Nadathur Estates P Ltd, Bangalore V. Deputy Commissioner of Income tax, Bangalore

ITA 1434/BANG/2014

• Counselvise Citation: 143421114 RSA 2014
• Duration Of Justice: 1 year(s) 1 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 17-11-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: PADAMCHAND KHINCHA
• Keywords: Earning of tax free income
• Section: 234B; 14A; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NOS.1434 & 1435/BANG/2014 ASSESSMENT YEARS : 2009-10 & 2010-11 NADATHUR ESTATES PRIVATE LTD., 3 RD FLOOR, NADATHUR PALACE, PLOT NO.23, 8 TH MAIN, 3 RD BLOCK, JAYANAGAR, BANGALORE 560 011. PAN: AABCN 0228P VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(2), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI PADAMCHAND KHINCHA, CA RESPONDENT BY : DR. P.K. SRIHARI, ADDL. CIT(DR) DATE OF HEARING : 26.10.2015 DATE OF PRONOUNCEMENT : 30.12.2015 O R D E R PER ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER THESE APPEALS BY THE ASSESSEE COMPANY ARE DIRECTE D AGAINST THE SEPARATE ORDERS, BOTH DATED 27.08.2014 OF THE CIT(A PPEALS)-III, BANGALORE RELATING TO ASSESSMENT YEARS 2009-10 & 2010-11. TH E ASSESSEE HAS RAISED COMMON GROUNDS OF APPEAL FOR BOTH THE YEARS, EXCEPT THAT FOR AY ITA NOS.1434 & 1435/BANG/2014 PAGE 2 OF 12 2010-11 THE ASSESSEE HAS CHALLENGED THE LEVY OF INT EREST U/S. 234B AND 234C OF THE INCOME-TAX ACT, 1961 [THE ACT]. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF INVESTING IN REAL ESTATE PROPERTIES, SHARES OF U NLISTED COMPANIES AND UNIT OF MUTUAL FUNDS. THE ASSESSEE HAS A TEAM/DEPARTMENT WHICH MONITORS, MAINTAINS AND ADVICES ON INVESTMENTS. 3. ASSESSEE FILED ITS RETURN OF INCOME FOR THE AY 2 009-10 DECLARING A TOTAL INCOME OF RS 5,69,81,980. THE TOTAL INCOME WA S ARRIVED AT AFTER DEDUCTING RS 29,99,052/- UNDER SECTION 80G OF THE I NCOME TAX ACT, 1961 [HEREINAFTER REFERRED TO AS ACT] FROM GROSS TOTAL INCOME OF RS 5,99.81.035/- THE GROSS TOTAL INCOME WAS ARRIVED AT AFTER ADJUSTI NG LOSS UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION [RS. 5,11,01,752] AGAINST INCOME UNDER THE HEAD INCOME FROM HOUSE PROPERTY [RS. 1,16,85,877] AND INCOME FOR OTHER SOURCES [RS. 9.93.96,910]. THE A SSESSEE ALSO CLAIMED EXEMPTION UNDER INCOME TO THE TUNE OF RS.3,58.19,59 8. 4. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY PROVISIONS OF SECTION 14A READ WI TH RULE 8D SHOULD NOT BE INVOKED TO DETERMINE THE AMOUNT OF EXPENDITURE INCU RRED IN RELATION TO THE INCOME FROM DIVIDEND. THE ASSESSEE SUBMITTED THAT I N COMPUTATION OF INCOME FROM BUSINESS, PORTFOLIO MANAGEMENT SCHEME ( PMS) RELATED EXPENSES OF RS. 59,58,386/- AND SECURITIES TRANSACT ION TAX (STT) RS. ITA NOS.1434 & 1435/BANG/2014 PAGE 3 OF 12 5,87,113/- WERE IDENTIFIED AS EXPENDITURE ATTRIBUTA BLE TO THE INCOME FROM DIVIDEND AND WERE ADDED BACK TO THE NET PROFIT. HO WEVER, THE ASSESSING OFFICER MADE AN ADDITION OF RS 2,29,61,787 TO THE T OTAL INCOME. 5. BEFORE THE CIT(APPEALS), THE ASSESSEE SUBMITTED THAT THE ALLEGATION IN THE IMPUGNED ASSESSMENT ORDER THAT ASSESSEE HAD NOT CLAIMED ANY EXPENDITURE AS INCURRED IN RELATION TO EARNING OF D IVIDEND INCOME WAS NOT CORRECT AND THE AO INVOKED RULE 8D IN AN ARBITRARY MANNER. 6. IT WAS FURTHER SUBMITTED THAT SECTION 14A(1) STA TES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SUB-SECTION (2) OF SECTION 14A MANDATES THE AO TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I N ACCORDANCE WITH PRESCRIBED METHOD, IF HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE VIS- -VIS EXPENDITURE INCURRED IN RELATION TO TAX FREE INCOME. THE METHOD IS PRESCRIBED UNDER RULE 8D OF THE INCOME TAX RULES, 1 962. SUB-SECTION (3) OF SECTION 14A PROVIDES THAT THE PROVISIONS OF SUB- SECTION (2) WOULD BE APPLICABLE IN CASES WHERE AN ASSESSEE CLAIMS THAT N O EXPENDITURE IS INCURRED IN RELATION TO TAX FREE INCOME. THE POWER TO DETERMINE DISALLOWABLE EXPENDITURE UNDER RULE 8D IS THUS AVAILABLE TO THE ASSESSING OFFICER UNDER TWO SITUATIONS VIZ., (I) WHERE THE ASSESSEE CLAIMS THAT A CERTAIN AMOUNT HAS BEEN INCURRED IN RELATION TO NON TAXABLE INCOMES; A ND (II) WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO NON ITA NOS.1434 & 1435/BANG/2014 PAGE 4 OF 12 TAXABLE INCOMES. THE POWER TO INVOKE RULE 8D IS H OWEVER SUBJECT TO FULFILLMENT OF CERTAIN CONDITIONS. IN ORDER TO INVO KE RULE 8D, THE ASSESSING OFFICER SHOULD RECORD A SATISFACTION THAT THE EXPEN DITURE INCURRED IN RELATION TO NON TAXABLE INCOME AS CLAIMED BY THE ASSESSEE IS INCORRECT. THE SATISFACTION SHOULD BE DEMONSTRATED HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THIS IS THE PRESCRIPTION OF SECTION 14A(2 ). IN OTHER WORDS, SECTION 14A(2) DOES NOT ENABLE THE ASSESSING OFFICER TO APP LY RULE 8D AUTOMATICALLY. THE ASSESSING OFFICER MUST GIVE REAS ONS AFTER CONSIDERING ACCOUNTS OF THE ASSESSEE AS TO WHY THE ASSESSEES C LAIM IS NOT SUSTAINABLE. 7. RELIANCE WAS PLACED ON THE DECISION OF THE HONB LE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT (2010) 328 ITR 81 WHEREIN IT WAS HELD THAT, IN A SITUATION WHERE T HE ACCOUNTS OF THE ASSESSEE FURNISH AN OBJECTIVE BASIS FOR THE ASSESSI NG OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CL AIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WA RRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS O NLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOU RSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. 8. THE ASSESSEE FURTHER RELIED ON THE DECISION IN MAXOPP INVESTMENT LTD. V. CIT (2011) 347 ITR 272 WHEREIN THE AMENDED PROVISIONS OF SECTION ITA NOS.1434 & 1435/BANG/2014 PAGE 5 OF 12 14A(2) HAD BEEN EXPLAINED AND IT WAS HELD THAT DETE RMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJE CTS THE CLAIM OF THE ASSESSEE. RELIANCE WAS ALSO PLACED ON THE DECISIO N OF AUCHTEL PRODUCTS LTD. V. ACIT (2012) 6 TAXCORP (A.T) 28301 WHEREIN IT WAS HELD THAT, IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PA RTICULAR EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GET S SATISFIED, THEN THERE IN NO REQUIREMENT TO STILL PROCEED WITH COMPUTATION OF AMOUNT DISALLOWABLE AS PER RULE 8D. 9. THE ASSESSEE FURTHER RELIED ON THE DECISION OF T HE KOLKATA BENCH OF THE TRIBUNAL IN REI AGRO LTD. V. DCIT (2013) 7 TAXCORP (A.T) 32760 WHICH WAS CONFIRMED BY THE CALCUTTA HIGH COURT IN 8 TAXCO RP (DT) 5719 AND BANGALORE BENCH OF THE TRIBUNALS DECISION IN MRS. HEMA RAVICHANDAR V. DCIT, ITA NO.1073/BANG/2011 RELYING UPON THE DECISION OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HELD, THE SATISFACTION THAT THE CLAIM MADE BY THE ASSESSEE REGARDING EXPENSES INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER ACT, IS NOT CORRECT, HAS TO BE ARRIVED AT BY THE AO, ON AN OBJECTIVE BASIS. 10. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS FOR THE PROPOSITION THAT IT IS MANDATORY FOR THE ASSESSING OFFICER BEFO RE INVOKING RULE 8D TO RECORD AN OBJECTIVE SATISFACTION THAT THE SUO MOTO DISALLOWANCE MADE U/S. 14A BY THE ASSESSEE IS INCORRECT:- ITA NOS.1434 & 1435/BANG/2014 PAGE 6 OF 12 - MINDA INVESTMENTS LTD V DCIT (2010) TAX CORP (A.T.) 22872 (DELHI) - CELLICA DEVELOPERS PVT LTD V ITO ITA NO 1101/KOL/20 12 - KODAK INDIA PVT LTD V ACIT (2013) 88 DTR 242 11. THE ASSESSEE SUBMITTED BEFORE THE CIT(APPEALS) THAT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) (III) HAS BEEN MADE CONSIDERING THE DIVIDENDS INCOME FROM SHARES / MUTU AL FUNDS WHICH ARE EXEMPT AT SOURCE. THESE DIVIDENDS ARE DIRECTLY CRED ITED TO BANK ACCOUNT OF THE ASSESSEE AND THERE IS NO SEPARATE EXPENDITURE I NCURRED FOR EARNING THE DIVIDEND INCOME AND RELIED UPON THE DECISION OF HON BLE KARNATAKA HIGH COURT IN CANARA BANK V. ACIT (2014) 8 TAXCORP (DT) 56593 . 12. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE UNDER RULE 8D(2)(III) IS NOT CORRECT AS THE AO HAS ERRED IN NOT APPRECIATING THAT DISALLOWANCE U/S. 14 A R.W. RULE 8D(2)(III) HAS TO BE COMPUTED ONLY WITH REGARD TO INVESTMENTS WHIC H YIELD TAX FREE INCOME AND NOT ALL THE INVESTMENTS. THE DECISION IN THE C ASE OF REI AGRO LTD. V. DCIT (SUPRA) WAS RELIED UPON WHEREIN IT WAS HELD AS FOLLOWS:- THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MATTE R OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SEC TION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE T O THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ITA NOS.1434 & 1435/BANG/2014 PAGE 7 OF 12 13. THE ASSESSEE SUBMITTED THAT THE INVESTMENTS OF THE ASSESSEE AS AT THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR , ENDING MARCH 31, 2009 WERE AS FOLLOWS:- 14. FOLLOWING DECISIONS WERE RELIED UPON WHICH HAVE TAKEN THE VIEW THAT NO DISALLOWANCE COULD BE MADE U/S. 14A IF THERE IS NO EXEMPT INCOME DURING THE PREVIOUS YEAR:- - CIT VS. M/S. SIVAM MOTORS PVT. LTD. I. T. APPEAL NO .88 OF 2014 DATED 5.5.2014 (ALL) - CIT VS. CORRTECH ENERGY PVT. LTD. I.T. APPEAL NO .239 OF 2014 DATED 24.3.2014 (GUJ) ITA NOS.1434 & 1435/BANG/2014 PAGE 8 OF 12 - CIT VS. DELITE ENTERPRISES TAXAPPEALNO.110 OF 20 09 DATED 26.2.2009 (BOM) - ACIT V M. BASKARAN I.T.A NO. 171 7/MDS/2013 DATE D 31.07.201 (CHENNAI TRIBUNAL) 15. THE ASSESSEE THEREFORE SUBMITTED THAT THE DISAL LOWANCE OF RS. 2,29,6L,77 UNDER SECTION 14A READ WITH RULE 8D(2)(I II) HAS TO BE DELETED FULLY. ALTERNATIVELY AND WITHOUT PREJUDICE, THE INVESTMENT S YIELDING TAXABLE INCOME [VIZ., DEBENTURES, EXCHANGE TRADED FUNDS AND SHARE APPLICATION MONEY] SHOULD BE EXCLUDED IN DETERMINING THE FIGURE OF AVE RAGE INVESTMENTS UNDER RULE 8D(2)(III). 16. THE CIT(APPEALS) OBSERVED AT PARA 7 THAT APPELLANT HAS STATED THAT THE AO IS REQUIRED TO RECORD SATISFACTION THAT THE EXPENDITURE CLAIMED TO BE INCURRED IN RESPECT OF EXEMPT INCOME IS INADEQUATE. HOWEVER AO HAS FAILED TO RECORD ANY REASONS THAT THE SUOMOTO DISAL LOWANCE MADE BY THE ASSESSEE IS NOT ADEQUATE. AR HAS RELIED ON SEVERAL JUDICIAL DECISIONS IN SUPPORT OF THIS CONTENTION INCLUDING THAT OF THE KA RNATAKA HIGH COURT IN ITA NO.382/2010C/W, ITA NO.381/2010, DT.2.06.2014 IN TH E CASE OF CANARA BANK. IN MY VIEW THIS DECISION OF THE JURISDICTIONA L HIGH COURT RELIED UPON BY THE APPELLANT IS NOT APPLICABLE AS IT RELATES TO A PERIOD BEFORE THE INTRODUCTION OF RULE 8D . 17. FURTHER THE CIT(APPEALS) FOR THE A.Y. 2009-10 C ONCLUDED AT PARA 11.1 AS FOLLOWS:- ITA NOS.1434 & 1435/BANG/2014 PAGE 9 OF 12 11.1 AO IS THEREFORE REQUIRED TO EXCLUDE THE INVE STMENTS WHICH DO NOT YIELD EXEMPT INCOME, FOR THE PURPOSE O F WORKING OUT DISALLOWANCE U/S.14A R.W.R.8D. TAKING INTO ACCO UNT THE INVESTMENT THAT YIELDS EXEMPT INCOME FOR THE PURPOS E OF WORKING OUT % OF AVERAGE INVESTMENTS AS PER RULE 8D AN AMOUNT T O RS.1,44,61,138/- IS REQUIRED TO BE DISALLOWED, AS A PPELLANT HAS ALREADY DISALLOWED PMS RELATED EXPENSES OF RS.59,58 ,386/- THE DISALLOWANCE U/S.14A RW R8D WOULD BE AN AMOUNT OF RS.85,02,752/- AO IS DIRECTED TO RESTRICT THE DISAL LOWANCE U/S. 14A RW RULE 8D TO THIS AMOUNT. THESE GROUNDS ARE PA RTLY ALLOWED. 18. FOR THE A.Y. 2010-11, THE CIT(APPEALS) HELD AS FOLLOWS:- 11.1 AO IS THEREFORE REQUIRED TO EXCLUDE THE INVE STMENTS WHICH DO NOT YIELD EXEMPT INCOME, FOR THE PURPOSE O F WORKING OUT DISALLOWANCE U/S.14A R.W.R.8D. TAKING INTO ACCO UNT THE INVESTMENT THAT YIELDS EXEMPT INCOME FOR THE PURPOS E OF WORKING OUT % OF AVERAGE INVESTMENTS AS PER RULE 8D AN AMOUNT T O RS.1,25,70,202/- IS REQUIRED TO BE DISALLOWED, AS A PPELLANT HAS ALREADY DISALLOWED PMS RELATED EXPENSES OF RS.8,66, 341/- THE DISALLOWANCE U/S.14A RW R8D WOULD BE AN AMOUNT OF RS.1,17,03,861/- AO IS DIRECTED TO RESTRICT THE DIS ALLOWANCE U/S. 14A RW RULE 8D TO THIS AMOUNT. THESE GROUNDS ARE PA RTLY ALLOWED. 19. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US AND REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. 20. WE HAVE HEARD BOTH THE PARTIES. WE DISAGREE WI TH THE VIEW TAKEN BY THE CIT(APPEALS). THE AO HAS NOT GIVEN ANY REAS ONS AS TO WHY SUO MOTU DISALLOWANCE OF PMS EXPENSES OF RS.59,58,386 A ND STT OF RS.5,87,113 IS INCORRECT OR HOW AND WHY ANY FURTHER EXPENDITURE IS REQUIRED TO BE DISALLOWED. IF THE AO WAS OF THE VIEW THAT S UO MOTU DISALLOWANCE ITA NOS.1434 & 1435/BANG/2014 PAGE 10 OF 12 MADE BY THE ASSESSEE IS INCORRECT, THEN IT WAS INCU MBENT UPON HIM TO RECORD HIS DISSATISFACTION ABOUT THE SAME IN THE IM PUGNED ORDER. THE AO INVOKED RULE 8D OF THE I.T. RULES WITHOUT FULFILLIN G THIS STATUTORY REQUIREMENT. IN SUCH CIRCUMSTANCES, THE DISALLOWAN CE MADE U/S. 14A R.W. RULE 8D(2)(III) MERITS DELETION. THE COORDINATE BE NCH OF THIS TRIBUNAL IN THE CASE OF MRS. HEMA RAVICHANDAR V. DCIT, ITA NO.1073/BANG/201 1 HELD AS FOLLOWS:- 11. IT IS CLEAR FROM THE OBSERVATIONS OF THE HONB LE BOMBAY HIGH COURT REFERRED TO ABOVE THAT THE APPLICATION O F RULE 8D OF THE RULES IS NOT AUTOMATIC. WHEN THE ASSESSEE MAKES THE CLAIM REGARDING THE QUANTUM OF EXPENSES TO BE DISALLOWED IN TERMS OF SECTION 14A OF THE ACT, IT WAS INCUMBENT ON THE PAR T OF THE AO TO CONSIDER THE CLAIM OF THE ASSESSEE. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE HE CAN HAV E RECOURSE TO THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES. THE SATISFACTION THAT THE CLAIM MADE BY THE ASSESSEE RE GARDING EXPENSES INCURRED IN RELATION TO THE INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, IS NOT CORR ECT, HAS TO BE ARRIVED AT BY THE AO, ON AN OBJECTIVE BASIS. IN THE PRESENT CASE, WE FIND THAT THE AO HAS PROCEEDED TO APPLY RULE 8D WITHOUT GIVING ANY FINDING WITH REGARD TO THE CORRECTNESS O F THE CLAIM MADE BY THE ASSESSEE REGARDING THE DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT. THE CIT(A) HAS ALSO P ROCEEDED ON THE SAME BASIS. WE ARE, THEREFORE, OF THE VIEW THAT THE ORDERS OF THE CIT(A) HAS TO BE SET ASIDE AND THE ISSUE SHOULD BE REMANDED TO THE AO FOR FRESH CONSIDERATION. THE AO WILL CONS IDER THE CLAIM OF THE ASSESSEE WITH REGARD TO THE DISALLOWANCE TO BE MADE UNDER SECTION 14A OF THE ACT IN THE LIGHT OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT REFERRED TO ABOVE. THE AO WILL DE CIDE THE ISSUE AFTER AFFORDING THE ASSESSEE OPPORTUNITY OF B EING HEARD. 21. IT IS MANDATORY FOR THE AO BEFORE INVOKING RULE 8D TO RECORD AN OBJECTIVE SATISFACTION THAT SUO MOTU DISALLOWANCE U /S. 14A MADE BY THE ASSESSEE IS INCORRECT. IN THIS REGARD, THE OBSERVA TIONS OF THE KOLKATA ITA NOS.1434 & 1435/BANG/2014 PAGE 11 OF 12 TRIBUNAL IN THE CASE OF REI AGRO LTD. V. DCIT (2013 ) 7 TAXCORP (AT) 32760 [CONFIRMED BY THE CALCUTTA HIGH COURT IN 8 TAXCORP (DT) 5719] ARE REPRODUCED BELOW:- .. THUS, WHERE THE ASSESSEE MAKES A CLAIM THAT ON LY A PARTICULAR AMOUNT IS TO BE DISALLOWED UNDER SECTION 14A OR WHERE THE ASSESSEE DOES NOT MAKE A DISALLOWANCE UNDER SEC TION 14A, IF THE AO PROPOSES TO INVOKE THE SECTION 14A, HE IS TO RECORD A SATISFACTION ON THAT ISSUE. THIS SATISFACTION CANNO T BE A PLAIN SATISFACTION OR A SIMPLE NOTE. IT IS TO BE DONE WIT H REGARD TO ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CASE, THE RE IS NO SATISFACTION BY THE AO AND CONSEQUENTLY, IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CAS E OF BALARAMPUR CHINI MILLS LTD. REFERRED TO SUPRA, NO D ISALLOWANCE UNDER SECTION 14A CAN BE MADE. 22. IN OUR VIEW, IN THE PRESENT CASES, THE AO HAS P ROCEEDED TO APPLY RULE 8D WITHOUT GIVING ANY FINDING WITH REGARD TO C ORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE REGARDING DISALLOWANCE TO BE M ADE U/S. 14A OF THE ACT. THE CIT(A) HAS ALSO PROCEEDED ON THE SAME BAS IS. WE THEREFORE SET ASIDE THE ORDERS OF THE CIT(APPEALS) FOR BOTH THE Y EARS AND REMAND THE ISSUE TO THE ASSESSING OFFICER FOR FRESH CONSIDERAT ION. THE AO SHALL GO INTO THE OTHER SUBMISSIONS OF THE ASSESSEE THAT THE DISA LLOWANCE U/S. 14A R.W. RULE 8D HAS BEEN MADE FROM THE DIVIDEND INCOME FROM SHARES/MUTUAL FUNDS WHICH ARE EXEMPT AT SOURCE AND THESE DIVIDEND S ARE DIRECTLY CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE. THE AO SHALL ALSO EXAMINE THE ASSESSEES CLAIM THAT THERE IS NO SEPARATE EXPENDIT URE FOR EARNING THE DIVIDEND INCOME IN THE LIGHT OF THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN CANARA BANK V. ACIT (2014) 8 TAXCORP (DT) 56593 . THE ITA NOS.1434 & 1435/BANG/2014 PAGE 12 OF 12 ASSESSEE HAS ALSO RAISED A GROUND THAT NO DISALLOWA NCE COULD BE MADE U/S. 14A IF THERE IS NO EXEMPT INCOME DURING THE PR EVIOUS YEAR. THE AO SHALL AFTER APPLYING HIS MIND ON THE ISSUE OF SATIS FACTION TO BE RECORDED, DEAL WITH OTHER ISSUES RAISED BY THE ASSESSEE SEPAR ATELY. 23. WITH RESPECT TO ANOTHER GROUND RAISED FOR THE A .Y. 2010-11 REGARDING LEVY OF INTEREST U/S. 234B & 234C OF THE ACT, WE ARE OF THE OPINION THAT LEVY OF INTEREST IS MANDATORY AND HENCE WE DIS MISS THIS GROUND. 24. IN THE RESULT, THE APPEALS BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF DECEMBER, 2015. SD/- SD/- ( JASON P. BOAZ ) (ASHA VIJAYARAGHAVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 30 TH DECEMBER, 2015. /D S/ COPY TO: 1. APPELLANT 2. RES PONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.