESSEE IS BASED ON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT I N THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), WHICH IS TO T HE EFFECT THAT RECORDING OF AN OBJECTIVE SATISFACTION AS MANDATED IN SECTION 14 A(2) OF THE ACT IS NECESSARY BEFORE INVOKING RULE 8D OF THE RULES FOR THE PURPOS ES OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT. ACCORDING TO THE LEARNED COUNSEL, IN THE PRESENT CASE, NO SUCH SATISFACTION HAS BEEN RECORDE D BY THE LOWER AUTHORITIES AND THEREFORE THE ENHANCEMENT OF THE AMOUNT DISALLO WABLE U/S 14A OF THE ACT IS UNTENABLE IN THE EYES OF LAW. A REFERENCE HAS B EEN MADE TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KALYA NI STEELS LTD. VS. ADDL.CIT VIDE ITA NO.1733/PN/2012 DATED 30.01.2014, WHEREIN FOLLOWING THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), IT HAS UPHELD THE A FORESAID PROPOSITION. RELIANCE HAS ALSO BEEN ON THE FOLLOWING DECISIONS O F THE TRIBUNAL : (I) JK INVESTORS (BOMBAY) LTD. VS. ACIT VIDE ITA NO.7852/M UM/2011 & ITA NO.7851/MUM/2011 DATED 13.03.2013; AND, (II) M/S SH IVA PROJECTS ENGINEERING & ENTERPRISES LIMITED VS. ACIT VIDE ITA NO.1896MDS/2011 DATED 17.02.2012. 38. APART FROM THE AFORESAID, ON FACTS ALSO, THE EN HANCED DISALLOWANCE WORKED OUT BY THE LOWER AUTHORITIES IS SOUGHT TO BE ASSAILED. THE LEARNED COUNSEL REFERRED TO THE DETAILED WRITTEN SUBMISSION S MADE BEFORE THE CIT(A), WHICH HAVE BEEN REPRODUCED IN PARA 17 OF THE IMPUGN ED ORDER, TO SUBMIT THAT THE AMOUNT OF DISALLOWANCE U/S 14A OF THE ACT WORKE D OUT BY THE ASSESSEE IS FAIR AND REASONABLE. ITA NO.2234/PN/2012 A.Y. : 2007-08 39. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE APPEARING FOR THE REVENUE HAS DEFENDED THE ORDERS OF THE AUTH ORITIES BELOW. ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE CIT (A) HAS CORRECTLY APPRECIATED THE ASSESSMENT ORDER AND HAS NOTED THAT THE REQUISITE SATISFACTION REQUIRED IN TERMS OF SECTION 14A(2) OF THE ACT HAS BEEN FORMULATED BY THE ASSESSING OFFICER. IN THIS CONTEXT, A REFERENCE WA S MADE TO THE DISCUSSION MADE BY THE CIT(A) IN PARA 20 OF THE IMPUGNED ORDER . ACCORDING TO THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE SATISFACTI ON REQUIRED IN TERMS OF SECTION 14A OF THE ACT IS TO BE UNDERSTOOD FROM THE ENTIRE DISCUSSION IN THE ASSESSMENT ORDER AS THERE IS NO PARTICULAR METHODOL OGY PRESCRIBED IN SECTION 14A(2) OF THE ACT AS TO HOW THE SATISFACTION IS TO RECORDED. THE PLEA OF THE LEARNED DEPARTMENTAL REPRESENTATIVE IS THAT THE FAC T THAT THE ASSESSING OFFICER DID NOT AGREE TO THE COMPUTATION OF DISALLOWANCE MA DE BY THE ASSESSEE WOULD SHOW THAT HE FORMULATED THE REQUIRED SATISFACTION T HAT THE DISALLOWANCE WAS INCORRECT AND THEREFORE THE ASSESSING OFFICER WAS J USTIFIED IN INVOKING RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U /S14A OF THE ACT. 40. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. PERTINENTLY, THE DISPUTE BEFORE US REVOLVES AROUND THE MODE AND MANN ER OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT. NOTABLY, SECTION 14A OF THE ACT CONTEMPLATES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME , NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY EXPENDITURE INCURRED BY T HE ASSESSEE IN RELATION TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. IN THE CASE BEFORE US, ASSESSEE HAS EARNED AN INCOME OF RS .1,09,58,664/- WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T AS PER THE CHAPTER-III OF THE ACT. IN THE RETURN OF INCOME, ASSESSEE COMPUTE D A SUM OF RS.57,600/- AS AN EXPENDITURE INCURRED IN RELATION TO THE AFORESAI D INCOME, AND DISALLOWED IT WHILE COMPUTING TOTAL INCOME UNDER THE ACT. THE DE TERMINATION OF SUCH DISALLOWANCE ON ACCOUNT OF AN APPLICATION OF SECTIO N 14A OF THE ACT, IS THE SUBJECT-MATTER OF DISPUTE BEFORE US. THE DISALLOWA NCE OF RS.57,600/- ITA NO.2234/PN/2012 A.Y. : 2007-08 ESTIMATED BY THE ASSESSEE COMPRISED OF DIRECT EXPEN SES OF RS.7,600/- RELATING TO DEMAT CHARGES AND RS.50,000/- BASED ON THE PAST ASSESSMENTS WHEREAS THE REVENUE COMPUTED THE DISALLOWANCE AT RS.71,70,8 61/- BY INVOKING THE COMPUTATION MECHANISM PROVIDED IN RULE 8D OF THE RU LES. 41. THE ACTION OF THE ASSESSING OFFICER TO INVOKE R ULE 8D OF THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE IS THE B ONE OF CONTENTION BEFORE US. THE POWER OF THE ASSESSING OFFICER TO INVOKE R ULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT IS C ONTAINED IN SUB-SECTION (2) OF SECTION 14A OF THE ACT. SO HOWEVER, INVOKING OF RULE 8D OF THE RULES BY THE ASSESSING OFFICER IS SUBJECT TO FULFILLMENT OF A CO NDITION PRESCRIBED IN SUB- SECTION (2) OF SECTION 14A OF THE ACT ITSELF. SUB- SECTION (2) OF SECTION 14A OF THE ACT PRESCRIBES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRE SCRIBED, SUCH METHOD BEING CONTAINED IN RULE 8D OF THE RULES. THE PHRAS EOLOGY OF SUB-SECTION (2) OF SECTION 14A OF THE ACT BRINGS OUT THAT THE AFORESAI D EMPOWERMENT OF THE ASSESSING OFFICER TO INVOKE RULE 8D OF THE RULES IS CIRCUMSCRIBED BY FULFILLMENT OF A CONDITION TO THE EFFECT THAT THE ASSESSING OFF ICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN-FACT, T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD . (SUPRA), THOUGH HOLDING THAT THE PROVISIONS OF RULE 8D OF THE RULES WERE AP PLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS, HAS ALSO LAID DOWN THAT INVOK ING OF RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT IS NEITHER AUTOMATIC AND NOR IS TRIGGERED MERELY BECAUSE OF TH E PRESENCE OF AN EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. THE INVOKING OF RULE 8D OF THE RULES IS PERMISSIBLE ONLY IN CIRCUMSTANCES WHERE THE ASSESSI NG OFFICER RECORDS THE SATISFACTION MANDATED IN SECTION 14A(2) OF THE ACT WITH REGARD TO THE ITA NO.2234/PN/2012 A.Y. : 2007-08 INCORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. (SUPRA) HAS ALSO RELIED UPON THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. (SUPRA) AND OPINED THAT THE ASSESSING OFFICER CAN DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOM E BY APPLYING RULE 8D OF THE RULES ONLY IF HE RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXP ENDITURE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. AS PER THE HONBLE D ELHI HIGH COURT, SUCH A SATISFACTION ON THE PART OF THE ASSESSING OFFICER W AS APPLICABLE IN RELATION TO SUB-SECTION (2) AS WELL AS SUB-SECTION (3) OF SECTI ON 14A OF THE ACT SINCE THE FORMER SUB-SECTION DEALS WITH CASES WHERE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME WHEREAS THE LATTER SUB-SECTION DEALS W ITH CASES WHERE ASSESSEE ASSERTS THAT NO EXPENDITURE HAS BEEN INCURRED IN RE LATION TO AN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IN THIS BACKGROUND OF THE MATTER, HAVING REGARD TO THE JUDGEMENTS OF THE HON BLE BOMBAY HIGH COURT AND HONBLE DELHI HIGH COURT IN THE CASES OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AND MAXOPP INVESTMENT LTD. & ORS. (SUPRA) RESPECTIVELY, IT HAS TO BE HELD THAT RESORT TO RULE 8D OF THE RULES FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IS PERMISSIBLE ONLY WHERE THE ASSESSING OFFICER RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN SUPPORT OF SUCH EXPENDITUR E, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. 42. FURTHER, WE WOULD REFER TO THE FOLLOWING DISCUS SION IN THE JUDGEMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) :- 70. NOW, IN DEALING WITH THE CHALLENGE IT IS NECESSARY TO ADVERT TO THE POSITION THAT SUB-SECTION (2) OF SECTION 14A PR ESCRIBES A UNIFORM METHOD ITA NO.2234/PN/2012 A.Y. : 2007-08 FOR DETERMINING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME ONLY IN A SI TUATION WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. IT, THEREFORE, MERITS EMPHASIS THAT SUB-SECTION (2) OF SECTION 14A DOES NOT AUTHORIZE OR EMPOWER THE ASSESSING OFFICER TO APPLY THE PRESCRIBED METHOD IRRESPECTIVE OF THE NATURE OF THE CLAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAS TO FIRST CONSIDER THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE OBJECTIVELY ARRIVED AT ON THE BASIS OF THOSE ACCOUNTS AND AFTER CONSIDERING ALL THE RELEVANT FAC TS AND CIRCUMSTANCES. THE APPLICATION OF THE PRESCRIBED METHOD ARISES IN A SI TUATION WHERE THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE WHIC H IS RELATABLE TO THE EARNING OF INCOME WHICH DOES NOT FORM PART OF THE T OTAL INCOME UNDER THE ACT IS FOUND TO BE INCORRECT. IN SUCH A SITUATION A MET HOD HAD TO BE DEVISED FOR APPORTIONING THE EXPENDITURE INCURRED BY THE ASSESS EE BETWEEN WHAT IS INCURRED IN RELATION TO THE EARNING OF TAXABLE INCO ME AND THAT WHICH IS INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME. AS A MATTER OF FACT, THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL, 2006, AND THE CENTRAL BOARD OF DIRECT TAXES CIRCULAR DATED DECEMB ER 28, 2006, STATE THAT SINCE THE EXISTING PROVISIONS OF SECTION 14A DID NO T PROVIDE A METHOD OF COMPUTING THE EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME, THERE WAS A CONSIDERABLE DISPUTE BETWEEN TAXPAYERS AND THE DEPARTMENT ON THE METHOD OF DETERMINING SUC H EXPENDITURE. IT WAS IN THIS BACKGROUND THAT SUB-SECTION (2) WAS INSERTED S O AS TO PROVIDE A UNIFORM METHOD APPLICABLE WHERE THE ASSESSING OFFICER IS NO T SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. SUB-SECTI ON (3) CLARIFIES THAT THE APPLICATION OF THE METHOD WOULD BE ATTRACTED EVEN T O A SITUATION WHERE THE ASSESSEE HAS CLAIMED THAT NO EXPENDITURE AT ALL WAS INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME. 71. PARLIAMENT HAS PROVIDED AN ADEQUATE SAFEGUARD T O THE INVOCATION OF THE POWER TO DETERMINE THE EXPENDITUR E INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME BY ADOPTION OF THE PR ESCRIBED METHOD. THE INVOCATION OF THE POWER IS MADE CONDITIONAL ON THE OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. WHEN A STATUTE POSTULATES THE SATISFACTION OF THE ASSESSING OFFICER 'COURTS WILL NOT READILY DEFER TO THE CONCLUSIVENESS OF AN EXECUTIVE AUTHORITY'S OPINION AS TO THE EXISTENCE OF A MATTER OF LAW OR FACT UPON WHICH THE VALIDITY OF TH E EXERCISE OF THE POWER IS PREDICATED'. (M. A. RASHEED V. STATE OF KERALA [197 4] AIR 1974 SC 2249*). A DECISION BY THE ASSESSING OFFICER HAS TO BE ARRIVED AT IN GOOD FAITH ON RELEVANT CONSIDERATIONS. THE ASSESSING OFFICER MUST FURNISH TO THE ASSESSEE A REASONABLE OPPORTUNITY TO SHOW CAUSE ON THE CORRECT NESS OF THE CLAIM MADE BY HIM. IN THE EVENT THAT THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE, HE M UST RECORD REASONS FOR HIS CONCLUSION. THESE SAFEGUARDS WHICH ARE IMPLICIT IN THE REQUIRE MENTS OF FAIRNESS AND FAIR PROCEDURE UNDER ARTICLE 14 MUST B E OBSERVED BY THE ASSESSING OFFICER WHEN HE ARRIVES AT HIS SATISFACTI ON UNDER SUB-SECTION (2) OF SECTION 14A. AS WE SHALL NOTE SHORTLY HEREAFTER, SU B-RULE (1) OF RULE 8D HAS ALSO INCORPORATED THE ESSENTIAL REQUIREMENTS OF SUB -SECTION (2) OF SECTION 14A BEFORE THE ASSESSING OFFICER PROCEEDS TO APPLY THE METHOD PRESCRIBED UNDER SUB-RULE (2). [UNDERLINED FOR EMPHASIS BY US] ITA NO.2234/PN/2012 A.Y. : 2007-08 TO INFER THAT THE SATISFACTION OF THE ASSESSING OFF ICER REQUIRED IN TERMS OF SECTION 14A(2) OF THE ACT WITH REGARD TO THE CORREC TNESS OR OTHERWISE OF THE CLAIM MADE BY THE ASSESSEE WITH RESPECT TO THE EXPE NDITURE INCURRED IN RELATION TO AN INCOME DOES NOT FORM PART OF THE TOT AL INCOME, MUST BE BASED ON REASONS AND RELEVANT CONSIDERATIONS. THE HONBLE H IGH COURT HAS NOT ONLY EMPHASIZED THAT INVOKING OF RULE 8D OF THE RULES TO COMPUTE THE DISALLOWANCE IS CONDITIONAL ON THE RECORDING OF SATISFACTION BY THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, BUT IT HAS ALSO BEEN HELD THAT SUCH SATISFACTION IS TO BE AN OBJECTIVE SATISFACTION. THEREFORE, THE SATISFACTION CONTEMPLATED IN SECTION 14A(2) OF THE ACT BEFORE THE ASSESSING OFFI CER CAN INVOKE RULE 8D OF THE RULES IN ORDER TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT, IS AN OBJECTIVE SATISFACTION WHICH SHALL BE BASED ON RELE VANT CONSIDERATIONS AND IT SHALL SPELL OUT REASONS FOR HIS CONCLUSION. 43. IN THE BACKGROUND OF THE AFORESAID LEGAL POSITI ON, WE MAY NOW EXAMINE THE FACTS OF THE PRESENT CASE. IN THE PRESENT CASE , ASSESSEE HAS EARNED AN INCOME OF RS.1,09,58,664/- WHICH IS AN EXEMPTED INC OME UNDER CHAPTER-III OF THE ACT AND THEREFORE IT DOES FORM PART OF THE TOTA L INCOME UNDER THE ACT. IN THE COMPUTATION OF INCOME, HAVING REGARD TO SECTION 14A OF THE ACT, ASSESSEE DETERMINED THE AMOUNT OF EXPENDITURE INCURRED IN RE LATION TO SUCH INCOME AT RS.57,600/-. THE ASSESSING OFFICER DID NOT FIND IT ACCEPTABLE AND INSTEAD DETERMINED THE AMOUNT OF DISALLOWANCE U/S 14A OF TH E ACT BY INVOKING RULE 8D OF THE RULES. THE SAID INVOKING OF RULE 8D OF THE RULES HAS TO BE PRECEEDED BY RECORDING OF AN OBJECTIVE SATISFACTION BY THE AS SESSING OFFICER WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE T HAT AN EXPENDITURE OF RS.57,600/- HAS BEEN INCURRED IN RELATION TO THE IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN ORDER T O EXAMINE THE COMPLIANCE WITH THE AFORESAID CONDITION, WE HAVE PERUSED THE D ISCUSSION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, WHICH RE ADS AS UNDER :- ITA NO.2234/PN/2012 A.Y. : 2007-08 8. DISALLOWANCE U/S 14A THE ASSESSEE WAS ASKED AS TO WHY DISALLOWANCE U/S 1 4A SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D AS THE ASSESSEE HAS INCURRED EXPENSES FOR EARNING TAX FREE INCOME. THE ASSESSEE HAS SUBMI TTED THAT THERE IS NO APPLICABILITY OF RULE 8D IN THE ASSESSEE'S CASE. HO WEVER, I DO NOT AGREE WITH THE CONTENTION OF THE ASSESSEE. CONTEXTUAL INTERPRE TATION OF SECTION 14A CLEARLY SUGGESTS THAT EXPENDITURE IN RELATING TO EX EMPTED INCOME HAS TO BE DISALLOWED EVEN THOUGH SUCH EXPENDITURE WOULD HAVE BEEN ALLOWABLE UNDER THE COMPUTATIONAL PROVISIONS RELATING TO VARIOUS HE ADS OF INCOME. SECTION 14A HAS AN OVERRIDING EFFECT OVER THE COMPUTATIONAL PRO VISIONS UNDER VARIOUS HEADS. CONSEQUENTLY, IN THE CASE OF AN ASSESSEE CAR RYING ON A BUSINESS ACTIVITY, ANY EXPENDITURE INCURRED BY HIM EVEN THOU GH ALLOWABLE UNDER SECTION 36(1)(III) OR SECTION 37 CAN BE DISALLOWED UNDER SE CTION 14A IF SUCH EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE IN COME NOT FORMING PART OF TOTAL INCOME. RELIANCE IS PLACED ON ITO VS. DAQA CA PITAL 117 ITD 169 (SPECIAL BENCH). HENCE, A DISALLOWANCE OF RS.71,70,861/- IS MADE U/S 14A OF THE IT ACT, 1961. THE WORKING OF THE SAME IS AS PER ANNEXURE A. HOWEVER, THE ASSESSEE SHALL GET A DEDUCTION OF RS.57,600/- BEING THE AMOU NT ALREADY DISALLOWED BY THE ASSESSEE IN THE STATEMENT OF TOTAL INCOME. THUS , EFFECTIVE DISALLOWANCE U/S 14A WOULD BE RS.71,13,261/-. 44. THE AFORESAID DISCUSSION MADE BY THE ASSESSING OFFICER REVEALS THAT ON BEING SHOW-CAUSED AS TO WHY THE DISALLOWANCE U/S 14 A SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D OF THE RULES, ASSESSEE ASSE RTED THAT THERE WAS NO APPLICABILITY OF RULE 8D OF THE RULES IN THIS CASE. THEREAFTER, THE ASSESSING OFFICER HAS PROCEEDED TO INVOKE RULE 8D OF THE RULE S MERELY FOR THE REASON THAT HE DID NOT AGREE WITH THE CONTENTION OF THE AS SESSEE. NO REASONS WHATSOEVER HAVE BEEN ADVANCED BY THE ASSESSING OFFI CER AS TO WHY HE DOES NOT AGREE WITH THE DETERMINATION OF EXPENDITURE MAD E BY THE ASSESSEE. AS SEEN EARLIER, THE SATISFACTION MANDATED IN SECTION 14A(2) OF THE ACT REQUIRED THE ASSESSING OFFICER TO RECORD A FINDING THAT HE W AS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCO ME MADE BY THE ASSESSEE HAS BEEN MECHANICALLY REJECTED WITHOUT RECORDING AN Y OBJECTIVE SATISFACTION. THIS ASPECT OF THE MATTER, IN OUR VIEW, CLEARLY SHO WS THAT THE ASSESSING OFFICER HAS NOT RECORDED THE REQUIRED OBJECTIVE SATISFACTIO N IN REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IN ITA NO.2234/PN/2012 A.Y. : 2007-08 RELATION TO THE EXEMPT INCOME WAS RS.57,600/-. THE REFORE, THE ACTION OF THE ASSESSING OFFICER TO INVOKE RULE 8D OF THE RULES FO R THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S 14A OF THE ACT IS UNTENABLE, A S IT SUFFERS FROM ABSENCE OF AN ESSENTIAL REQUIREMENT OF SUB-SECTION (2) OF SECT ION 14A OF THE ACT. IN THIS VIEW OF THE MATTER, WE ARE SATISFIED THAT THE ASSES SING OFFICER WAS NOT JUSTIFIED IN ENHANCING THE DISALLOWANCE U/S 14A OF THE ACT TO RS. 71,70,881/- AS AGAINST RS. 57,600/- SUO-MOTU DISALLOWED BY THE ASSESSEE IN ITS RETURN OF INCOME. 45. BEFORE PARTING, WE MAY REFER TO THE FOLLOWING D ISCUSSION IN PARA 20 OF THE ORDER OF THE CIT(A), WHICH HAS BEEN RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, TO SAY THAT THE REQUIR ED SATISFACTION U/S 14A(2) OF THE ACT HAS BEEN CORRECTLY RECORDED BY THE ASSES SING OFFICER :- 20. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AS WELL AS REPLY OF THE APPELLANT. THE FIRST OBJECTION OF THE APPELLANT IS THAT THE LD. ASSESSING OFFICER HAS NOT RECORDED REQUISITE SATISF ACTION BEFORE APPLYING PROVISIONS OF SECTION 14A R.W.R. 8D. THIS ARGUMENT OF THE APPELLANT IS WITHOUT ANY MERIT. THE USE OF WORD SATISFACTION IN 14A(2) IS TO BE SEEN IN THE CONTEXT OF APPLICATION OF RULE 8D. THERE IS NO STIPULATION AS TO HOW SATISFACTION IS TO BE BASED. WHETHER THE SATISFACTION WAS THERE OR NO T HAS TO BE SEEN FROM THE ACTION OF THE ASSESSING OFFICER READ WITH THE ASSES SMENT ORDER. IN THIS CASE, THERE IS ASSERTION OF THE ASSESSING OFFICER THAT TH E APPELLANT HAS INCURRED EXPENSES FOR EARNING TAX FREE INCOME IN THE VERY FI RST LINE OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER MAY NOT HAVE DISCUSSE D THE SAME IN DETAILS BUT HIS OPENING SENTENCE ITSELF PROVES THAT THE ASSESSI NG OFFICER WAS CONVINCED THAT EXPENDITURE WAS INCURRED FOR EARNING TAX FREE INCOME. THEREFORE, THERE IS NO MERIT IN THE SUBMISSION OF THE APPELLANT THAT TH ERE WAS NO OBJECTIVE SATISFACTION BY THE ASSESSING OFFICER BEFORE APPLYI NG RULE 8D. 46. AS PER THE CIT(A), THE USE OF THE WORD SATISFACTION IN SECTION 14A(2) OF THE ACT IS TO BE SEEN IN THE CONTEXT OF APPLICATION OF RULE 8D OF THE RULES AND THERE IS NO STIPULATION AS TO HOW THE SATISFACTION IS TO BE BASED, AND THAT THE ASSESSING OFFICER NEED NOT DISCUSS THE SAME IN DETA IL ALSO. 47. IN OUR CONSIDERED OPINION, THE CIT(A) IS NOT CO RRECT IN OBSERVING THAT THERE IS NO STIPULATION AS TO HOW THE SATISFACTION IS TO BE BASED BECAUSE SECTION 14A(2) OF THE ACT ITSELF PROVIDES THAT THE SATISFACTION CONTEMPLATED THEREIN HAS TO BE MADE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE . THE ITA NO.2234/PN/2012 A.Y. : 2007-08 PRESENCE OF THE AFORESAID EXPRESSION IS SIGNIFICANT IN SECTION 14A(2) OF THE ACT AND IF THE SAME IS READ WITH THE DISCUSSION OF THE HONBLE BOMBAY HIGH COURT WHEREIN THE SATISFACTION CONTEMPLATED IS STATED TO BE AN OBJECTIVE SATISFACTION , IT IS QUITE CLEAR THAT WHAT IS REQUIRED OF THE AS SESSING OFFICER IS TO EXPLICITLY RECORD REASONS FOR HIS CONCLUSION. IN T HE PRESENT CASE, THE ASSESSING OFFICER HAS MERELY OBSERVED IN ONE LINE T HAT HE DOES NOT AGREE WITH THE CONTENTION OF THE ASSESSEE . OSTENSIBLY, HAVING REGARD TO THE MANNER IN WHICH THE ASSESSING OFFICER HAS DISCUSSED THE IS SUE IN THE ASSESSMENT ORDER, THE OBJECTIVE SATISFACTION CONTEMPLATED IN S ECTION 14A(2) OF THE ACT IS CONSPICUOUS BY ITS ABSENCE. THEREFORE, IN OUR VIEW , THE CIT(A) ERRED IN REJECTING THE PLEA OF THE ASSESSEE THAT THERE WAS N O SATISFACTION RECORDED BY THE ASSESSING OFFICER AS REQUIRED IN TERMS OF SECTI ON 14A OF THE ACT BEFORE INVOKING RULE 8D OF THE RULES. SECONDLY, THE CIT(A) HAS ALSO PROCEEDED ON THE BASIS THAT FROM THE ASSESSMENT YEAR UNDER CONSIDERA TION I.E. ASSESSMENT YEAR 2008-09 ONWARDS APPLICATION OF RULE 8D OF THE RULES IS AUTOMATIC. NO DOUBT, RULE 8D OF THE RULES IS EFFECTIVE FROM ASSESSMENT Y EAR 2008-09 ONWARDS, AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), SO HOWEVER, IT IS A LSO EVIDENT THAT THE APPLICABILITY OF RULE 8D OF THE RULES IS SUBJECT TO THE FULFILLMENT OF THE CONDITION PRESCRIBED IN SECTION 14A(2) OF THE ACT, AS WE HAVE SEEN IN THE EARLIER PARAGRAPHS, BASED ON THE JUDGEMENT OF THE HONBLE B OMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPR A). THEREFORE, THE CIT(A) IS WRONG IN PROCEEDING ON THE BASIS THAT FROM ASSES SMENT YEAR 2008-09 ONWARDS APPLICATION OF RULE 8D OF THE RULES IS AUTO MATIC AND MANDATORY. THUS, IN OUR VIEW, THE CIT(A) ERRED IN SUSTAINING T HE ACTION OF THE ASSESSING OFFICER ON THE ISSUE OF COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT. 48. IN THE RESULT, WE SET-ASIDE THE ORDER OF THE CI T(A) AND DIRECT THE ASSESSING OFFICER TO RETAIN THE DISALLOWANCE U/S 14 A OF THE ACT TO THE EXTENT OF ITA NO.2234/PN/2012 A.Y. : 2007-08 RS.57,600/- AND DELETE THE BALANCE. THUS, ON THIS GROUND ASSESSEE SUCCEEDS. 49. THE GROUND OF APPEAL NO.3 RELATES TO THE DENIAL OF CREDIT FOR THE TAX DEDUCTED AT SOURCE ON BEHALF OF THE ASSESSEE. THE ASSESSEE HAD CLAIMED THE CREDIT IN ITS RETURN OF INCOME BASED ON THE TDS CER TIFICATES ISSUED BY THE DEDUCTORS OF THE TAX AT SOURCE. THE CREDIT FOR A S UM OF RS.4,99,92,971/- WAS NOT ALLOWED BY THE ASSESSING OFFICER ON THE GROUND THAT IT DID NOT MATCH WITH THE DETAILS MENTIONED IN 26AS STATEMENT AS AVAILABL E AT THE TIME OF ASSESSMENT. THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW THE CREDIT OF TDS ON THE BASIS OF CREDITS AVAILABLE IN THE 26A S STATEMENT ON THE DATE OF GIVING EFFECT TO HIS ORDER. 50. NOT BEING SATISFIED WITH THE DIRECTIONS OF THE CIT(A), ASSESSEE IS IN APPEAL BEFORE US. IT HAS BEEN CONTENDED BEFORE US THAT NON-AVAILABILITY OF ENTIRE CREDIT IN THE 26AS STATEMENT IS ON ACCOUNT O F DEFAULT ON THE PART OF THE DEDUCTORS OF TAX IN FILING THE E-TDS RETURNS INCORR ECTLY. HOWEVER, SUCH DEFAULT ON THE PART OF THE TAX DEDUCTORS CANNOT BE A GROUND TO DENY CREDIT TO THE ASSESSEE FOR THE TAXES DEDUCTED ON ITS BEHALF, WHIC H IS FULLY SUPPORTED BY THE TDS CERTIFICATES ON RECORD. THE LEARNED COUNSEL FO R THE ASSESSEE POINTED OUT THAT EVEN THE CBDT VIDE ITS INSTRUCTION NO.5 OF 201 3 HAS OPINED THAT WHEREVER REQUISITE DETAILS AND PARTICULARS IN THE FORM OF TD S CERTIFICATES ISSUED BY THE DEDUCTOR ARE AVAILABLE, THE ASSESSING OFFICER OUGHT TO GRANT THE CREDIT TO THE TAX PAYER. IN THE COURSE OF HEARING, THE LEARNED C OUNSEL HAS ALSO REFERRED TO THE FOLLOWING OBSERVATIONS OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RAKESH KUMAR GUPTA VS. UNION OF INDIA & OTHERS VIDE CIVIL MISC. WRIT PETITION (TAX) NO.657 OF 2013 DATED 06.05.2014, WHICH HAS DE ALT WITH A SOMEWHAT SIMILAR CONTROVERSY :- IN THE LIGHT OF THE AFORESAID, WE FIND FROM THE PE RUSAL OF THE COUNTER AFFIDAVIT, THAT THE RESPONDENTS HAVE DENIED REFUNDI NG THE TDS ON THE GROUND THAT THE REFUND WOULD ONLY BE GRANTED WHEN THE TDS MATCHES WITH THE DETAILS ITA NO.2234/PN/2012 A.Y. : 2007-08 MENTIONED IN FORM 26AS. SINCE THE MISMATCHING IS N OT ATTRIBUTABLE TO THE ASSESSEE AND THE FAULT SOLELY LAY WITH THE DEDUCTOR , WE FIND THAT A CASE HAS BEEN MADE OUT FOR GRANT OF A MANDAMUS FOR REFUND OF THE TDS AMOUNT. THE PETITIONER HAS ALSO MADE OUT A CASE FOR PAYMENT OF INTEREST SINCE WE FIND THAT THE DELAY IN REFUNDING THE AMOUNT WAS ATTRIBUTABLE SOLELY WITH THE INCOME TAX DEPARTMENT AND THERE IS NOT FAULT ON THE PART OF TH E ASSESSEE. 51. BY PLACING RELIANCE ON THE AFORESAID OBSERVATIO NS OF THE HONBLE ALLAHABAD HIGH COURT, IT IS SOUGHT TO BE MADE OUT T HAT ASSESSEE COULD NOT BE DENIED CREDIT FOR THE TDS MERELY BECAUSE THERE WAS SOME MISMATCH IN THE 26AS STATEMENT, WHICH OBVIOUSLY IS NOT FILED BY THE ASSESSEE BUT BY THE TAX DEDUCTORS. 52. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS NOT DISPUTED THE POSITION CANVASSED BY THE ASSESSEE THA T DUE CREDIT FOR THE TDS DESERVES TO BE ALLOWED. 53. HAVING CONSIDERED THE AFORESAID POSITION CANVAS SED BY THE ASSESSEE, WE DEEM IT FIT AND PROPER TO AFFIRM THE DIRECTIONS OF THE CIT(A) WITH CERTAIN MODIFICATIONS. THE ASSESSING OFFICER IS HEREBY DIR ECTED TO ALLOW CREDIT FOR THE TAX DEDUCTED AT SOURCE ON BEHALF OF THE ASSESSEE IN THE LIGHT OF THE JUDGEMENT OF THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF RAKESH KUMAR GUPTA (SUPRA). THUS, ON THIS ASPECT, ASSESSEE SUCCEEDS F OR STATISTICAL PURPOSES. 54. IN THE RESULT, APPEAL OF THE ASSESSEE VIDE ITA NO.1676/PN/2012 FOR ASSESSMENT YEAR 2008-09 IS PARTLY ALLOWED. 55. NOW, WE MAY TAKE-UP THE APPEAL OF THE REVENUE I N ITA NO.1709/PN/2012 FOR ASSESSMENT YEAR 2008-09. IN TH IS APPEAL, TWO GROUNDS HAVE BEEN RAISED, FIRSTLY, IN RELATION TO BAD DEBTS WRITTEN-OFF OF RS.15,25,80,110/-; AND, SECONDLY, IN RELATION TO UN RECOGNIZED INTEREST INCOME OF RS.28,47,74,877/- ON NPAS. BOTH THE ISSUE ARE I DENTICAL TO THOSE CONSIDERED BY US IN EARLIER PARAGRAPHS FOR ASSESSME NT YEAR 2007-08. ITA NO.2234/PN/2012 A.Y. : 2007-08 ACCORDINGLY, FOLLOWING OUR DECISION ON THE ABOVE IS SUES IN THE ASSESSMENT YEAR 2007-08, THE ORDER OF THE CIT(A) IS AFFIRMED O N THESE ASPECTS, AND ACCORDINGLY, REVENUE FAILS IN ITS APPEAL. 56. RESULTANTLY, WHEREAS THE CAPTIONED APPEALS OF T HE ASSESSEE ARE PARTLY ALLOWED THOSE OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2014. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 30 TH JUNE, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-V, PUNE; 4) THE CIT-V, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE