HCL Corporation Limited, New Delhi V. ACIT, New Delhi

ITA 2003/DEL/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58745 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 13-02-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 13-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RIS GILL
• Assessee Lawyers: PINKY KAPOORARS
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income; Retrospective amendment
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI R.P. TOLANI , JM & SHRI A.N. PAHUJA, AM ITA NO.2003/DEL/2009 ASSESSMENT YEAR:2005-06 HCL CORPORATION LTD., 44,FRIENDS COLONY (EAST), NEW DELHI V/S . A.C.I.T.,CENTRAL CIRCLE-2, NEW DELHI [PAN : AAACS 0921 R] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI AJAY VOHRA & MS. PINKY KAPOOR, ARS REVENUE BY SHRI R.I.S. GILL, DR DATE OF HEARING 13-02-2012 DATE OF PRONOUNCEMENT 09-03-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 13 TH MAY, 2009 BY THE ASSESSEE AGAINST AN ORDER DATED 5 TH FEBRUARY, 2009 OF THE LEARNED CIT(A)-III, DELHI, R AISES THE FOLLOWING GROUNDS:- 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT LOSS UNDER THE HEAD SHORT-TERM CAPITA L GAINS AGGREGATING TO ` `4,69,15,726/- INCURRED PRIOR TO COMING INTO FORCE OF AMENDED SECTION 94(7) OF THE INCOME-TAX ACT, 1961 (THE ACT) WAS NOT ALLOWABLE TO THE APPELLANT. 1.1 THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN HOLDING THAT THE AMENDED PROVISIONS OF SECTION 94(7 ) OF THE ACT (AS AMENDED BY FINANCE (NO. 2) ACT, 2004 ) WOULD ALSO APPLY TO THE TRANSACTIONS OF SALE OF UNI TS WHICH TOOK PLACE PRIOR TO INTRODUCTION OF THE FINAN CE BILL, 2004 IN THE PARLIAMENT ON 8 TH JULY, 2004. ITA N O.2003 /DEL./2009 2 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN DIR ECTING THE ASSESSING OFFICER TO RECOMPUTE THE DISALLOWANCE U/S 14A OF THE ACT APPLYING THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF DAGA CAPITA L MANAGEMENT PVT. LTD., WITHOUT AFFORDING ANY OPPORTUNITY OF BEING HEARD TO THE APPELLANT. 3. THAT THE CIT(A) ERRED ON FACTS AND IN LAW CONFIR MING THE ACTION OF THE ASSESSING OFFICER IN CHARGING THE INTEREST U/S 234B AND 234D OF THE ACT. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, ALTER OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE TIME OF HEARING. 2. ADVERTING FIRST TO GROUND NOS. 1 & 2 IN THE AP PEAL, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCO ME OF ` ` 5,45,00,000/- AND EXEMPTED INCOME OF ` ` 276,75,30,877/- FILED ON 31.10.2005 BY THE ASSESSEE , AFTER BEING PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT), WAS SELECTED FOR SCRUTINY WITH THE SER VICE OF NOTICE U/S 143(2) OF THE ACT. INTER ALIA, A FOLLOWING NOTE WAS APPENDED AT THE END OF COMPUTATION OF INCOME ENCLOSED WITH THE RETURN: SECTION 94(7) OF THE INCOME-TAX ACT ( THE ACT) P RIOR TO ITS AMENDMENT BY THE FINANCE (NO.2) ACT 2004, PROVIDED THAT WHERE A PERSON PURCHASES ANY UNITS WITHIN A PERIOD OF THREE MONTHS AFTER THE RECORD DATE, THE LOSS ARISING, IF ANY, ON SUCH PURCHASE AND SALE OF THE UNIT WOULD BE REQUIRED TO BE IGNORED TO THE EXTENT OF THE INCOME RECEIVED ON SUCH UNIT, IF SUCH INCOME IS EXE MPT FROM TAX. THE AFORESAID PROVISION WAS AMENDED BY THE FINANCE (NO.2) ACT, 2004 AND THE PERIOD OF SALE OF THE UNITS WAS EXTEND ED FROM THREE MONTHS TO NONE MONTHS AFTER THE RECORD DATE. THE F INANCE (NO.2) BILL 2004 WAS INTRODUCED IN THE LOK SABHA ON 8 TH JULY, 2004 AND SUBSEQUENTLY RECEIVED THE ASSENT OF THE PRESIDENT. THE AMENDED PROVISIONS HAVE BEEN MADE APPLICABLE FROM 1.4.2005 I.E. FROM ASSESSMENT YEAR 2005-06. THE COMPANY HAD PURCHASED UNITS DURING THE FINANCIA L YEAR 2003- 04, WHICH WERE SOLD PRIOR TO FINANCE (NO.2) BILL, 2 004 BEING INTRODUCED IN PARLIAMENT, AFTER HAVING HELD THE UNI TS FOR MORE THAN THREE MONTHS AFTER THE RECORD DATE. THE ASSESSEE H AS INCURRED ITA N O.2003 /DEL./2009 3 SHORT TERM CAPITAL LOSS OF ` ` 4,80,99,117/- IN RESPECT OF SUCH TRANSACTIONS FOR PURCHASE AND SALE OF UNITS. THE ASSESSEE IS LEGALLY ADVISED THAT TRANSACTIONS W HICH STOOD CONCLUDED BEFORE THE DATE ON WHICH FINANCE (NO.2) B ILL, 2004 WAS ENACTED WOULD NOT BE AFFECTED BY THE SUBSEQUENT AME NDMENT IN SECTION 94(7) OF THE ACT MERELY BECAUSE THE AMENDME NT WAS MADE WITH EFFECT FROM 1 ST APRIL, 2005. A TRANSACTION WHICH WAS NOT LIABLE TO TAX WHEN IT WAS ENTERED INTO CANNOT BE BROUGHT T O TAX ON ACCOUNT OF SUBSEQUENT ENACTMENT. IN OTHER WORDS SUBSTANTIV E RIGHTS WHICH HAD ALREADY ACCRUED TO AN ASSESSEE SHOULD NOT BE EF FECTED MERELY ON ACCOUNT OF SUBSEQUENT LEGISLATION UNLESS THERE I S A CLEAR INTENT TO MAKE SUCH TRANSACTIONS LIABLE TO TAX WITH RETROS PECTIVE EFFECT. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TO A QUERY BY THE ASSESSING OFFICER(A.O. IN SHORT) AS TO WHY THE LOSS OF ` `4,69,15,726/- BE NOT DISALLOWED IN TERMS OF AMENDED PROVISIONS OF SECTIO N 94(7) OF THE ACT, THE ASSESSEE REPLIED THAT THE TRANSACTION OF PURCHASE A ND SALE OF UNITS HAVING BEEN ENTERED INTO PRIOR TO THE AMENDMENT IN SECTION 94(7 ) OF THE ACT, WHICH WAS INTRODUCED ON 8 TH JULY, 2004 IN THE PARLIAMENT AND SUBSEQUENTLY ENAC TED ON 10 TH SEPTEMBER, 2004, THE AMENDED PROVISIONS OF THE SAID SECTION WERE NOT APPLICABLE .INTER ALIA, THE ASSESSEE REFERRED TO PROVISIONS OF SEC. 294 OF THE ACT AND RELIED UPON THE DECISIONS IN CIT VS. NIRMAL TEX TILE, 224 ITR 378, M/S MITSU INDUSTRIES LTD. VS. DCIT (2005) 98 TTJ 990 (AHD), I TAT DECISION IN THE CASE OF JCIT VS. ARIHANT INDUSTRIES LTD. AND VINOD KRISHNA KAUL, IPS VS. UOI: AIR 1996 SC 753 (1996)1 SSC 41. HOWEVER, THE AO DID NOT ACCE PT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED THE AMOUNT OF ` `4,69,15,726/- IN TERMS OF AMENDED PROVISIONS OF SECTION 94(7) OF THE ACT, RELYING INT ER ALIA, ON THE DECISIONS IN TEA ESTATES INDIA VS. CIT,241 ITR 778(MAD.);K. KRISHNAV ENI VS. AAC,151 ITR 83(MAD.); CIT VS. MIR OSMAN ALI BAHADUR (1966) 59 I TR 666 (SUPREME COURT); & CIT VS. HONGKONG OCEANS SHIPPING AND OTHERS,238 ITR 955 (MADRAS) . 3. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE FOLLOWING TERMS: ITA N O.2003 /DEL./2009 4 4.4 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS OF THE CASE. THE ISSUE INVOLVED IS WHETHER TRANSACTIONS ENTERED INTO BY THE APPELLANT DURING P REVIOUS YEAR BEFORE THE INTRODUCTION OF PROPOSED AMENDMENT IN SE CTION 94(7) BY THE FINANCE (NO.2) BILL, 2004 IN THE PARLIAMENT ON 8 TH JULY 2004 SHALL BE GOVERNED BY THE PRE AMENDED PROVISION S OF SECTION 94(7) OF THE ACT OR SHALL BE GOVERNED BY TH E PROVISIONS AS AMENDED BY THE FINANCE (NO.2) ACT, 2004 W.E.F. 0 1.04.2005. IT WOULD BE FRUITFUL TO REFER THE PROVISIONS OF SEC TION 94(7) BEFORE AND AFTER THE AMENDMENT WHICH ARE AS UNDER: 'WHERE A) ANY PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE. B) SUCH PERSON SELLS OR TRANSFERS SUCH SECURITIES OR UNIT WITHIN A PERIOD OF THREE MONTHS AFTER SUCH DATE; THE FOLLOWING CLAUSE (B) SHALL BE SUBSTITUTED FOR E XISTING CLAUSE (B) OF SUB- SECTION (7) OF SECTION 94 BY THE FINANCE (NO.2) ACT , 2004 W.E.F. 1.4.2005) B) SUCH PERSON SELLS OR TRANSFERS- I)SUCH SECURITIES WITHIN A PERIOD OF THREE MONTHS AFTER SUCH DATE, OR II) SUCH UNIT WITHIN A PERIOD OF NINE MONTHS AFTER SUCH DATE C) THE DIVIDEND OR INCOME ON SUCH SECURITIES OR UNIT RECEIVED OR RECEIVABLE BY SUCH PERSON IS EXEMPT. THEN, THE LOSS, IF ANY ARISING TO HIM ON ACCOUNT OF SUCH PURCHASE AND SALE OF SECURITIES OR UNIT, TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES OR UNIT, SHALL BE IGNORED FOR THE PURPOS ES OF COMPUTING HIS INCOME CHARGEABLE TO TAX.' FROM THE ABOVE, IT MAY BE SEEN THAT AMENDED PROVISI ON HAS EXTENDED THE PERIOD FOR THE SALE OF UNITS FROM THREE MONTHS TO NINE MONTHS AFTER THE RECORD DATE TO ATTRACT PRO VISIONS OF SECTION 94(7) OF THE ACT. THE CLAUSE (B) OF SECTION 94(7) WAS SUBSTITUTED BY THE FINANCE (NO.2) ACT, 2004 ITA N O.2003 /DEL./2009 5 W.E.F. 01.04.2005 I.E FROM THE ASSESSMENT YEAR 2005 -06 AND SUBSEQUENT YEARS. IT IS A WELL SETTLED LAW THAT T HE LAW IN FORCE ON THE 1ST DAY OF APRIL OF THE ASSESSMENT YEAR WOUL D BE THE LAW APPLICABLE FOR THE PREVIOUS YEAR RELEVANT FOR THE A SSESSMENT YEAR. SINCE CLAUSE (B) WAS SUBSTITUTED W.E.F. 01.04 .2005, THE AMENDED PROVISIONS WOULD BE ACCORDINGLY APPLICABLE FOR THE PREVIOUS YEAR RELEVANT TO A.Y. 2005-06. IN THIS REG ARD, APART FROM THE DECISIONS REFERRED TO BY THE A.O., REFEREN CE MAY BE MADE TO FOLLOWING DECISIONS OF VARIOUS COURTS: MADRAS HIGH COURT IN THE CASE OF CIT VS GRAIGMORE PLANTATI ONS INDIA LTD. (2002) 253 ITR 447 (MAD), HELD AS UNDER: 'THE LAW APPLICABLE TO ANY ASSESSMENT IS THE LAW TH AT PREVAILS AS ON THE FIRST OF APRIL OF THE RELEVANT ASSESSMENT YEAR. ' HON'BLE SUPREME COURT IN THE CASE OF SEDCO FOREX INTERNATIONAL DRILL INC VS. CIT (2005) 279 ITR 310 (SC) HAS ALSO OBSERVED AS UNDER: 'A CARDINAL PRINCIPLE OF TAX LAW IS THAT THE LAW TO BE APPLIED IS THAT WHICH IS IN FORCE IN THE RELEVANT ASSESSMENT Y EAR UNLESS OTHERWISE PROVIDED EXPRESSLY OR BY NECESSARY IMPLIC ATION. ' KARNATAKA HIGH COURT IN THE CASE OF MITHY GRANITE ( P) LTD. VS. ITO (2004) 266 ITR 151 (KA) HAS ALSO HELD AS UNDER: 'THE LAW THAT IS REQUIRED TO BE APPLIED IS THAT IN FORCE DURING THE ASSESSMENT YEAR, UNLESS OTHERWISE PROVID ED EXPRESSLY OR BY NECESSARY IMPLICATION. THE ONLY WAY TO UNDERSTAND THE AMENDMENT MADE TO SECTION 80HHC(2)(B)(II) IS TO UNDERSTAND THAT IS ONLY FROM THE DATE OF COMING INTO FORCE OF THE SAID PROVISION, THAT CU T AND POLISHED GRANITE WOULD BE ENTITLED FOR THE BENEFIT OF SECTION BHHC OF THE ACT WHILE ALL OTHER TYPES OF GRANITES ARE NOT ENTITLED FOR THE BENEFIT OF THE SAID PROVISION. ' IN THE CASE OF CIT VS ORKAY SILK MILLS PVT. LTD. VS . CIT (1998) 230 ITR 108 (BOM.) , THE BOMBAY HIGH COURT HAS ALSO HELD UNDER: '(II) THAT IT IS WELL-SETTLED THAT THOUGH THE SUBJE CT OF ITA N O.2003 /DEL./2009 6 CHARGE UNDER THE INCOME-TAX ACT IS INCOME OF THE PREVIOUS YEAR, THE LAW TO BE APPLIED IS THAT IN FORCE IN THE ASSESSMENT YEAR UNLESS OTHERWISE STATED OR IMPLIED. THEREFORE, FOR DETERMINING THE LIABILITY OF THE ASSESSEE- COMPANY IN RESPECT OF THE INCOME OF THE AMALGAMATING COMPANY FOR THE PREVIOUS YEARENDINGJUNE30, 1975, TH E LAW APPLICABLE ON THE FIRST DAY OF THE ASSESSMENT YEAR 1976-77, I.E., APRIL 1, 1976, WOULD APPLY AND NOT THE LAW APPLICABLE DURING THE PREVIOUS YEAR. (III) THEREFORE, THE TRIBUNAL WAS NOT RIGHT IN HOLD ING THAT THE PROVISIONS OF SECTION 104 OF THE ACT WERE NOT APPLICABLE TO THE ASSESSEE-COMPANY FOR THE ASSESSME NT YEAR 1976-77.' THUS, AS DECIDED IN THE AFOREMENTIONED DECISIONS OF VARIOUS COURTS, IT MAY BE NOTED THAT IT IS A WELL SETTLED L AW THAT THE LAW APPLICABLE TO ANY ASSESSMENT IS THE LAW THAT PREVAI LS AS ON THE 1 ST DAY OF APRIL OF THE RELEVANT ASSESSMENT YEAR. NOW I N THE INSTANT CASE, SINCE CLAUSE (B) OF SECTION 94 (7) HA S BEEN SUBSTITUTED W.E.F. 01.04.2005 I.E. 1 ST DAY OF APRIL OF THE ASSESSMENT YEAR 2005-06, THE SAME WOULD BE APPLICAB LE FOR THE PREVIOUS YEAR (FY. 2004- 05) RELEVANT FOR THE A.Y. 2005-06 AND SUBSEQUENT PERIODS. IT MAY ALSO BE RELEVANT TO REFER TO THE BOARD'S CIRCULAR NO. 5/2005 DT. 15.07.05 CONTAINING EXPLANATORY NOTES ON PROVISIONS OF THE FINANCE (NO.2) ACT, 2004 WHICH HAS CLARIFIED THE AMENDMENT IN SECTION 94(7) AS UNDER:- 'MEASURE TO CURB TAX AVOIDANCE VIA DIVIDEND & BONUS STRIPPING. THE EXISTING PROVISIONS CONTAINED IN SUB-SECTION (7) OF SECTION94 PROVIDE THAT WHERE A PERSON BUYS OR ACQUIRES ANY SECURITIES OR UNIT WITH IN A PERIOD OF THREE MONTHS PRIOR TO THE RECORD DATE FILED FOR DECLARATION OF DIVIDEND OR INCOME IN RESPECT OF SUCH SECURITY OR UNIT, AND SELLS OR TRANSFER THE SAME WITHIN A PERIOD OF THREE MONTHS AFTER SUCH RECORD D ATE, AND THE DIVIDEND OR INCOME RECEIVED OR RECEIVABLE ON SUCH SECURITIES OR UNIT IS EXEMPT, THEN THE LOSS, IF ANY, ARISING FROM SUCH PURCHASE AND SA LE SHALL BE IGNORED TO THE EXTENT SUCH LOSS DOES NOT EXCEED THE AMOUNT OF SUCH DIVIDEND OR INCOME FOR THE PURPOSE OF COMPUTING THE INCOME CHAR GEABLE TO TAX OF SUCH PERSON. IT WAS FELT THAT FOR UNITS, THE HOLDING PERIOD OF T HREE MONTHS PRIOR TO SALE ITA N O.2003 /DEL./2009 7 AS SPECIFIED IN THE SAID SUB SECTION DID NOT PROVID E SUFFICIENT DETERRENCE TO TAX AVOIDANCE. THE FINANCE (NO.2) ACT 2004 HAS AMENDED SUB-SECTION (7) OF SECTION 94 SO AS TO INCREASE THE HOLDING PERIOD IN RESPECT OF UNI TS FROM THREE MONTHS TO NINE MONTHS AFTER THE RECORD SALE. THESE AMENDMENTS TAKE EFFECT FROM 1 ST APRIL 2005 AND APPLY IN RELATION TO ASSESSMENT YEAR 2005-06 AND SUBSEQUENT YEARS. THE ABOVE CIRCULAR CLEARLY EXPLAINS INTENTION OF TH E LEGISLATURE FOR INTRODUCTION OF THE AMENDMENT WHICH CLEARLY PRO VIDES THAT IT WAS FELT THAT FOR UNITS THE HOLDING PERIOD OF THREE MONTHS PRIOR TO SALES DID NOT PROVIDE SUFFICIENT DETERRENCE TO TAX AVOIDANCE AND, THEREFORE, CLAUSE (B) OF SECTION 94(7) WAS SUBSTITU TED TO INCREASE THE HOLDING PERIOD IN RESPECT OF UNITS FRO M THREE MONTHS TO NINE MONTHS AFTER THE RECORD SALE. IN SUC H CASES THE PURPOSIVE CONSTRUCTION SHOULD BE APPLIED, WHICH IS ALSO KNOWN AS MISCHIEF RULE' AS DESCRIBED IN HEYDON'S CASE. FO UR ASPECTS ARE TO BE TAKEN INTO CONSIDERATION WHILE APPLYING T HE PRINCIPLE OF 'MISCHIEF RULE' I.E. (I) WHAT WAS THE LAW BEFORE MA KING THE ACT (AMENDMENT), (II) WHAT WAS THE MISCHIEF OR DEFECT F OR WHICH THE LAW DID NOT PROVIDE, (III) WHAT IS THE REMEDY THAT THE ACT (AMENDMENT) HAS PROVIDED; AND (IV) WHAT IS REASON F OR REMEDY. THUS, THE CONSTRUCTION OF THE STATUTE SHOULD BE IN SUCH A MANNER, WHICH WOULD SUPPRESS THE MISCHIEF AND ADVAN CE THE REMEDY. THE CONSTRUCTION OF THE PROVISIONS SHOULD F ULFILL THE INTENTION OF THE LEGISLATURE. NOW IN THE INSTANT CA SE THE AMENDMENT WAS MADE IN CLAUSE (B) OF SECTION 94(7) T O PROVIDE SUFFICIENT DETERRENCE TO TAX AVOIDANCE. THEREFORE, THE AMENDED PROVISIONS OF SECTION 94(7) SHOULD BE APPLICABLE TO THE TRANSACTIONS UNDERTAKEN DURING THE PREVIOUS YEAR RE LEVANT TO ASSESSMENT YEAR 2005-06 AND SUBSEQUENT YEARS. HENC E THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING THE PRO VISIONS OF SECTION 94(7) TO THE TRANSACTIONS WHICH HAVE TAKEN PLACE DU RING THE PREVIOUS YEAR (F.Y. 2004-05) RELEVANT TO THE ASSESS MENT YEAR 2005-06 UNDER CONSIDERATION AND DISALLOWING THE CLA IM OF SHORT TERM CAPITAL LOSS OF ` `4,69,15,726/-. 4.4.1 IT IS WELL SETTLED THAT THERE IS NO EQUITY AB OUT TAX. IF THE PROVISIONS OF A TAXING STATUTE ARE CLEAR AND UNAMBI GUOUS, FULL EFFECT MUST BE GIVEN TO THEM IRRESPECTIVE OF ANY CONSIDERA TION OF EQUITY OR ANY HARDSHIP TO AN ASSESSEE. THE HON'BLE SUPREME CO URT IN THE CASE OF LAKSHMI BAI (H.H.) V. CWT(1994) 206 ITR 688 (SC) HELD ITA N O.2003 /DEL./2009 8 THAT IT IS SETTLED LAW THAT TAXATION STATUTES IN PA RTICULAR: HAVE TO BE STRICTLY CONSTRUED AND THERE IS NO EQUITY IN A TAXI NG PROVISION. 4.4.2. IT MAY BE NOTED THAT THE FACTS OF CASE OF C IT VS. NIRMAL TEXTILE 224 ITR 378 (GUJ.) RELIED UPON BY THE APPEL LANT ARE DIFFERENT AND DISTINCT FROM THE FACTS OF THE APPELLANT'S CASE . THE ISSUE INVOLVED IN THE CASE OF CIT VS. NIRMAL TEXTILES WAS ABOUT THE NATURE OF CAPITAL ASSET, WHEREAS IN THE INSTANT CASE THE I SSUE INVOLVED IS WHETHER THE SHORT TERM CAPITAL LOSS IS TO BE EXCLUD ED OR INCLUDED IN THE COMPUTATION OF INCOME. THE HON'BLE GUJARAT HIGH COURT IN THIS CASE ON PAGE 385 OF THE REPORT HAS ALSO OBSERVED AS UNDER:- 'IN COMPUTING SUCH LIABILITY WHAT IS TO BE EXCLUDED OR INCLUDED OR CONDITIONS OR ALLOWANCES OF DEDUCTIONS OR EXEMPTION S AND THE LIKE MATTERS, THE LAW AS IT EXISTS ON 1 ST OF APRIL OF THE RELEVANT ASSESSMENT YEAR GOVERNS THE ASSESSMENT.' THUS, THE HON'BLE GUJARAT HIGH COURT HAS ALSO HELD THAT IN COMPUTATION OF INCOME AND THE ISSUES REGARDING WHIC H OF THE INCOME OR LOSSES IS TO BE EXCLUDED OR INCLUDED OR C ONDITIONS OR ALLOWANCES OF DEDUCTIONS OR EXEMPTIONS, AND THE LIK E MATTERS, THE LAW AS IT EXISTS ON FIRST OF APRIL OF THE RELEVANT ASSESSMENT YEAR SHALL BE APPLICABLE FOR THE ASSESSMENT. IN THE INSTANT CA SE ALSO , THE ISSUE WAS WHETHER TO EXCLUDE THE SHORT TERM CAPITAL LOSS ON THE TRANSACTIONS WHICH HAS TAKEN PLACE DURING THE RELEV ANT PREVIOUS YEAR IN THE COMPUTATION OF INCOME OR NOT. THUS, TH E LAW AS EXISTS ON FIRST DAY OF APRIL OF THE ASSESSMENT YEAR 2005-0 6 SHALL GOVERN THE ASSESSMENT OF THE RELEVANT ASSESSMENT YEAR. 4.4.3. IT MAY ALSO BE NOTED THAT THE CASE OF VINOD KRISHNA KAUL, IPS VS. UNION OF INDIA (SUPRA) RELIED UPON BY THE A PPELLANT RELATES TO THE ADMINISTRATIVE LAW AND NOT RELATED TO THE FI SCAL LAW AND, THUS, THE RATIO OF THIS DECISION IS NOT APPLICABLE FOR IN COME-TAX PURPOSES. IT IS A WELL SETTLED PRINCIPLE IN ADMINISTRATIVE LA W THAT NO AMENDMENT CAN BE MADE WITH RETROSPECTIVE EFFECT, WHEREAS IN T HE INCOME-TAX ACT THE AMENDMENT CAN BE MADE BY THE LEGISLATURE WI TH RETROSPECTIVE EFFECT ALSO. IN THIS REGARD, THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. VARAS INTERNATIONAL P. LTD. (2008) 283 ITR 484 (S.C.) HELD AS UNDER:- HELD, THAT IT HAS BEEN CONSISTENTLY HELD BY THE SU PREME COURT THAT FOR AN AMENDMENT OF A STATUTE TO BE CONSTRUED AS BE ING RETROSPECTIVE, THE AMENDED PROVISION ITSELF SHOULD INDICATE EITHER IN TERMS OR BY NECESSARY IMPLICATION THAT IT IS TO OPERATE ITA N O.2003 /DEL./2009 9 RETROSPECTIVELY AND THAT THERE WAS NO CONFLICT OF D ECISIONS WHICH REQUIRED RESOLUTION. IN THE AMENDMENT OF CLAUSE (B) OF SECTION 94(7), IT HAS BEEN STATED IN CLEAR TERMS THAT IT WOULD BE EFFECTIVE FROM 01.0 4.2005. THUS, THE CASES RELIED UPON BY THE APPELLANT ARE NOT APPLICAB LE TO THE FACTS OF THE INSTANT CASE. 4.4.4. THEREFORE, KEEPING IN VIEW THE FACTS AND CIR CUMSTANCES OF THE CASE, L AM OF THE CONSIDERED OPINION THAT AMENDED P ROVISIONS OF CLAUSE (B) OF SECTION 94(7) ARE APPLICABLE TO THE T RANSACTIONS UNDERTAKEN BY THE APPELLANT' DURING THE PREVIOUS YE AR (F.Y. 2004- 05) RELEVANT TO A.Y. 2005-06. HENCE, THE GROUNDS N O. 2 & 3 ARE REJECTED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUTSET, THE LD. AR ON BEHALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO DECISION DATED 26 TH JULY, 2011 OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE WRIT PETITION(C) N O.14135 OF 2009 FILED BY THE ASSESSEE CONTENDED THAT SINCE THE ASSESSEE HAS CHA LLENGED THE CONSTITUTIONAL VALIDITY OF AMENDMENT TO SECTION 94(7) OF THE ACT B Y FINANCE (NO.2) ACT, 2004 IN SO FAR AS THE SAME APPLIES TO TRANSACTIONS CONCLUDE D PRIOR TO THE DATE OF INTRODUCTION OF THE FINANCE (NO.2) BILL 2004 IN THE PARLIAMENT, THIS APPEAL MAY NOT BE KEPT PENDING AND THE MATTER MAY BE RESTORED TO THE FILE OF THE AO FOR RE- ADJUDICATION IN THE LIGHT OF OUTCOME OF THEIR WRIT PETITION. THE LD.DR DID NOT OPPOSE THESE SUBMISSIONS OF THE LD. AR. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE TRANSACTIONS ENTERED INTO BY THE ASSESSEE WERE CONCLUDED BEFORE THE INTRODUCTION OF AFORESAID AMEN DMENT TO PROVISIONS OF CLAUSE (B) SEC. 94(7) OF THE ACT THROUGH THE FINANC E (NO.2) BILL 2004 IN THE PARLIAMENT WHILE THE CONSTITUTIONAL VALIDITY OF THE SAID AMENDMENT IS PENDING BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. IN T HESE CIRCUMSTANCES, WE FIND SUFFICIENT MERIT IN THE UNCONTESTED CONTENTIONS OF THE LD. AR AND ACCORDINGLY, CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE O RDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE THE AO FO R DECIDING THE ITA N O.2003 /DEL./2009 10 AFORESAID ISSUE, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF FINAL OUTCOME OF THE AFORESAID WRIT PETITION FILED BY THE ASSESSEE. WITH THESE DIRECTIONS, GROUND NOS.1 AND 1.1 IN THE APPEAL ARE DISPOSED OF. 6.. GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWA NCE U/S 14A OF THE ACT. THE AO NOTICED THAT THE ASSESSEE CLAIMED EXEM PTION IN RESPECT OF DIVIDEND INCOME OF ` 276,75,30,877/-.TO A QUERY BY THE AO, SEEKING DETAI LS OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPTED INCOME, THE AS SESSEE REPLIED THAT INVESTMENT WAS MADE IN THE SHARES OF VARIOUS COMPANIES IN ORDE R TO RETAIN THE CONTROLLING INTEREST OF HCL GROUP OF COMPANIES AND THAT IT WAS DIFFICULT TO SEGREGATE THE EXPENSES . HOWEVER, THE AO DID NOT ACCEPT THE SUBM ISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF ` 25,26,726/- ON ACCOUNT OF PORTFOLIO MANAGEMENT FEE BESIDES AN ESTIMATED AMOUNT OF ` `5 LACS OUT OF ADMINISTRATIVE EXPENSES, IN TERMS OF PROVISIONS OF SEC. 14A OF THE ACT, THE ASS ESSEE HAVING NOT FURNISHED THE RELEVANT DETAILS OF SUCH EXPENSES. 7. ON APPEAL, THE LD. CIT(A), FOLLOWING THE VIEW T AKEN IN THE DECISION OF ITAT SPECIAL BENCH, MUMBAI IN THE CASE OF ITO VS . DAGA CAPITAL INVESTMENT (P) LTD. IN ITA NO. 8057/MUM./2003 DIRECTED THE AO TO RECOMPUTE THE DISALLOWANCE U/S 14A(2) & (3) OF THE ACT. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). AT THE OUT SET, BOTH THE PARTIES AG REED THAT THE ISSUE IS REQUIRED TO BE RE-ADJUDICATED IN TERMS OF DECISION DATED 18.11. 2011 OF THE HONBLE JURISDICTIONAL HIGH COURT IN MAXOPP INVESTMENT LTD . VS. CIT,[2011] 15 TAXMANN.COM 390 (DELHI). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE AFORESAID DECISION. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPR A) WHILE ADJUDICATING A SIMILAR ISSUE IN THE CONTEXT OF PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF THE IT RULES,1962 CONCLUDED THAT RULE 8 D, INSERTED ITA N O.2003 /DEL./2009 11 W.E.F 24.3.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECAUSE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITU RE RELATABLE TO TAX-FREE INCOME. IT APPLIES ONLY W.E.F AY 2008-09. FOR THE ASSESSMENT YEARS WHERE RULE 8D DOES NOT APPLY, THE AO WILL HAVE TO DETERMINE THE QUANTUM OF DISALLOWABLE EXPENDITUR E BY A REASONABLE METHOD HAVING REGARD TO ALL THE FACTS AN D CIRCUMSTANCES, THE HONBLE HIGH COURT CONCLUDED. 9.1 WE FIND THAT HONBLE SUPREME COURT IN THEIR DECISION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BRO KERS (P.) LTD.,326 ITR 1, INTER ALIA, OBSERVED THAT FOR ATTRA CTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DIS ALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. HON BLE APEX COURT OBSERVED IN THE CONTEXT OF PROVISIONS SEC.14A OF T HE ACT IN THE FOLLOWING TERMS: 17. THE INSERTION OF SECTION 14A WITH RETROSPECTIV E EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSES SEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOM E UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO. 14 OF 2001, DATED 22- 11-2001). IN OTHER WORDS, SECTION 14A CLARIFIES THA T EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESSEE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABS ENCE OF SECTION 14A, THE EXPENDITURE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAINST TAXABLE INCOME. THE MANDATE O F SECTION 14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAI NST TAXABLE INCOME AND AT THE SAME TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPOR TIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INSERTION OF SECTION 14A IS THAT CERTAIN INCOME S ARE NOT INCLUDIBLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UN DER CERTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOME S WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAIN IN COMES WAS BEING ITA N O.2003 /DEL./2009 12 USED TO REDUCE THE TAX PAYABLE ON THE NON-EXEMPT IN COME BY DEBITING THE EXPENSES, INCURRED TO EARN THE EXEMPT INCOME, AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXATION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPENDITURE. O N THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NET INC OME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABL E INCOME. THIS IS THE PURPORT OF SECTION 14A. IN SECTION 14A, THE FIR ST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS C HAPTER' WHICH MAKES IT CLEAR THAT VARIOUS HEADS OF INCOME AS PRES CRIBED UNDER CHAPTER IV WOULD FALL WITHIN SECTION 14A. THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILITY OF SECTION 14A. FURTHER, SECTION 14 S PECIFIES FIVE HEADS OF INCOME WHICH ARE CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN INCOME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEAD S. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR T HE PURPOSE OF CHARGEABILITY TO TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY THE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTIONS ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOW ED ONLY WITH, REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF T HE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE DIVIDEN D INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/DEDUCTION THOUGH OF THE NATURE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED T O THE INCOME NOT FORMING PART OF TOTAL INCOME COULD NOT BE ALLOWED A GAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPO SE OF CHARGEABILITY TO TAX. THE THEORY OF APPORTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECT IONS 15 TO 59, IT IS CLEAR THAT THE WORDS 'EXPENDITURE INCURRED' IN SECT ION 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC . IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37) 9.2 HONBLE PUNJAB & HARYANA HIGH COURT IN THE IR DECISION IN CIT VS. HERO CYCLES LTD.,323 ITR 518 HAVE OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A C ANNOT STAND. ITA N O.2003 /DEL./2009 13 9.3 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS, HONBLE JURISDICTIONAL HIGH COURT IN A RECENT DECISION DATED 18.11.2011 IN MAXOPP INVESTMENT LTD. VS. CIT,[2011] 15 TAXMANN.COM 390 (DELHI) HELD AS UNDE R: 40. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT, IN EF FECT, THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTION 14A WOULD BE WORKAB LE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8D. THIS IS SO BECAUSE PRIOR TO THAT DATE, THERE WAS NO PRESCRIBED METHOD AND SUB-SECTIONS (2) AND (3) O F SECTION 14A REMAINED UNWORKABLE. HOW IS SECTION 14A TO BE WORKED FOR THE PERIOD PRIO R TO THE INTRODUCTION OF RULE 8D? 41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEEN, S TIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETER MINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSING OFFICER IS NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. THIS PART OF SECTION 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A COND ITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS IN ITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) & (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF S UB-SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SECTIONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, NOT R ETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATISFY H IMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPEN DITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SAT ISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPE NDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMIN E THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPT ABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL TH E WORDS OF THE SUPREME COURT IN WALFORT SHARE & STOCK BROKERS (P.) LTD. (SUPRA) TO THE FOLLOWING EFFECT:- 'THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON- TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S ECTION 14 A.' SO, EVEN FOR THE PRE-RULE8D PERIOD, WHENEVER THE IS SUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF ITA N O.2003 /DEL./2009 14 THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDI TURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, TH E ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTENESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE E XPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACC EPT THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTIO N 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UP ON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 1 4A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STA TE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 10.. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE LD. CIT(A) DID NOT HAVE THE BENEFIT OF AFORESAID DECISION OF THE HONBLE JURISD ICTIONAL HIGH COURT, WE CONSIDER IT FAIR AND APPROPRIATE TO MODIFY THE DIRE CTIONS OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE OF DISALLOWANCE U/S 14A RAISED IN THE GROUN D NO. 2 IN THE APPEAL, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF AFORESAID JUDICIAL PRONOUNCEMENTS, INCLUDING THAT OF THE HON BLE JURISDICTIONAL HIGH COURT AND OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. WITH THESE OBSERVATIONS, GROUND NO. 2 IN THE APPEAL OF THE ASSESSEE IS DISPOSED OF. 11.. GROUND NO.3 RELATES TO LEVY OF INTEREST U/S 2 34B AND 234D OF THE ACT. THE LD. AR ON BEHALF OF THE ASSESSEE DID NOT MAKE ANY SUBMISSIONS ON THIS GROUND. THE LEVY OF INTEREST U/S 234B & 234D OF THE ACT BEING MANDATORY [COMMISSIONER OF INCOME TAX. VS ANJUM M. H. GHASWAL A AND OTHERS,252 ITR 1(SC), AFFIRMED BY HON'BLE APEX COURT IN THE CASE O F CIT V. HINDUSTAN BULK CARRIERS [2003] 259 ITR 449 (SC) AND IN THE CASE OF CIT V. SANT RAM MANGAT RAM JEWELLERS [2003] 264 ITR 564 (SC) ], THIS GROUND IS DISMISSED. HOWEVER, THE ITA N O.2003 /DEL./2009 15 AO SHALL ALLOW CONSEQUENTIAL RELIEF ,IF ANY, WHILE GIVING EFFECT TO OUR AFORESAID DIRECTIONS. WITH THESE DIRECTIONS ,GROUND NO.3 IS D ISPOSED OF. 12. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFOR E US IN TERM OF RESIDUARY GROUND IN THE APPEAL , ACCORDINGLY, THIS GROUND I S DISMISSED. 13.. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 14. IN THE RESULT, APPEAL IS PARTLY ALLOWED BU T FOR STATISTICAL PURPOSES. SD/- SD/- (R.P. TOLANI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. M/S HCL CORPORATION LTD., 44, FRIENDS COLONY (EA ST), NEW DELHI. 2. ACIT, CENTRAL CIRCLE-2, NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-III,NEW DELHI 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT