Gautam Kumar Mitra, Kolkata V. D.C.I.T Cir - 54,kolkata, Kolkata

ITA 1336/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4828 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 17-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBHRA BISWAS C
• Assessee Lawyers: A K TIBREWAL; SAURABH GUPTA ACA LD ARS
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 6; 263

Judgement Text

ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, K OLKATA BEFORE : SHRI P.M. JAGTAP, ACCOUNTANT MEMBER, AN D SHRI S.S VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 1336/KOL/2013 A.Y. 2008-09 GAUTAM KUMAR MITRA VS. DCIT, CIR-54, KOLKATA PAN: AIGPM 4864N (APPELLANT) (RESPON DENT) FOR THE APPELLANT/ASSESSEE : S/SHRI A.K.TIBR EWAL, FCA & SAURABH GUPTA, ACA, LD.ARS FOR THE RESPONDENT/DEPARTMENT: SHRI R AJAT SUBHRA BISWAS, CIT, LD.SR.DR DATE OF HEARING: 03-03-2016 DATE OF PRONOUNCEMENT: 27 - 05 -2016 ORDER SHRI S.S VISWANETHRA RAVI, JM THIS APPEAL OF THE ASSESSEE IS ARISING OUT OF THE ORDER OF THE CIT-XIX, KOLKATA IN CIT-XIX/KOL./REVISION U/S. 263/2012-13/ DATED 27-02-2013 PASSED U/S. 263 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2008-09. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 1) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE REVISION ORDER PASSED THE LD. CIT-XIX, KOLKATA, UND ER SECTION 263, SETTING ASIDE THE ASSESSMENT ORDER, PASSED UNDER SE C. 143(3), BY HOLDING THE SAME TO BE ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF REVENUE, CONCERNING THE APPLICABILITY OF 14A AS WELL AS RULE 8D, IS LIABLE TO BE CANCELLED, REVERSED AND QUASHED ALTOGETHER, FOR BEI NG FOUNDED ON SUPPOSITIONS, MISINTERPRETATIONS OF PERTINENT LAW A ND SUBJECTIVE VIEW OF FACTS. ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER U/S 263, PASSED BY THE LD. CIT, XIX, KOLKATA, SETTI NG ASIDE THE ASSESSMENT ORDER, ON THE ALLEGED GROUNDS OF OMISSIO N TO EFFECT DISALLOWANCE OF EXPENSES, IN THE ASSESSMENT ORDER, UNDER SEC. 14A AND RULE 8D, TO THE EXEMPT INCOME, IS LIABLE TO BE ANNU LLED AND REVERSED, WITHOUT EVER CONSIDERING EITHER OF THE MANDATORY PR EREQUISITES, PRESCRIBED IN SUB- SECS. (2) AND (3) OF SECTION 14A AS WELL AS SUB-CLAUSES (A) AND (B) OF RULE 8D (I), RESPECTIVELY. 3. WITHOUT PREJUDICE TO GROUND NO. 1 AND 2, EVEN OT HERWISE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE REVISION ORDER, PASSED UNDER SEC. 263, SETTING ASIDE THE ASSESSMENT ORDER AND THEREUPON DI RECTING THE MODIFICATION/REVISION OF THE ASSESSMENT ORDER BY EF FECTING DISALLOWANCE U/S 14A/RULE 8D(2)(III) AMOUNTING TO RS 3,95,042/- BEING 0.5% OF CONCERNED AVERAGE INVESTMENT , IS GROSSLY UNLAWFUL AND DEVOID OF ANY MERIT, GIVEN THE PROVEN FACT OF NEXUS OF ALL DEBITS IN THE PROFIT AND LOSS ACCOUNT , WITH FULLY TAXABLE INCOME FROM PROFESSION . 4. WITHOUT PREJUDICE TO GROUND NO. I, 2 AND 3, EVEN OTHERWISE, THE REVISION ORDER U/S 263, PASSED FOR THE ALLEGED OMIS SION TO TAKE COGNIZANCE OF SEC. 14A/RULE 8D, PRESCRIBED DISALLOW ANCE AND ADJUSTMENT, IS BAD IN LAW AND FACT, GIVEN THE DISALLOWANCES OF EXPENSES AS PERSONAL EXPENSES, TO THE EXTENT OF RS 10,94,892/-, ADEQUATE LY ENCOMPASSING THE PROPOSED DISALLOWANCE OF RS 3,95,042/-. 5. WITHOUT PREJUDICE TO GROUND NO. I, 2, 3 AND 4, E VEN OTHERWISE THE REVISION ORDER U/S 263, PASSED FOR THE _ALLEGED GRO UND OF OMISSION TO TAKE COGNIZANCE OF AND APPLY SEC. 14A/RULE 8D AND T HEREUPON DISALLOW RS 3,95,042/-, TO THE ASSESSED INCOME, GROSSLY BAD IN LAW, GIVEN THE NOTABLE AND SELF-EVIDENT OMISSION TO APPRECIATE THE RECOVER Y OF ALL EXPENSES, PERTAINING TO EXEMPT INCOME, FROM THE GROSS EXEMPT INCOME, BY THE PORTFOLIO MANAGERS, RESULTING IN THE CONSEQUENT REF LECTION OF NET EXEMPT INCOME IN THE ACCOUNTS. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, WITHDRAW, ALTER, MODIFY, RECTIFY OR OTHERWISE AMEND ANY OR ALL OF THE GROUNDS OF APPEAL HEREINBEFORE MENTIONED. ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 3 3. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THA T THE ASSESSEE IS A BARRISTER AT LAW AND DERIVING HIS INCOME BY WAY OF LEGAL PROFES SION PRACTICING LAW AT VARIOUS COURTS IN INDIA AND ABROAD. HE ALSO DERIVE S HIS INCOME FROM CAPITAL GAINS AND OTHER SOURCES. THE ASSESSEE FILED HIS RETURN OF INCOME ON 29-09- 2008 SHOWING TOTAL INCOME OF RS.113,20,078/- . THE SAME WAS PROCESSED U/S. 143(1) OF THE ACT. THE CASE WAS SELECTED ON THE BA SIS CASS SECTION. NOTICES U/S. 143(2)/142(1) OF THE ACT WERE ISSUED. DURING THE ASSESSMENT PROCEEDINGS THE AO MADE VARIOUS ADDITIONS/DISALLOWANCES. 3.1 ON PERUSAL OF THE P & L ACCOUNT, IT WAS OBSERVE D THAT THE ASSESSEE CLAIMED MOTOR CAR RUNNING EXPENSES AND CAR HIRE CH ARGES FOR AN AMOUNT OF RS.4,08,636/-. THE AO DISALLOWED AND ADDED THE SA ME @ 1/5 OF RS.81,727/- BEING PERSONAL UPKEEP AND MAINTENANCE OF THE MOTOR CAR. 3.2 AS THE ASSESSEE DID NOT DEDUCT THE TDS AS PER PROVISIONS OF SECTION 194J ON A/C OF RENT PAID, THE AO DISALLOWED AND ADDED OF RS.6,00,000/- U/S. 40(A)(IA) OF THE ACT. 3.3 FURTHER, THE AO ADDED RS.2,55,946/- BEING 5% OF RS.51,18,917/- TOWARDS ASSESSEES CLAIM OF OFFICE RENOVATION. 3.4 LIKEWISE, THE AO ADDED RS.93,587/- BEING 5% EXP ENSES OF RS.18,71,735/- TOWARDS PERSONAL FOREIGN TRAVEL/CON VEYANCE EXPENSES. 3.5 ON A/C OF MEDICAL EXPENSES THE AO ADDED RS.65, 432/- BEING ASSESSEES OWN EXPENSES. ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 4 4. THE CIT ON PERUSAL OF THE RELEVANT ASSESSMENT RE CORDS FOUND THAT DURING THE RELEVANT YEAR UNDER CONSIDERATION THE ASSESSEE EARNED INCOME OF RS.22,18,741/- ARISING OUT OF HIS INVESTMENT IN MUT UAL FUNDS AND THE UTI BONDS. THIS INCOME WAS FOUND TO HAVE BEEN CLAIMED BY THE A SSESSEE AS EXEMPT U/S. 10. HAVING NOTICED THAT NO EXPENDITURE ATTRIBUTABLE TO THE EARNING OF SUCH EXEMPT INCOME WAS CLAIMED BY THE ASSESSEE U/S. 14A R.W.R 8 D OF THE I.T RULES 1962. THE LD. CIT BY EXERCISING HIS POWER U/S. 263 ISSUE D NOTICE TO THE ASSESSEE. IN RESPONSE TO WHICH THE ASSESSEE FILED WRITTEN SUBMIS SION DATED 03-12-2012. THE LD. AR OF THE ASSESSEE FILED THE COPIES OF JUDICIAL PRONOUNCEMENTS IN SUPPORT OF ASSESSEES SUBMISSION. BEFORE THE CIT THE ASSESSEE CONTENDED THAT HE HAD PLACED CERTAIN FUNDS WITH A SCHEDULED BANK THAT OFF ERED PORTFOLIO MANAGEMENT SERVICES. THE SAID BANK ACQUIRED PORTFOLIO SHARES A ND SUBMITTING STATEMENTS TIME TO TIME SHOWING PROFITS AND LOSSES. SO THE ASSESS EE SUBMITTED THAT IT INCURRED NO EXPENDITURE IN EARNING THE SAID EXEMPT INCOME. THIS VIEW WAS TAKEN BY THE AO IN THE ASSESSMENT PROCEEDING. CONSIDERING THIS, THE CIT DISALLOWED RS.3,95,042/- BEING 0.5% OF RS.7,90,08,333/- IN PUR SUANCE OF RULE 8D OF THE I.T RULES R.W.S 14A OF THE ACT. RELEVANT PORTION OF FIN DINGS OF THE CIT ON THIS ISSUE IS REPRODUCED HEREIN BELOW:- 3. THE ARGUMENTS PUT FORWARD BY THE LD. AR HAVE CA REFULLY BEEN EXAMINED IN THE LIGHT OF THE LEGAL PROVISIONS VIS-A -VIS THE ASSESSEE'S WRITTEN SUBMISSION AND THE ASSESSMENT ORDER. THE LD . AR HAS SUBMITTED THAT IS ALLOWANCE U/S 14A IS NOT AUTOMATIC, BUT IS PERMISSIBLE ONLY UNDER CERTAIN CIRCUMSTANCES. HE CONTENDED THAT FOR THE PU RPOSE OF MAKING SUCH DISALLOWANCE A NEXUS BETWEEN THE EXEMPT INCOME AND THE EXPENDITURE TO BE DISALLOWED HAS TO BE ESTABLISHED. HE AVERRED THAT THE ASSESSEE PLACED CERTAIN FUNDS WITH A SCHEDULED BANK THAT OFF ERED PORTFOLIO MANAGEMENT SERVICES AND THAT SUCH MANAGEMENT OF THE FUND AND THE PORTFOLIO OF THE SHARES WAS EXCLUSIVELY CARRIED OUT BY THE BANK WITHOUT REQUIRING THE ASSESSEE'S PERSONAL ATTENTION AND INT ERVENTION. ACCORDING TO LD. AR, SINCE THERE WAS NO INVOLVEMENT FROM THE ASS ESSEE'S SIDE, NEITHER ANY TIME WAS REQUIRED TO BE DEVOTED BY THE ASSESSEE NOR HE HAD TO INCUR ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 5 ANY EXPENDITURE. HOWEVER, I DO NOT FIND MUCH FORCE BEHIND THE CONTENTION OF THE LD. AR. ON PERUSAL OF THE ASSESSEE'S BALANCE SHEET IT IS NOTICED THAT HE HAD HUGE INVESTMENTS TO THE TUNE OF RS.8 CRORE. A SIGNIFICANT PART THEREOF WAS CHANNELIZED IN MUTUAL FUND AND UTI BOND INVESTMENTS WHICH GAVE RISE TO THE TAX-FREE INCOME IN THE ASSESSEE'S HANDS. IT IS IMPERATIVE THAT WITHOUT PROPER HANDLING AND MANAGEMENT OF THE ASSESSEE'S PORTFOLIOS THE EXEMPT INCOME COULD NOT HAVE BEEN GENERATED. TH OUGH THE LD. AR HAS ARGUED THAT PORTFOLIO MANAGEMENT WAS SOLELY CARRIED OUT BY THE BANK, NO DOCUMENTARY EVIDENCE TO THAT EFFECT COULD BE ADDUCE D BY HIM. IT IS OBSERVED THAT THE ASSESSEE HAS CLAIMED CERTAIN EXPE NDITURE IN HIS INCOME & EXPENDITURE ACCOUNT. IT CAN THUS ALWAYS BE SAID T HAT A PORTION OF THE SAID EXPENDITURE IS UNDOUBTEDLY RELATABLE TO THE EA RNING OF THE EXEMPT INCOME. IT IS PERTINENT TO MENTION THAT SUB-SECTION S (2) & (3) OF S. 14A OF THE I.T ACT WERE INSERTED IN THE STATUTE WITH EFFEC T FROM 01.04.2007. THE SUB-SEC.(2) STIPULATES THAT IF THE AO, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCIDENTAL TO THE EXE MPT INCOME, HE IS REQUIRED TO DETERMINE THE 'AMOUNT OF SUCH EXPENDITU RE IN A REASONABLE MANNER. SUB-SEC.(3) FURTHER SPELLS OUT THAT THE AO SHALL DO SO, EVEN IF THE ASSESSEE CLAIMS THAT NO SUCH EXPENDITURE HAS ACTUAL LY BEEN INCURRED BY HIM IN CONNECTION WITH THE EARNING OF THE EXEMPT INCOME. IT, THEREFORE, TRANSPIRES THAT THE QUANTIFICATION OF THE INADMISS IBLE EXPENDITURE U/S 14A HAS BEEN MADE MANDATORY BY THE LEGISLATURE. WITH EF FECT FROM 01.04.2008 THE RULE 8D HAS BEEN INTRODUCED IN THE I.T. RULES W HICH PRESCRIBES THE METHOD OF RATION OF THE INADMISSIBLE EXPENDITURE AT TRIBUTABLE TO THE EARNING OF FREE INCOME. HENCE WITH EFFECT FROM THE A. YR. 2008-09 THE EXTENT DISALLOWANCE HAS BEEN SPECIFIED BY THE ACT AS WELL AS THE RULE. THE LD. AR HAS RELIED UPON THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH IN THE CASE OF M/S HERO CYCLES LTD. AND ON THE DECISION OF THE 'BLE APEX COURT IN THE CASE OF M/S. WALFORT SHARE AND ST OCK BROKERS PVT. LTD. CITED SUPRA. BOTH THESE JUDICIAL PRONOUNCEMENTS, BE ING DISTINGUISHABLE, ARE NOT APPLICABLE TO THE ASSESSEE'S CASE, BECAUSE IN THE FIRST CASE THE HON'BLE COURT DEALT WITH THE A.YR. 2004-05 AND IN T HE SECOND CASE THE RELEVANT A.YR. WAS 2000-01, BUT THE RULE 8D OF THE I.T. RULES CAME INTO OPERATION WITH EFFECT FROM 01.04.2008 I.E. A.YR. 20 08-09. IN THE ASSESSMENT YEARS WHICH WERE UNDER CONSIDERATION BEF ORE THE HON'BLE PUNJAB & HARYANA HIGH COURT AND THE HON'BLE SUPREME COURT THE RULE 8D DID NOT COME INTO FORCE AND ACCORDINGLY THERE WA S NO QUESTION OF THE MANDATORY DISALLOWANCE U/S 14A READ WITH RULE 8D. I N THE INSTANT CASE THE AO IS FOUND TO HAVE FAILED TO ABIDE BY THE RULE 8D IN THE CONTEXT OF THE ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 6 PROVISIONS OF S. 14A WHILE FRAMING THE ASSESSMENT O RDER. IT IS NOTICED THAT AS PER THE BALANCE SHEET AS ON 31.03.2008 THE OPEN ING BALANCE OF THE ASSESSEE'S INVESTMENT STOOD AT'RS.5,86,92,550/- AND THE CLOSING BALANCE HEREOF AT RS.9,93,24,L15/-. HENCE THE AVERAGE INVES TMENT OF THE ASSESSEE DURING THE FINANCIAL YEAR 2007-08 WORKED OUT TO RS. 7,90,08,333/-. IN ACCORDANCE WITH THE RULE 80 OF THE I.T. RULES THE D ISALLOWABLE EXPENDITURE U/S 14A(2) COMES TO 0.5% OF RS.7,90,08, 333/- I.E . 3,95,042/-. THIS AMOUNT SHOULD HAVE BEEN DISALLOWED BY THE AO I N THE ASSESSMENT ORDER. AS THE ASSESSING OFFICER OMITTED TO MAKE THI S DISALLOWANCE, THE ASSESSMENT ORDER HAS BEEN RENDERED ERRONEOUS AS WEL L AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE. I HAVE, THEREFORE, NO HESITATION IN SETTING ASIDE THE ASSESSMENT ORDER DATED 02.06.2010 U/S 263 WITH THE DIRECTION TO THE AO TO FRAME THE ASSESSMENT DE NOVO IN THE LIGHT OF THE OBSERVATIONS MADE ABOVE. NEEDLESS TO SAY THAT WHILE DOING SO, TH E AO SHALL AFFORD A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 5. AS AGGRIEVED, THE ASSESSEE BEFORE US AND SUBMIT S THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE CASE LAW REPORT ED IN (2011) 11 TAXMANN.COM 51 OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE C ASE OF CIT VS. METALMAN AUTO (P) LTD. ON THE CONTRARY, THE LD.DR SUBMITS TH AT THE ASSESSEE DID NOT SUBMIT ANY THING BEFORE THE AO REGARDING EXEMPT INC OME AND THE AO DID NOT MENTION ANYTHING ABOUT THIS IN HIS ORDER. THE LD. D R ALSO SUBMITS THAT THE CIT BY EXERCISING HIS POWER U/S. 263 UNDER REVISION 263 RECORDED HIS SATISFACTION AND HAS RIGHTLY DISALLOWED THE EXPENDITURE RELATING TO THE EXEMPT INCOME. HE FINALLY PRAYED TO DISMISS THE APPEAL OF THE ASSESSEE. 6. HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL AVAILABLE ON RECORD. THE QUESTION BEFORE US IS AS TO WHETHER THE DISALLO WANCE MADE U/S. 14A OF THE ACT CAN BE TAKEN INTO ACCOUNT IN ABSENCE OF ACTUAL EXPENDITURE. AS RELIED ON THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HIGH COUR T SUPRA BY THE ASSESSEE BEFORE US, WE ARE OF THE VIEW THAT WITHOUT THERE BE ING ANY CLAIM PRESUMPTION OF ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 7 EXPENDITURE ON THIS ISSUE CANNOT BE TAKEN INTO ACC OUNT. RELEVANT PORTION OF FINDINGS OF THE HONBLE COURT ARE REPRODUCED HEREIN BELOW:- '25. GROUND NO. 4 IS REGARDING DISALLOWANCE UNDER S ECTION 14A OF THE ACT IN RELATION TO THE EXEMPT INCOME EARNED BY THE ASSE SSEE. IN THIS REGARD, THE FACTS ARE THAT THE ASSESSEE HAD EARNED INCOME B Y WAY OF INTEREST ON UTI BONDS AND DIVIDEND OF RS. 54,000 AND RS. 9,30,8 912 RESPECTIVELY, WHICH WAS EXEMPTED FROM TAX. THE ASSESSING OFFICER ESTIMATED A SUM OF RS. 1,00,000 HAVING BEEN INCURRED BY THE ASSESSEE F OR EARNING SUCH EXEMPT INCOME AND ACCORDINGLY, MADE AN ADDITION UN DER SECTION 14A OF THE ACT. OUT OF THE SUM OF RS. 1,00,000, RS. 65,000 WAS CONSIDERED AS INTEREST EXPENDITURE RELATABLE TO THE BORROWED CAPI TAL USED FOR INVESTMENT IN THE SECURITIES YIELDING EXEMPT INCOME AND RS. 35 ,000 WAS ESTIMATED OUT OF THE ADMINISTRATIVE EXPENSES. THE CIT (APPEALS) H AS DELETED THE ADDITION ON THE GROUND THAT THE INVESTMENTS HAVE BE EN MADE FROM FUNDS ON WHICH NO INTEREST HAS BEEN PAID. THE CIT (APPEAL S) ALSO NOTICED THAT THE ASSESSING OFFICER HAS NOT BACKED HIS ASSERTION THAT INVESTMENTS WERE MADE FROM COMBINED FUNDS OF THE ASSESSEE WHICH COUL D NOT BE BIFURCATED. AGAINST THE DELETION OF ADDITION, THE REVENUE IS IN APPEAL BEFORE US. 26. OBVIOUSLY, THE ISSUE IS TO BE DECIDED IN THE LI GHT OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HE RO CYCLES LTD. (SUPRA). AS PER THE HON'BLE JURISDICTIONAL HIGH COURT, THE D ISALLOWANCE UNDER SECTION 14A REQUIRES A FINDING OF INCURRENCE OF EXP ENDITURE FOR EARNING THE EXEMPT INCOME. IN CASE NO EXPENDITURE HAS BEEN INCURRED, THE DISALLOWANCE UNDER SECTION 14A IS NOT JUSTIFIED. IN OTHER WORDS, THERE CANNOT BE A PRESUMPTION THAT CERTAIN EXPENDITURE IS BOUND TO BE INCURRED FOR EARNING THE EXEMPT INCOME. CONSIDERED IN THIS LIGHT, WE FIND THAT THERE IS NO MISTAKE IN THE ORDER OF THE CIT (APPEALS). QU ITE CLEARLY, THE ASSESSING OFFICER HAD ONLY MADE A PRESUMPTION THAT CERTAIN EXPENDITURES HAVE BEEN INCURRED FOR EARNING THE IMPUGNED EXEMPT INCOMES. THEREFORE, FOLLOWING THE PARITY OF REASONING LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA), WE AFFIRM THE DECISION OF THE CIT(APPEALS) AND ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 7. FURTHER, AS RELIED ON BY THE LD.AR ON A RECENT O RDER DATED 02-03-2016 OF THE ITAT, A BENCH, KOLKATA IN THE CASE OF BRITANN IA INDUSTRIES LTD VS. DCIT, ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 8 KOLKATA IN ITA NO. 390/KOL/2013 FOR THE A.Y 2008-09 ON APPLICABILITY OF RULE 8D, WHERE IF THE AO WAS NOT SATISFIED WITH THE ME THOD OF DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A R.W.R 8D OF THE I.T RULES 1962, WHILE QUASHING THE ORDER OF THE CIT PASSED U/S. 263 RELEVANT FINDINGS OF THE TRIBUNAL ARE REPRODUCED HERE IN BELOW:- 6. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED CO UNSEL FOR THE ASSESSEE WHO REITERATED SUBMISSIONS AS WERE MADE BE FORE CIT AND FURTHER PLACED RELIANCE ON THE DECISION OF THE HON' BLE DELHI HIGH COURT IN THE CASE OF CIT VS. DLF LTD. (2013)31 TAXMANN.COM 1 58(DEL) WHEREIN IT WAS HELD THAT QUANTUM OF DISALLOWANCE TO BE MADE U/ S.14A OF THE ACT WAS DEBATABLE AND THEREFORE NO POWERS OF REVISION CAN B E EXERCISED U/S.263 OF THE ACT ON SUCH ISSUE. THE LEARNED DR RELIED ON THE ORDER OF THE CIT. 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. THE PROVISIONS OF SECTION 14A OF THE ACT AS ORIGINALLY INTRODUCED AND AS AMENDED FROM TIME TO TIME AS WELL AS THE INSERTION OF RULE 8D WAS SUBJECT-MATTER OF SEVERAL DECISIONS RENDERED BY VAR IOUS BENCHES OF THE ITAT AS WELL AS THE HON'BLE HIGH COURTS. THE HON'BI E DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V. CIT (2011 )203 TAXMAN CO. LTD. 328 ITR 81(BOM.) HAVE TAKEN A VIEW THAT RULE 8D OF THE LT. RULES WILL APPLY ONLY FOR A.YS. 2008-09 AND SUBSEQUENT ASSESSM ENT YEARS. IT HAS ALSO BEEN LAID DOWN THAT THE ASSESSEE HAS TO MAKE A CLAI M (INCLUDING A CLAIM THAT NO EXPENDITURE WAS INCURRED) WITH REGARD TO EX PENDITURE INCURRED FOR EARNING INCOME WHICH IS NOT CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND ONLY IF ON AN OBJECTIVE SATISFACTION ARRIVED A T BY THE AO THAT THE CLAIM MADE BY THE ASSESSEE IS NOT C ORRECT, CAN THE AO PROCEED TO APPLY THE COMPUTATION MODE AS SPECIFIED IN RULE 8D(2) OF THE RULES. IF THE AO COMES TO THE CONCLUSION THAT CLAIM MADE BY THE ASSESSEE IS NOT CORRECT, IT IS ONLY THEREAFTER THAT THE AO C AN PROCEED TO MAKE THE DISALLOWANCE IN TERMS OF RULE 8D OF THE RULES. EVEN IN A CASE WHERE THE AO REJECTS THE CLAIM OF THE ASSESSEE THAT NO EXPENS ES WERE INCURRED TO EARN THE EXEMPT INCOME, IT IS NOT MANDATORY FOR HIM TO INVOKE THE METHOD OF CALCULATION PRESCRIBED BY RULE 8D(2) OF THE RULE S AND IS FREE TO MAKE THE DISALLOWANCE ON ANY REASONABLE BASIS. BY APPLYI NG THE RULE 8D OF THE RULES BLINDLY SOMETIMES ABSURD DISALLOWANCES WOULD RESULT. IN OUR VIEW, THEREFORE WHILE EXAMINING THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 9 INCURRED IN EARNING THE EXEMPT INCOME INCLUDING A C LAIM THAT NO EXPENSES WERE INCURRED, THE AO IS BOUND TO TAKE NOTE OF SUCH ABSURDITIES AND REFRAIN FROM INVOKING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBED BY RULE 8D(2) OF THE RULES. IT IS FOR TH IS REASON THAT THE SATISFACTION OF THE AO REGARDING EXPENSES INCURRED FOR EARNING EXEMPT INCOME IS TO BE OBJECTIVE SATISFACTION. IN OTHER WORDS, IT IS ONLY WHEN NO REASONABLE AND PROPER PARAMETERS FOR MAKING DISALLO WANCE CAN BE ARRIVED AT, THAT RESORT TO RULE 8D(2) CAN BE HAD BY THE AO. RULE 8D(2) WILL THUS BE A LAST RESORT WHEN IT BECOMES IMPOSSIB LE TO ARRIVE AT A JUST CONCLUSION ON THE AMOUNT OF EXPENSES THAT HAS TO BE DISALLOWED AS ATTRIBUTABLE OR INCURRED IN EARNING EXEMPT INCOME. IT CANNOT THEREFORE BE SAID THAT ONCE THE AO REJECTS THE MODE OF COMPUTATI ON OF DISALLOWANCE ULS.14A OF THE ACT AS MADE BY THE ASSESSEE, HE HAS NO OTHER OPTION BUT TO RESORT TO RULE 8D OF THE RULES. 8. BESIDES THE ABOVE, WE ARE ALSO OF THE VIEW THAT THE AO HAS ADOPTED ONE OF THE POSSIBLE COURSE OPEN TO HIM IN LAW. THE CIT CANNOT INVOKE JURISDICTION U/S.263 OF THE ACT JUST BECAUSE HE DO ES NOT AGREE WITH THE VIEW OF THE AO. IN OTHER WORDS U/S. 263 OF THE ACT, THE CIT CANNOT SUBSTITUTE HIS VIEW WITH THAT OF THE AO. THE DECIS ION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS T HE STAND TAKEN BY THE ASSESSEE IN THIS REGARD. 8. THE JUDGMENT OF THE HONBLE PUNJAB & HARYANA HI GH COURT SUPRA ARE VERY CLEAR THAT THE DISALLOWANCE UNDER SECTION 14A IS NOT JUSTIFIED WHEN NO EXPENDITURE HAS BEEN INCURRED AND CLAIMED TO EARN E XEMPT INCOME. THE DISALLOWANCE UNDER SECTION 14A REQUIRES A FINDING O F EXPENDITURE FOR EARNING THE EXEMPT INCOME AND THAT FINDING CANNOT BE ON PR ESUMPTION THAT CERTAIN EXPENDITURE IS BOUND TO BE INCURRED FOR EARNING THE EXEMPT INCOME. IN THE PRESENT CASE ALSO, WE FIND THAT THE ASSESSEE PLACED CERTAIN FUNDS WITH A SCHEDULED BANK OFFERING PORTFOLIO MANAGEMENT SERVICES AND TH AT EXCLUSIVELY CARRIED ON ITS OWN FOR THE BENEFIT OF ASSESSEE WITHOUT REQUIRING T HE ASSESSEE'S PERSONAL ATTENTION AND INTERVENTION AND WE SEE NO INVOLVEMEN T FROM THE ASSESSEE NOR ANY TIME WAS REQUIRED TO BE DEVOTED BY THE ASSESSEE NOR HE HAD TO INCUR ANY ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 10 EXPENDITURE. THEREFORE, THE LAW LAID DOWN BY THE TH E HONBLE PUNJAB & HARYANA HIGH COURT SUPRA ARE APPLICABLE TO THE CASE ON HAND AND WE HOLD THAT SINCE THE ASSESSEE NOT CLAIMED ANY EXPENDITURE ON EXEMPT INCO ME AND THERE CAN NOT BE ANY DISALLOWANCE UNDER SECTION 14A ON MERE PRESUMPT ION. 9. A BENCH OF KOLKATA TRIBUNAL IN THE CASE OF BR ITANNIA INDUSTRIES LTD VS. DCIT, HELD THAT THE ASSESSEE HAS TO MAKE A CLAIM IN CLUDING A CLAIM THAT NO EXPENDITURE WAS INCURRED WITH REGARD TO EXPENDITURE INCURRED FOR EARNING INCOME WHICH IS NOT CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND WHILE EXAMINING THE CLAIM OF THE ASSESSEE REGARDING EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME INCLUDING A CLAIM THAT NO EXPENSES WERE INCURRED, THE AO IS BOUND TO TAKE NOTE OF SUCH ABSURDITIES AN D REFRAIN FROM INVOKING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBED BY RULE 8D(2) OF THE RULES. IN THE PRESENT CASE THE ASSESSEE DID NOT MAKE ANY C LAIM ANY EXPENDITURE ON EXEMPT INCOME, THE AO CAN NOT MAKE DISALLOWANCE OF EXPENSES AS PRESCRIBED BY RULE 8D(2) OF THE RULES. REGARDING OTHER VIEW WHETH ER THE CIT CAN EXERCISE HIS POWER UNDER SECTION 263OF THE ACT TO DECLARE THE AS SESSMENT ORDER PASSED BY THE IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, IN OUR VIEW, THE AO HAS FOLLOWED THE PROCEDURE AVAILABLE TO HIM UNDER L AWAND THE VIEW TAKEN BY FOLLOWING SUCH PROCEDURE CAN NOT BE A SUBJECT UNDER REVIEW UNDER SECTION 263 OF THE ACT. THEREFORE WE HOLD THAT THE VIEW TAKEN BY T HE COORDINATE BENCH SUPRA IS APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE ON HAND AND THE ORDER OF THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE, THUS, THE ORDER UNDER SECTION 263 OF THE ACT PASSED BY TH E CIT IS QUASHED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED ITA NO. 1336/KOL/2013-A-JM GAUTAM KUMAR MITRA 11 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27 /5/20 16 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT/ASSESSEE: SHRI GAUTAM KUMAR MITR A 10 MAHENDRA ROAD, KOLKATA-25. 2 THE RESPONDENT/DEPARTMENT: DEPUTY COMMISSIONER OF INCOME TAX, CIR-54, 3 GOVT PLACE (WEST), KOLKATA-700 001. 3 /THE CIT, 4. THE CIT(A) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR *PRADIP SPS SD/- P.M. JAGTAP, ACCOUNTANT MEMBER SD/- S.S VISWANETHRA, RAVI, J JUDICIAL MEMBER DATE 27 /5/2016