Kalyani Steels Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 2012/PUN/2013

• Counselvise Citation: 201224514 RSA 2013
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 2012/PN/2013 ASSESSMENT YEAR : 20 10 - 11 KALYANI STEELS LTD., CORPORATE BUILDING, 2 ND FLOOR, MUNDHWA, PUNE VS. JOINT COMMISSIONER OF INCOME TAX, RANGE 11, PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACK7315D APPELLANT BY: SHRI NIKHIL PATHAK RESPONDENT BY: SHRI B.C. MALAKAR DATE OF HEARING : 14-10-2014 DATE OF PRONOUNCEMENT : 21-10-2014 ORDER PER R.S. PADVEKAR, JM:- THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNE D ORDER OF THE LD. CIT(A)-I, PUNE DATED 20-09-2013 FOR THE A.Y. 2010-11. THE ASSESSEE HAS TAKEN FOLLOWING GROUNDS IN THE APPEAL: 1.1. ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANCE OF AN ADDITIONAL AMOUNT OF RS.78,84,361/- (OVER AND ABOVE OF RS.5,00,000/- DISALLOWED BY THE APPELLANT COMPANY IN ITS STATEMENT OF TOTAL IN COME) AS EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME U/S. 14A BY APPLYING R ULE 8D WHILE ASSESSING TOTAL INCOME AS PER REGULAR PROVISIO NS OF THE INCOME TAX ACT, 1961 AND BOOK PROFIT U/S. 115 JB OF T HE INCOME TAX ACT, 1961. 1.2. ON THE FACTS OF THE CASE AND IN LAW, THE LEARNED CI T(A) FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER HAD N OT RECORDED ANY SATISFACTION IN THE ASSESSMENT ORDER A BOUT THE CORRECTNESS OR OTHERWISE OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF 2 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEA R AND HENCE, THERE WAS NO REASON TO APPLY THE PROVISIONS O F RULE 8D FOR MAKING THE DISALLOWANCE U/S. 14A AND ACCORDINGLY, THE ENTIRE ADDITION MADE OF RS.78,84,361/- MAY KINDLY BE DELETED 2. THE FACTS WHICH ARE REVEALED FROM THE RECORD AS UNDE R. THE ASSESSEE IS ENGAGED MAINLY IN THE MANUFACTURING AND SALE OF STEEL AND STEEL BASED PRODUCTS, FORGINGS AND AUTOMOTIVE COMPONENT S ETC. IT IS NOTED BY THE ASSESSING OFFICER THAT DURING THE YEAR PURS UANT TO A COMPOSITE SCHEME OF ARRANGEMENT ('SCHEME') BETWEEN THE ASSESSEE COMPANY AND CHAKRAPANI INVESTMENTS & TRADES LTD., SURA JMUKHI INVESTMENT & FINANCE LTD., GLADIOLLA INVESTMENTS LIMITED., AND KALYANI INVESTMENT COMPANY LIMITED, AS APPROVED BY THE SHAREHO LDERS AND SANCTIONED BY THE HON'BLE HIGH COURT OF JUDICATURE AT B OMBAY, VIDE ITS ORDER DATED 1 ST MARCH, 2010 U/S. 100, 391 AND 394 OF THE COMPANIES ACT, 1956, ALL THE ASSETS, LIABILITIES, RIGHT AND OBLIGATIONS OF TH E 'INVESTMENT DIVISION' OF THE COMPANY SPECIFIED THEREIN, EXC LUDING THE INVESTMENTS IN HOSPET STEELS LTD., BHARAT NRE COKE LIMITE D, KALYANI MUKUND LTD., AND LORD GANESHA MINERALS PVT. LTD. AND THE DEFERRED PAYMENT LIABILITY TOWARDS PURCHASE OF SHARES, WERE DEMERGE D / TRANSFERRED TO AND VESTED IN KALYANI INVESTMENT COMPAN Y LTD. THE APPOINTED DATE OF THE SCHEME IS STATED TO BE 1 ST OCTOBER, 2009 AND EFFECTIVE DATE OF THE SCHEME IS 31 ST MARCH, 2010. THE ASSESSEE COMPANY FILED ITS E-RETURN OF INCOME ON 29-09-2010 FOR THIS YEAR D ECLARING TOTAL INCOME OF RS.23,13,78,486/- AS PER REGULAR PROVISIONS OF THE INCOME-TAX ACT, 1961 AND BOOK PROFIT OF RS.49,58,20,714/- U/S. 115JB OF INCOME- TAX ACT, 1961. THE ASSESSING OFFICER VIDE HIS ORDER U/S. 143 (3) DATED 13- 02-2013 MADE VARIOUS ADDITIONS / DISALLOWANCES AND ASSES SED INCOME AS PER REGULAR PROVISIONS OF THE INCOME-TAX ACT, 1961 AT RS.24,97,54,660/- AND BOOK PROFIT U/S. 115JB AT RS.50,40,84,575/-. 3 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE 3. IT IS FURTHER NOTICED BY THE ASSESSING OFFICER THAT T HE ASSESSEE HAS DECLARED DIVIDEND OF RS.57,14,868/- AND LONG TERM PROFIT ON THE SALE OF INVESTMENTS OF RS.13,50,57,705/- WHICH HAVE BEEN CLAIMED AS EXEMPT FROM TAX UNDER SECTION 10(34), 10(35) AND 10(38) OF THE INCOM E-TAX ACT, 1961 RESPECTIVELY. THE ASSESSEE COMPANY ON ITS OWN HAS DISALLOWED EXPENDITURE OF RS.5,00,000/- IN RELATION TO THE SAID EXEMPTE D INCOME IN THE STATEMENT OF TOTAL INCOME. HOWEVER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, THE ASSESSING OFFICER WAS NOT SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE INCOME- TAX ACT. THE ASSESSEE THEREAFTER WAS CALLED UPON TO FURN ISH THE COMPUTATION OF EXPENDITURE U/S. 14A AS PER RULE 8D OF THE I.T. RULES, WHICH WAS SUBMITTED BY THE ASSESSEE AS FOLLOWS:- PARTICULARS AMOUNT (RS.) AMOUNT (RS) 1 AVERAGE INVESTMENT INVESTMENT AS PER AUDITED ACCOUNTS LESS INVESTMENTS HAVING TAXABLE INCOME I.E. DEBENTURES IN CHAKRAPANI INVESTMENTS & TRADES LTD SURAJMUKHI INVESTMENTS & FINANCE LTD GLADIOLLA INVESTMENTS LTD 3,365,355,189 327,649,000 315,767,900 260,693,900 O PENING INVESTMENT OF EXEMPT INCOME 2,461,244,389 CLOSING INVESTMENT AS PER AUDITED ACCOUNTS 892,499,970 AVERAGE INVESTMENT 1,676, 872,180 2 0.5 % OF AVG. INVESTMENT 83,84,361 AS THE ASSESSEE HAS ALREADY DISALLOWED RS.5,00,000/- U/S. 14A OF THE INCOME-TAX ACT, 1961 SUO MOTO IN ITS STATEMENT OF TOTAL INCOME, THE ASSESSING OFFICER DISALLOWED REMAINING EXPENDITURE OF RS.78,84,3 61 (I.E. RS.83,84,361/- LESS RS.5,00,000/-) U/S. 14A R.W. RULE 8D OF THE INCOME- TAX ACT, 1961. 4 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE 4. IN SUM AND SUBSTANCE BY INVOKING THE PROVISIONS OF SEC . 14A R.W.S. 8D, THE ASSESSING OFFICER MADE THE NET DISALLOWANCE OU T OF THE EXPENDITURE CLAIMED BY THE ASSESSEE AT RS.78,84,361/-. I T IS ALREADY MENTIONED HERE-IN-ABOVE THAT THE ASSESSEE SUO MOTO HAS MADE THE DISALLOWANCE IN THE COMPUTATION ITSELF TO THE EXTENT OF RS.5 ,00,000/-. THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL SUBMITS TH AT THE IDENTICAL ISSUE HAS COME FOR THE CONSIDERATION BEFORE THE T RIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008-09 AS THE ASSESS ING OFFICER HAS MADE THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SEC. 14A . HE SUBMITS THAT IN THE SAID YEAR ALSO THE ASSESSEE HAS SUO MOTO MADE THE DISALLOWANCE TO THE EXTENT OF RS.5,00,000/- BUT THE ASSES SING OFFICER MADE THE DISALLOWANCE TO THE EXTENT OF RS.1,05,46,918/-. TH E LD. COUNSEL REFERRED TO THE COPY OF THE TRIBUNALS ORDER IN T HE ASSESSEES OWN CASE FOR THE A.Y. 2008-09 IN ITA NO. 1733/PN/2012 ORDER DATED 31-01- 2014. HE ALSO SUBMITS THAT IN THIS YEAR THE INVESTMENTS ARE LESSER AND MAJOR INVESTMENTS TO THE EXTENT OF RS.6 CRORES ARE MAD E IN THE MUTUAL FUNDS. HE PLEADED FOR DELETING THE ADDITION MADE BY THE AS SESSING OFFICER. 6. WE HAVE ALSO HEARD THE LD. DR. HE SUBMITS THAT THE A SSESSEE DID NOT MAKE THE PROPER COMPUTATION UNDER RULE 8D AND THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS AS PER THE PROVISIONS O F LAW. HE ARGUES THAT THE ASSESSING OFFICER ISSUED THE NOTICES TO T HE ASSESSEE ON THE DISALLOWANCE TO BE MADE U/S. 14A AND THAT GOING TO S UGGEST THAT THE ASSESSING OFFICER HAS RECORDED THE SATISFACTION. THE LD. DR PLEADS FOR CONFIRMING THE ORDER OF THE CIT(A). 5 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE 7. WE FIND THAT IN THIS YEAR THE ASSESSEE HAS MADE THE INVESTMENT IN THE MUTUAL FUNDS TO THE EXTENT OF RS.6 CRORES. WE ALSO FIND THAT AS COMPARE TO THE PRECEDING YEAR, THE ASSESSEE HAS PARTL Y LIQUATED THE INVESTMENTS FROM WHICH EXEMPT INCOME IS GENERATED. MOREO VER, IN OUR OPINION THERE IS NO SPECIFIC OBJECTIVE SATISFACTION RECORDED BY THE ASSESSING OFFICER WHICH IS ONE OF THE MANDATES OF SEC. 14A (2 ). THE IDENTICAL SITUATION HAS BEEN CONSIDERED BY THE TRIBUNAL IN T HE ASSESSEES OWN CASE IN THE A.Y. 2008-09 IN ITA NO. 1733/PN/2012 OR DER DATED 30- 01-2014. THE OPERATIVE PART OF THE REASONS AND FINDINGS OF THE TRIBUNAL ARE AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. SECTION 14A OF THE ACT CONTEMPLATES THAT FOR THE PURPOSES O F COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SUB-SECTION (2) OF SECTION 14A OF THE ACT PRESCRIBES THAT THE ASSESSING OFFICER SH ALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, SUCH PRESCRIBED METHOD BEING CONTAINED IN RULE 8D OF THE RULES. HOWEVER, THE AFORES AID EMPOWERMENT OF THE ASSESSING OFFICER TO INVOKE APPL ICATION OF RULE 8D OF THE RULES IS SUPERSCRIBED BY A CONDITION CONTA INED IN SUB- SECTION (2) OF SECTION 14A OF THE ACT WHICH IS TO THE EFFECT THAT THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF TH E ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THEREFORE, THE INV OKING 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 BEC AUSE ASSESSEE HAS EARNED AN EXEMPT INCOME. THE INVOKING OF RULE 8D OF THE RULES IS PERMISSIBLE ONLY WHEN THE ASSESSING OFFICER RECOR DS THE SATISFACTION IN REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE. IN OTHER WORDS, SECTION 14A(2) OF THE ACT ENVISAGED A CONDITION PRECEDENT FOR INVOKING RULE 8D OF THE RULES AND COMPUTING DISALLOWANC E THEREOF ONLY IF THE ASSESSING OFFICER RECORDS THAT HE IS NOT SATISFIED WITH THE 6 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE, HAVING REGARD TO THE ACCOUNT OF THE ASS ESSEE. IN THIS CONTEXT, IT WOULD BE APPROPRIATE TO REFER TO THE FOLLOWING OB SERVATIONS OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODRE J & 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 PRESCRIBES A UNIFORM METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME ONLY IN A SITUATION WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH TH E 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 PRESCRI BED METHOD IRRESPECTIVE OF THE NATURE OF THE CLAIM MADE BY THE ASSESSEE. THE ASSESSING OFFICER HAS TO FIRST CONSIDER THE CORRECTNESS OF THE CLAIM OF THE ASSESSE E 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 ACCOUN TS AND AFTER CONSIDERING ALL THE RELEVANT FACTS AND CIRCUMSTANCES. THE APPLICATION OF THE PRESCRIBED METHOD ARISES IN A SITUATION WHERE THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE WHICH IS RELATABLE TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT IS FOUND TO BE INCORRECT. IN SUCH A SITUATION A METHOD HAD TO BE DEVISED FOR APPORTIONING THE EXPENDITURE INCURRED BY THE ASSESSEE BETWEEN WHAT IS INCURRED IN RELATION T O THE EARNING OF TAXABLE INCOME 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 DECEMBER 28, 2006, STATE THAT SINCE THE EXISTING PROVISIONS OF SEC TION 14A DID NOT PROVIDE A METHOD OF COMPUTING THE 7 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DI D NOT FORM PART OF THE TOTAL INCOME, THERE WAS A CONSIDER ABLE DISPUTE BETWEEN TAXPAYERS AND THE DEPARTMENT ON THE METHOD OF DETERMINING SUCH EXPENDITURE. IT WAS IN THI S BACKGROUND THAT SUB-SECTION (2) WAS INSERTED SO AS TO PROVIDE A UNIFORM METHOD APPLICABLE WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE. SUB-SECTION (3) CLARIFIES T HAT THE APPLICATION OF THE METHOD WOULD BE ATTRACTED EVE N TO 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 TO THE INVOCATION OF THE POWER TO DETERMINE THE EXPENDITUR E INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE I NCOME BY ADOPTION OF THE PRESCRIBED METHOD. THE INVOCATIO N OF THE POWER IS MADE CONDITIONAL ON THE OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REG ARD 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 THE EXERCISE OF THE POWER IS PREDICATED'. (M. A. RASHEED V. STATE OF KERALA [1974] AIR 1974 SC 2249*). A DECISI ON BY THE ASSESSING OFFICER HAS TO BE ARRIVED AT IN GO OD FAITH ON RELEVANT CONSIDERATIONS. THE ASSESSING OFFIC ER MUST FURNISH TO THE ASSESSEE A REASONABLE OPPORTUNITY TO SHOW CAUSE ON THE CORRECTNESS OF THE CLAIM MADE B Y HIM. IN THE EVENT THAT THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY T HE ASSESSEE, HE MUST RECORD REASONS FOR HIS CONCLUSION. THESE SAFEGUARDS WHICH ARE IMPLICIT IN THE REQUIREMENTS OF FAIRNESS AND FAIR PROCEDURE UNDER ARTICLE 14 MUST BE OBSERVED BY THE ASSESSING OFFICER WHEN HE ARRIVES A T HIS SATISFACTION UNDER SUB-SECTION (2) OF SECTION 14A . AS WE SHALL NOTE SHORTLY HEREAFTER, SUB-RULE (1) OF RULE 8D HAS ALSO INCORPORATED THE ESSENTIAL REQUIREMENTS OF SUB- 8 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE SECTION (2) OF SECTION 14A BEFORE THE ASSESSING OFF ICER PROCEEDS TO APPLY THE METHOD PRESCRIBED UNDER SUB- RULE (2). [UNDERLINED FOR EMPHASIS BY US] 9. THE AFORESAID OBSERVATIONS OF THE HONBLE HIGH COU RT CLEARLY SHOW THAT THE SATISFACTION OF THE ASSESSING OFFICER WITH R EGARD TO THE CORRECTNESS OR OTHERWISE OF THE CLAIM MADE BY THE ASS ESSEE MUST BE BASED ON REASONS AND ON RELEVANT CONSIDERATIONS. OSTE NSIBLY, THE INVOKING OF RULE 8D OF THE RULES IN ORDER TO COMPUTE T HE DISALLOWANCE U/S 14A OF THE ACT IS TO BE UNDERSTOOD A S BEING CONDITIONAL ON THE OBJECTIVE SATISFACTION OF THE ASS ESSING OFFICER WITH REGARD TO THE INCORRECTNESS OF THE CLAIM OF THE ASSE SSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. AT THIS STAG E, WE MAY ALSO TOUCH-UPON A SIMILAR VIEW EXPRESSED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & ORS. VS . CIT, (2012) 247 CTR 162 (DEL), WHEREIN REFERENCE HAS BEEN MADE TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CAS E OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA). AS PER THE HONBLE DELHI HIGH COURT, THE REQUIREMENT OF THE ASSESSING OFFICER EMBA RKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN TERM OF RULE 8D OF THE RULES WOULD BE TRIGGERED ONLY IF THE ASSESSING OFFICER RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE AS SESSEE IN RESPECT OF SUCH EXPENDITURE. ACCORDING TO THE HONBLE DELHI HIGH COUR T, SUB- SECTION (2) OF SECTION 14A OF THE ACT DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO SUCH EXEMPT INCOME. EXPLAINING FURTHER, AS PER THE HONBLE HIGH COURT IN BO TH THE CASES THE RECOURSE TO RULE 8D OF THE RULES IS POSSIBLE ONLY IF THE ASSESSING OFFICER RECORDS A FINDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. 10. IN THE AFORESAID BACKGROUND, NOW, WE MAY EXAMINE THE FACTS OF THE PRESENT CASE. IN THIS CASE, ASSESSEE HAS EARN ED BY WAY OF DIVIDENDS A SUM OF RS.5,45,58,685/-, WHICH IS EXEMPT U/S 10(38) OF 9 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE THE ACT AND THUS THE SAME DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE COMPUTATION OF INCOME, ASSESSE E HAVING REGARD TO SECTION 14A OF THE ACT, DETERMINED THE AMO UNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME AT RS.5,00,000/-. THE ASSESSING OFFICER HAS NOT FOUND IT ACCEPTABLE AN D HAS INSTEAD DETERMINED THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME BY APPLYING RULE 8D OF THE RULES. OSTENSIBLY, THE ACTION OF THE ASSESSING OFFICER CANNOT BE UPHELD UNLESS HE HAS COMP LIED WITH THE PRE-REQUISITE OF INVOKING RULE 8D OF THE RULES, NAMELY, R ECORDING OF AN OBJECTIVE SATISFACTION WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT AN EXPENDITURE OF RS.5,00,000/- HAS BEEN INCURRED IN RELATION TO THE EXEMPT INCOME, IS INCORRECT. IN ORDER TO EXAM INE THE AFORESAID COMPLIANCE WITH THE PRE-CONDITION, WE HAVE PERUSED THE PARA 4 TO 4.2 OF THE ASSESSMENT ORDER AND FIND THAT NO REASONS HAVE BEEN ADVANCED AS TO WHY THE DISALLOWANCE DETERMINED BY THE ASSESSEE WAS FOUND TO BE INCORRECT, HAVING REGARD TO THE ACCO UNTS OF THE ASSESSEE. THE ONLY POINT MADE BY THE ASSESSING OFFIC ER IS TO THE EFFECT THAT THE SAID DISALLOWANCE WAS NOT ACCEPTABLE . IN-FACT, WE FIND THAT THE ASSESSEE MADE DETAILED SUBMISSIONS TO THE ASSESSING OFFICER, WHICH HAVE BEEN REPRODUCED BY THE CIT(A) IN PARA 3.2.1 OF HIS ORDER. AS PER THE ASSESSEE, THE DETERMINATION OF DISALLOWANCE U/S 14A OF THE ACT OF RS.5,00,000/- WAS BASED ON THE E MPLOYEE COSTS AND OTHER COSTS INVOLVED IN CARRYING OUT THIS ACTIVITY. FURTHER, ASSESSEE ALSO EXPLAINED THAT THE SHARES WHICH HAVE YI ELDED EXEMPT INCOME WERE ACQUIRED LONG BACK OUT OF OWN FUNDS AND N O BORROWINGS WERE UTILIZED. THE MUTUAL FUND INVESTMENT S WERE CLAIMED TO BE ALSO MADE OUT OF SURPLUS FUNDS. IT WAS S PECIFICALLY CLAIMED THAT NO FRESH INVESTMENTS HAVE BEEN MADE DUR ING THE YEAR UNDER CONSIDERATION IN SHARES YIELDING EXEMPT INCOME . ALL THE AFORESAID POINTS RAISED BY THE ASSESSEE HAVE NOT BE EN ADDRESSED BY THE ASSESSING OFFICER AND THE SAME HAVE BEEN BRU SHED ASIDE BY MAKING A BLAND STATEMENT THAT THE DISALLOWANCE IS N OT ACCEPTABLE. THEREFORE, IN OUR VIEW, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT RECORDED ANY OBJECTIVE SATISFACTION IN REGARD T O THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, WHICH IS MANDATORILY RE QUIRED IN TERMS OF SECTION 14A(2) OF THE ACT AND THEREFORE HIS ACTIO N OF INVOKING RULE 8D OF THE RULES TO COMPUTE THE IMPUGNED DISALLOWANCE IS UNTENABLE. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET-ASIDE ON THIS ASPECT AND THE ASSESSING OFFICER IS DIRECTED TO RET AIN THE 10 ITA NO. 2012/PN/2013, KALYANI STEELS LTD., PUNE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF RS.5,0 0,000/-, AS RETURNED BY THE ASSESSEE. 8. WE, THEREFORE, FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN THE A.Y. 2008-09 IN ITA NO. 1733/ PN/2012 ORDER DATED 30-01-2014 DIRECT THE ASSESSING OFFICER TO ACCEPT THE DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT TO THE EXTENT OF RS.5,0 0,000/- WHICH THE ASSESSEE HAS MADE IN HIS COMPUTATION IN INCOME AND A DDITION MADE BY THE AO IS DELETED. ACCORDINGLY, GROUNDS TAKEN BY THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 21-10-2014 SD/- SD/- (G.S. PANNU) (R.S. PADVEKAR) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED: 21 ST OCTOBER, 2014 RK/PS/SATISH COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I, PUNE 4 THE CIT - I, PUNE 5 6 THE DR, ITAT, A BENCH, PUNE. GUARD FILE. BY ORDER // TRUE COPY // ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE