M/S EDELWISS RURAL & CORPORATE SERVICES PRIVATE LIMITED, MUMBAI V. ACIT CENTRAL CIRCLE-1(2), MUMBAI

ITA 2471/MUM/2022

AI Insights

The case involves M/s Edelweiss Rural & Corporate Services Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) that upheld the disallowance made by the Assessing Officer on the grounds of an artificial loss incurred on the sale of Mentha Oil and the substitution of the selling price with the market price. The Tribunal examined whether the Assessing Officer had correctly applied the provisions of Section 14A read with Rule 8D in disallowing the loss claimed by the assessee. The Tribunal concluded that the Assessing Officer had not recorded specific dissatisfaction with the assessee's claim as required by law, leading to the decision to allow the appeal and set aside the disallowance.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123406 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 08-03-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 22-09-2022
• Other Referred Cases: Maxopp Investments Ltd. Vs CIT, Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, Vireet Investment Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Sale consideration of property below Jantri Value; Business income; Transfer pricing; Business expenditure; International transaction; Earning of tax free income; Rule 8D; Set aside
• Section: 145; 144; 143(3); 14A; 142(2A); 10(33); 10(33); 72; 13; 153; 145(3); 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI ABY T VARKEY (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA No. 2471/MUM/2022 Assessment Year: 2016-17 M/s Edelweiss Rural & Corporate Services Pvt. Ltd., Edelweiss House, Off CST Road, Kalina, Santacruz (East), Mumbai-400098. Vs. ACIT Central Circle-1(2), R. No. 906, 9 th floor, Old CGO Building Annexe, Maharshi Karve Road, Churchgate, Mumbai-400020. PAN No. AAKCS 7311 R Appellant Respondent Assessee by : Mr. Jitendra Jain, AR Revenue by : Mr. Sanjeev Kashyap, CIT-DR Date of Hearing : 09/03/2023 Date of pronouncement : ___/03/2023 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 26/07/2022 passed by the Ld. Commissioner of Income- tax(Appeals)-47, Mumbai [in short ‘the Ld. CIT(A)’] for assessment year 2016-17, raising following grounds: 1. (i) The CIT(A) erred in upholding the action of the AO in making disallowance of Rs. 4,34,79,702/- being loss incurred on sale of Mentha Oil to two parties namely Ms. Barabanki Trading Co. Limited and Sharp Mint Limited at a price lesser than the market price holding the same as artificially created loss. (ii) The CIT(A) erred in upholding the action of the AO in substituting the selling price of the commodities with the market price of the commodities. The Appellant submits that it has sold the commodities and incurred the loss in the hence, the loss disallowed by the AO shall be deleted as well as A0's action of substituting the selling price with market price shall be quashed. 2. (i) The Commissioner of Income Tax (Appeals) Mumbai [hereinaft the action of the Deputy Commissioner of Income Tax, Central Circle Income Tax Act, 1961 (Act) r.w. Rule Rules. 1962 (Rules) without recording his d with fault correctness of the claim of the Appellant having regard to its books of accounts. (ii) The CIT(A) erred in upholding the action of the A in considering all investment for the purposes of making disallowance as per rule 8D(2) of those investment on which Appellant has actually earned the exempt income and excluding the investment on which no exempt income is earned during subjected year. The Appellant craves leave to add, amend, modify, substitute the abo 2. Briefly stated facts of the case are that the assessee company was mainly engaged in the business of activity of trading in commodities for itself and its clients through physical mode as well as on commodity exchange. assessee filed its return of income electronically on 30/11/2016 declaring total income at subsequently revised to return of income filed by the assessee was selected for scrutiny and M/s Edelweiss Rural & Corporate Services Ltd. price lesser than the market price holding the same as lly created loss. (ii) The CIT(A) erred in upholding the action of the AO in substituting the selling price of the commodities with the market price of the commodities. The Appellant submits that it has sold the commodities and incurred the loss in the normal course of business activities; hence, the loss disallowed by the AO shall be deleted as well as A0's action of substituting the selling price with market price shall be quashed. 2. (i) The Commissioner of Income Tax (Appeals) Mumbai [hereinafter referred as CIT(A)] erred in upholding the action of the Deputy Commissioner of Income Tax, Central Circle -1(1) [AO] in making disallowance w/s 14A of Income Tax Act, 1961 (Act) r.w. Rule 8D of the Income Tax Rules. 1962 (Rules) without recording his dis-satisfaction with fault correctness of the claim of the Appellant having regard to its books of accounts. ) The CIT(A) erred in upholding the action of the A in considering all investment for the purposes of making disallowance as per rule 8D(2) of the Rules as against only those investment on which Appellant has actually earned the exempt income and excluding the investment on which no exempt income is earned during subjected year. The Appellant craves leave to add, amend, modify, substitute the above grounds of appeal. stated facts of the case are that the assessee company was mainly engaged in the business of activity of trading in commodities for itself and its clients through physical mode as well as on commodity exchange. For the year under consideration, the assessee filed its return of income electronically on 30/11/2016 declaring total income at ₹109,26,62,140/-, which was subsequently revised to ₹105,45,28,560/-on 21/03/2018. The return of income filed by the assessee was selected for scrutiny and M/s Edelweiss Rural & Corporate Services Ltd. 2 ITA No. 2471/M/2022 price lesser than the market price holding the same as (ii) The CIT(A) erred in upholding the action of the AO in substituting the selling price of the commodities with the The Appellant submits that it has sold the commodities and normal course of business activities; hence, the loss disallowed by the AO shall be deleted as well as A0's action of substituting the selling price with 2. (i) The Commissioner of Income Tax (Appeals) - 47, er referred as CIT(A)] erred in upholding the action of the Deputy Commissioner of Income Tax, 1(1) [AO] in making disallowance w/s 14A of D of the Income Tax satisfaction with fault correctness of the claim of the Appellant having ) The CIT(A) erred in upholding the action of the A in considering all investment for the purposes of making the Rules as against only those investment on which Appellant has actually earned the exempt income and excluding the investment on which no exempt income is earned during subjected year. The Appellant craves leave to add, amend, modify, stated facts of the case are that the assessee company was mainly engaged in the business of activity of trading in commodities for itself and its clients through physical mode as well under consideration, the assessee filed its return of income electronically on 30/11/2016 , which was on 21/03/2018. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income were issued and complied with. In the case of the assessee of international transact associated enterprises, a reference was made to the transfer pricing officer, however no adjustment was recommended to the value of the international transactions. In the case of the assessee accounts were audited by the special auditor in terms of section 142(2A) of the Act. On the certain observations by the special auditor in relation to trading in Mentha oil, the Assessing Officer made addition to the returned income along with other additions and completed the assessment on 12/02/2020 assessing the total income at ₹113,21,14, further appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee is in appeal before the ‘Tribunal’) raising the grounds 3. Before us the assessee also filed 25/11/22 stating that impugned assessment order is barred by limitation as provided under section 153 of the be quashed. However, Ld. counsel of the assessee submitted that assessee was not interested in pursuing that request filed, the additional ground raised by the assessee is accordingly dismissed as not pressed. M/s Edelweiss Rural & Corporate Services Ltd. nder the Income-tax Act, 1961 (in short were issued and complied with. In the case of the assessee of international transactions carried out by the assessee associated enterprises, a reference was made to the transfer pricing officer, however no adjustment was recommended to the value of the international transactions. In the case of the assessee accounts by the special auditor in terms of section 142(2A) of ct. On the certain observations by the special auditor in relation to trading in Mentha oil, the Assessing Officer made addition to the returned income along with other additions and assessment on 12/02/2020 assessing the total 113,21,14,176/-in terms of section 143(3) of the further appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee ppeal before the Income-tax Appellate Tribunal ( ) raising the grounds as reproduced above. Before us the assessee also filed an additional ground on 25/11/22 stating that impugned assessment order is barred by ed under section 153 of the Act,hence deserve to er, during hearing of the appeal of the assessee submitted that assessee was not erested in pursuing that additional ground. In view of the written request filed, the additional ground raised by the assessee is accordingly dismissed as not pressed. M/s Edelweiss Rural & Corporate Services Ltd. 3 ITA No. 2471/M/2022 in short ‘the Act’) were issued and complied with. In the case of the assessee, in view by the assessee with its associated enterprises, a reference was made to the transfer pricing officer, however no adjustment was recommended to the value of the international transactions. In the case of the assessee accounts by the special auditor in terms of section 142(2A) of ct. On the certain observations by the special auditor in relation to trading in Mentha oil, the Assessing Officer made addition to the returned income along with other additions and assessment on 12/02/2020 assessing the total in terms of section 143(3) of the Act. On further appeal, the Ld. CIT(A) dismissed the grounds raised by the assessee. Aggrieved with the finding of the Ld. CIT(A), the assessee tax Appellate Tribunal (in short the additional ground on 25/11/22 stating that impugned assessment order is barred by hence deserve to during hearing of the appeal before us, the of the assessee submitted that assessee was not . In view of the written request filed, the additional ground raised by the assessee is 3.1 Before us the Ld Counsel of the assessee filed containing pages 1 to 45. 4. The ground No.2 of the appeal relate on trading in Mentha oil. 5. The brief facts qua the issue in dispute are that the special auditor in his report observed that assessee incurred loss on trading in ‘Mentha oil explained that purchase and sale transactions were transacted at different dates and at the prevailing market rate as per Multi commodity exchange ( total sales turnover, was merely incidental. The learne Officer observed that substantial had been carried out by the assessee at the prevailing market rate, but few transactions were carried out below the prevailing market prices to regular sale parties. loss of Rs.4,34,79,702/ two parties namely m/s ‘ Mint Ltd’. Before the Ld. CIT(A) the assessee submitted that books of accounts of the assessee has not been rejected by the Assessing Officer and therefore he was not justified in tempering the book results except as provided under deeming provisions Act in case of transactions rejected the contention of the assessee and case law He followed his finding M/s Edelweiss Rural & Corporate Services Ltd. Before us the Ld Counsel of the assessee filed containing pages 1 to 45. The ground No.2 of the appeal relates to disallowance of loss on trading in Mentha oil. The brief facts qua the issue in dispute are that the special auditor in his report observed that assessee incurred loss on Mentha oil’ amounting to ₹1,39,01,126/ that purchase and sale transactions were transacted at different dates and at the prevailing market rate as per Multi exchange (MCX) and this loss which is 1.35% of the total sales turnover, was merely incidental. The learne served that substantial number of the transactions of sale had been carried out by the assessee at the prevailing market rate, but few transactions were carried out below the prevailing market prices to regular sale parties. The Assessing Officer rejected 702/-incurred in relation to transactions with m/s ‘Barabanki trading Co Ltd’ . Before the Ld. CIT(A) the assessee submitted that books of accounts of the assessee has not been rejected by the Assessing Officer and therefore he was not justified in tempering the book results except as provided under deeming provisions ct in case of transactions with related parties. The Ld. CIT(A) rejected the contention of the assessee and case law He followed his finding in preceding assessment year 2012 M/s Edelweiss Rural & Corporate Services Ltd. 4 ITA No. 2471/M/2022 Before us the Ld Counsel of the assessee filed a paper book allowance of loss The brief facts qua the issue in dispute are that the special auditor in his report observed that assessee incurred loss on 126/-. The assessee that purchase and sale transactions were transacted at different dates and at the prevailing market rate as per Multi MCX) and this loss which is 1.35% of the total sales turnover, was merely incidental. The learned Assessing of the transactions of sale had been carried out by the assessee at the prevailing market rate, but few transactions were carried out below the prevailing market cer rejected such a incurred in relation to transactions with and m/s ‘Sharp . Before the Ld. CIT(A) the assessee submitted that books of accounts of the assessee has not been rejected by the Assessing Officer and therefore he was not justified in tempering the book results except as provided under deeming provisions 40A(2) of the related parties. The Ld. CIT(A) rejected the contention of the assessee and case laws relied upon. preceding assessment year 2012-13 wherein the trading loss on transactions of the sale of the jew below the market price year 2012-13 observed that assessee carried out circular trading in gold business with the help of group members of the assessee with active involvement of INTL commodities DMCC and Kal International DMCC ( except the assessee, and thus the loss generated was artificial. Relying on his finding in assessment year 2012 rejected the loss on sale of the Mentha oil during t consideration observing as under: “6.3 In the instant year AY 2016 exists. The appellant has incurred losses by selling "Mentha Oil" to Barabanki Trading Co. and Sharp Mint Limited at a price much lower than the pr following table will demonstrate, as extracted from the reply to the Spl. Auditor: Month Average Price to Barabanki Trading Co. and Sharp Mint Limited April, 15 801.31/KG July, 15 948.22/KG Aug, 15 917.98/KG Sept, 15 916.74/KG Oct, 15 868.66/KG Nov, 15 890.25/KG Dec, 15 1029.60/KG Jan, 16 873.30/KG Feb, 16 895.59/KG 6. Before us the Ld. assessment year 2012 1040/Mum/2022 allowed the appeal of the assessee on the legal ground of the validity of the reassessment and therefore the issue of M/s Edelweiss Rural & Corporate Services Ltd. wherein the trading loss on transactions of the sale of the jew below the market price was rejected. The Ld. CIT(A) in assessment 13 observed that assessee carried out circular trading in gold business with the help of group members of the assessee with active involvement of INTL commodities DMCC and Kal International DMCC (buyer parties), where everyone benefited except the assessee, and thus the loss generated was artificial. Relying on his finding in assessment year 2012-13, the Ld. CIT(A) rejected the loss on sale of the Mentha oil during t consideration observing as under: 6.3 In the instant year AY 2016-17 too, identical situation exists. The appellant has incurred losses by selling "Mentha Oil" to Barabanki Trading Co. and Sharp Mint Limited at a price much lower than the prevailing Market price. The following table will demonstrate, as extracted from the reply to the Spl. Auditor: Average Price to Barabanki Trading Co. and Sharp Mint Limited Average proce shown as per the MCX 801.31/KG 1053.24/KG 948.22/KG 1082.92/KG 917.98/KG 1049.38/KG 916.74/KG 1045.76/KG 868.66/KG 1016.77/KG 890.25/KG 1046.35/KG 1029.60/KG 1039.68/KG 873.30/KG 1024.29/KG 895.59/KG 1049.97/KG Ld. counsel of the assessee submitted that in assessment year 2012-13, the Tribunal 1040/Mum/2022 allowed the appeal of the assessee on the legal ground of the validity of the reassessment and therefore the issue of M/s Edelweiss Rural & Corporate Services Ltd. 5 ITA No. 2471/M/2022 wherein the trading loss on transactions of the sale of the jewelry rejected. The Ld. CIT(A) in assessment 13 observed that assessee carried out circular trading in gold business with the help of group members of the assessee with active involvement of INTL commodities DMCC and Kaloti jewelry , where everyone benefited except the assessee, and thus the loss generated was artificial. 13, the Ld. CIT(A) rejected the loss on sale of the Mentha oil during the year under 17 too, identical situation exists. The appellant has incurred losses by selling "Mentha Oil" to Barabanki Trading Co. and Sharp Mint Limited at a evailing Market price. The following table will demonstrate, as extracted from the reply to Average proce shown as per the MCX 1053.24/KG 1082.92/KG 1049.38/KG 1045.76/KG 1016.77/KG 1046.35/KG 1039.68/KG 1024.29/KG 1049.97/KG of the assessee submitted that in Tribunal in ITA No. 1040/Mum/2022 allowed the appeal of the assessee on the legal ground of the validity of the reassessment and therefore the issue of loss on sale of the jewelry below adjudicated being rendered as academic only. The learne however before a submitted that the transactions of the sale and purchase were made in the course of normal business activity of the assessee and the buyer parties ar under section 40A(2) occasion for the lower course of normal business transactions unless books of accounts of the assessee are rejected transactions are carried out below the market price by the assessee keeping in view of the other business consideration. It was submitted that M/s Barabanki trading Co substantial purchases with the assess prominent customers submitted that Assessing Officer cannot substitute the transacted price with the market price with related parties or the Assessing evidence any under hand transfer of the cash in the transaction. The learned counsel of the assessee relied on the decision of the Tribunal in the case of 202/Bang/2018 for that the Assessing Officer cannot disregard the profit o disclosed in the profit and loss account, unless he invokes the provision of section 145(3) of the transaction price with the market price ignoring the real price faced M/s Edelweiss Rural & Corporate Services Ltd. loss on sale of the jewelry below the market price was not adjudicated being rendered as academic only. The learne however before a submitted that the transactions of the sale and purchase were made in the course of normal business activity of the assessee and the buyer parties are not related parties as defined 40A(2) of the Act and therefore there was no ower authorities to disallow the loss claimed in the course of normal business transactions unless books of accounts of rejected. The learned consul submitted that transactions are carried out below the market price by the assessee keeping in view of the other business consideration. It was submitted that M/s Barabanki trading Co. Ltd substantial purchases with the assessee and was one of the customers, which the assessee never wanted to lose. He essing Officer cannot substitute the transacted price with the market price unless the transaction is carried out with related parties or the Assessing Officer could demonstrate with under hand transfer of the cash in the transaction. l of the assessee relied on the decision of the ribunal in the case of Flipkart India Private Limited in IT for assessment year 2015-16, wherein it is held that the Assessing Officer cannot disregard the profit o disclosed in the profit and loss account, unless he invokes the provision of section 145(3) of the Act and can’t with the market price ignoring the real price faced M/s Edelweiss Rural & Corporate Services Ltd. 6 ITA No. 2471/M/2022 the market price was not adjudicated being rendered as academic only. The learned consul however before a submitted that the transactions of the sale and purchase were made in the course of normal business activity of the e not related parties as defined and therefore there was no authorities to disallow the loss claimed in the course of normal business transactions unless books of accounts of consul submitted that transactions are carried out below the market price by the assessee keeping in view of the other business consideration. It was Ltd. had made ee and was one of the , which the assessee never wanted to lose. He essing Officer cannot substitute the transacted unless the transaction is carried out Officer could demonstrate with under hand transfer of the cash in the transaction. l of the assessee relied on the decision of the Flipkart India Private Limited in ITA No. wherein it is held that the Assessing Officer cannot disregard the profit or loss as disclosed in the profit and loss account, unless he invokes the can’t substitute the with the market price ignoring the real price faced as what can be tax is the only the income which accrue to the assessee as laid down in section 5 of the 7. The Ld. Departmental Representative on the order of the lower 8. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee transacted with two parties for sale of Mentha oil in normal course of the business and suffered loss of of the Assessing Officer is that those transactions have been carried out at the below the market price and therefore loss cannot be allowed to the assessee. On perusal of the order of the authorities it is evident that there the assessee except that transactions have been carried out below the market price. transactions were carried out below market price because was in dire need of finance and also wanted t the provisions of the that if transactions with market price, then Assessing Officer can substitute the market price of the products with the transacted price, however in case of unrelated party the Assessing Officer cannot of the Act and substitute the price’ unless books of accounts of the assessee section 145(3) of the M/s Edelweiss Rural & Corporate Services Ltd. as what can be tax is the only the income which accrue to the as laid down in section 5 of the A588ct. Departmental Representative on the other hand relied lower authorities. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee transacted with two parties for sale of Mentha oil in normal course of the business and suffered loss of ₹4,34,79,702/-. The contention of the Assessing Officer is that those transactions have been carried out at the below the market price and therefore loss cannot be allowed to the assessee. On perusal of the order of the authorities it is evident that there is no adverse evidence against the assessee except that transactions have been carried out below the market price. Before us the assessee contended that transactions were carried out below market price because was in dire need of finance and also wanted to retain the customer. ions of the Act in section 40A(2) , it has with related parties are carried out below the market price, then Assessing Officer can substitute the market price of the products with the transacted price, however in case of unrelated party the Assessing Officer cannot invoke section 40A(2) ubstitute the ‘transacted price’ with the unless books of accounts of the assessee are rejected invoking section 145(3) of the Act and profit or loss of the business is M/s Edelweiss Rural & Corporate Services Ltd. 7 ITA No. 2471/M/2022 as what can be tax is the only the income which accrue to the on the other hand relied We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The assessee transacted with two parties for sale of Mentha oil in normal course . The contention of the Assessing Officer is that those transactions have been carried out at the below the market price and therefore loss cannot be allowed to the assessee. On perusal of the order of the lower is no adverse evidence against the assessee except that transactions have been carried out below Before us the assessee contended that transactions were carried out below market price because was in o retain the customer. Under , it has been provided related parties are carried out below the market price, then Assessing Officer can substitute the market price of the products with the transacted price, however in case of invoke section 40A(2) with the ‘market rejected invoking ct and profit or loss of the business is estimated/recasted Assessing Officer has neither pointed out any defects in the books of accounts of the assessee and no and thus Assessing Officer is prohibited from rejecting such transactions although carried out below the market price. The assessee has to arrange his business affair keeping in view the best interest of the business including retaining of the customers and Assessing Officer cannot doubt the business transactions merely on ground that same is below the market record any malafide in transactions. Flipkart India Private Limited (supra) transaction price by observed as under: “52. As laid down by the Hon'ble Supre Calcutta Discount Company(supra), when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the market price of those goods, ignoring the real pr laid down by the Hon'ble Supreme Court in the case of A.Raman & Co. (supra), income which has accrued or arisen can only be subject matter of total income and not income which could have been earned but not earned. The decision of the Hon'ble Karnataka High Court in the case of A.Khader Basha (supra) is squarely applicable to the facts of the present case. The facts of the Assessee's case and the facts of the case decided by the Hon'ble Karnataka High Court were identical. The Hon'ble Karnat Hon'ble Supreme Court decision in the case of Calcutta Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the M/s Edelweiss Rural & Corporate Services Ltd. by the Assessing Officer. In this case, the Officer has neither pointed out any defects in the books of the assessee and nor rejected the books of accounts and thus Assessing Officer is prohibited from rejecting such transactions although carried out below the market price. The has to arrange his business affair keeping in view the best interest of the business including retaining of the customers and Assessing Officer cannot doubt the business transactions merely on ground that same is below the market price, without record any malafide in transactions. The Tribunal in the case of Flipkart India Private Limited (supra) on the issue of substituting by the market price by the Assessing Officer 52. As laid down by the Hon'ble Supreme Court in the case of Calcutta Discount Company(supra), when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the market price of those goods, ignoring the real price fetched. As laid down by the Hon'ble Supreme Court in the case of A.Raman & Co. (supra), income which has accrued or arisen can only be subject matter of total income and not income which could have been earned but not earned. The decision of le Karnataka High Court in the case of A.Khader Basha (supra) is squarely applicable to the facts of the present case. The facts of the Assessee's case and the facts of the case decided by the Hon'ble Karnataka High Court were identical. The Hon'ble Karnataka High Court held following Hon'ble Supreme Court decision in the case of Calcutta Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the M/s Edelweiss Rural & Corporate Services Ltd. 8 ITA No. 2471/M/2022 by the Assessing Officer. In this case, the Officer has neither pointed out any defects in the books rejected the books of accounts and thus Assessing Officer is prohibited from rejecting such transactions although carried out below the market price. The has to arrange his business affair keeping in view the best interest of the business including retaining of the customers and Assessing Officer cannot doubt the business transactions merely on without bringing on ribunal in the case of on the issue of substituting the market price by the Assessing Officer, me Court in the case of Calcutta Discount Company(supra), when one trader transfers his goods to another trader at a price less than the market price, the taxing authority cannot take into consideration the ice fetched. As laid down by the Hon'ble Supreme Court in the case of A.Raman & Co. (supra), income which has accrued or arisen can only be subject matter of total income and not income which could have been earned but not earned. The decision of le Karnataka High Court in the case of A.Khader Basha (supra) is squarely applicable to the facts of the present case. The facts of the Assessee's case and the facts of the case decided by the Hon'ble Karnataka High Court were aka High Court held following Hon'ble Supreme Court decision in the case of Calcutta Discount Co. Ltd., reported in 1973(91) ITR 8 (SC) that where a trader transfers his goods to another trader at a price less bonafide one, the taxing authority cannot take into account the market price of those goods, ignoring the real price fetched to ascertain the profit from the transaction. The Hon'ble Court explained that the only exception was if viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results Assessee and resorting to a process of estimating total income of the Assessee in the manner in which he did. We find force in the submission of the learned counsel for the Assessee that what can be taxe is only income that accrues or ITA Nos.202 & 693/B/18 beyond Sec.5 of the Act can be brought to tax. As contended by him there was nothing to show accrual of income so as to disregard the loss declared by the Assessee in the return of income filed. As the Act by which the AO can ignore the sale price declared by an Assessee and proceed to enhance the sale price without material before him to show that the Assessee has in fact realized higher sale price. As c counsel for the Assessee, wherever the legislature wanted to tax income not earned, it had made specific provisions in the Act by way of deeming fiction like provisions of Sec.43CA(1, Sec.45(4) and Sec.50C(1) of the Act. 53. In view necessity to deal further with the manner in which the AO has proceeded to compute total income of the Assessee and we can conclude by holding that the loss returned by the Assessee has to be accepted and the of total income as done by the AO is not in accordance with law. Nevertheless, we shall also address the issue as to whether the conclusions of the AO that the Assessee incurred expenses in creating intangibles/brand or goodwill and the question whether the conclusion of the AO that to the extent the Assessee has foregone his profit margin, he can be said to have incurred expenditure in creating intangibles/brand or goodwill. 8.1 We observed that sales by the assessee to company’ and ‘Sharp Mint Ltd kgs which constitutes 48.31 percent of the tota Mentha oil, thus the contention of the assessee of carrying out M/s Edelweiss Rural & Corporate Services Ltd. profit from the transaction. The Hon'ble Court explained that the only exception was if Section 40(A)(2)(a) of the Act applies viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results Assessee and resorting to a process of estimating total income of the Assessee in the manner in which he did. We find force in the submission of the learned counsel for the Assessee that what can be taxe is only income that accrues or ITA Nos.202 693/B/18 arises as laid down in Sec.5 of the Act. Nothing beyond Sec.5 of the Act can be brought to tax. As contended by him there was nothing to show accrual of income so as to disregard the loss declared by the Assessee in the return of income filed. As we have already seen there is no provision in the Act by which the AO can ignore the sale price declared by an Assessee and proceed to enhance the sale price without material before him to show that the Assessee has in fact realized higher sale price. As contended by the learned counsel for the Assessee, wherever the legislature wanted to tax income not earned, it had made specific provisions in the Act by way of deeming fiction like provisions of Sec.43CA(1, Sec.45(4) and Sec.50C(1) of the Act. of the above conclusion, there may not be any necessity to deal further with the manner in which the AO has proceeded to compute total income of the Assessee and we can conclude by holding that the loss returned by the Assessee has to be accepted and the manner of determination of total income as done by the AO is not in accordance with law. Nevertheless, we shall also address the issue as to whether the conclusions of the AO that the Assessee incurred expenses in creating intangibles/brand or goodwill and the question whether the conclusion of the AO that to the extent the Assessee has foregone his profit margin, he can be said to have incurred expenditure in creating intangibles/brand or goodwill.” observed that sales by the assessee to ‘Barab Sharp Mint Ltd’ is of ₹49,47,21,623/ kgs which constitutes 48.31 percent of the total sales value of the , thus the contention of the assessee of carrying out M/s Edelweiss Rural & Corporate Services Ltd. 9 ITA No. 2471/M/2022 profit from the transaction. The Hon'ble Court explained that of the Act applies viz., where the parties to the transaction are related. Following the aforesaid decisions, we hold that the AO was not right in proceeding to ignore the books results of the Assessee and resorting to a process of estimating total income of the Assessee in the manner in which he did. We find force in the submission of the learned counsel for the Assessee that what can be taxe is only income that accrues or ITA Nos.202 arises as laid down in Sec.5 of the Act. Nothing beyond Sec.5 of the Act can be brought to tax. As contended by him there was nothing to show accrual of income so as to disregard the loss declared by the Assessee in the return of we have already seen there is no provision in the Act by which the AO can ignore the sale price declared by an Assessee and proceed to enhance the sale price without material before him to show that the Assessee has in fact ontended by the learned counsel for the Assessee, wherever the legislature wanted to tax income not earned, it had made specific provisions in the Act by way of deeming fiction like provisions of Sec.43CA(1, of the above conclusion, there may not be any necessity to deal further with the manner in which the AO has proceeded to compute total income of the Assessee and we can conclude by holding that the loss returned by the manner of determination of total income as done by the AO is not in accordance with law. Nevertheless, we shall also address the issue as to whether the conclusions of the AO that the Assessee incurred expenses in creating intangibles/brand or goodwill and also the question whether the conclusion of the AO that to the extent the Assessee has foregone his profit margin, he can be said to have incurred expenditure in creating Barabanki trading 623/- for 5,38,105 l sales value of the , thus the contention of the assessee of carrying out transactions in the below market price for re having some basis which cannot be ignored. Respectfully the ratio of the Tribunal Limited (supra), we hold that in case transactions, the Assessing Officer cannot s transaction price with the market price unless he invokes provisions of section 145 (3) of the finding of the Ld. CIT(A) on the issue in dispute disallowance of loss by the Assessing Officer the appeal of the assessee 8.2 The ground No. 1 of the appeal under section 14A real with Rule 8D short ‘the Rules’). It is the contention of the assessee that while making this disallowance dissatisfaction with the correctness of the claim of the assessee having regard to its books of accounts. It is also contended that following the decision of the special bench in the case of Vireet investment Private Limited 16/06/2017 for AY 2008 disallowance under rule 8D(2) only those investment should be considered on which assess income and investment on which no exempt income is earned during the subject year M/s Edelweiss Rural & Corporate Services Ltd. transactions in the below market price for retaining the customer is having some basis which cannot be ignored. Respectfully Tribunal in the case of Flipkart India Private we hold that in case of unrelated party , the Assessing Officer cannot s transaction price with the market price unless he invokes provisions of section 145 (3) of the Act and thus, we set aside the finding of the Ld. CIT(A) on the issue in dispute disallowance of loss by the Assessing Officer. The grou the appeal of the assessee is accordingly allowed. No. 1 of the appeal relates to the under section 14A real with Rule 8D of Income-tax ). It is the contention of the assessee that while allowance, the Assessing Officer has not recorded dissatisfaction with the correctness of the claim of the assessee having regard to its books of accounts. It is also contended that g the decision of the special bench in the case of Vireet investment Private Limited in ITA No. 502/Del/2012 16/06/2017 for AY 2008-09, for the purpose of making allowance under rule 8D(2) only those investment should be considered on which assessee has actually earned the exempted income and investment on which no exempt income is earned during the subject year, should be excluded. M/s Edelweiss Rural & Corporate Services Ltd. 10 ITA No. 2471/M/2022 taining the customer is having some basis which cannot be ignored. Respectfully, following Flipkart India Private of unrelated party , the Assessing Officer cannot substitute the transaction price with the market price unless he invokes we set aside the finding of the Ld. CIT(A) on the issue in dispute and delete . The ground No. 2 of relates to the disallowance tax Rules 1962 (in ). It is the contention of the assessee that while the Assessing Officer has not recorded dissatisfaction with the correctness of the claim of the assessee having regard to its books of accounts. It is also contended that g the decision of the special bench in the case of Vireet in ITA No. 502/Del/2012 dated or the purpose of making allowance under rule 8D(2) only those investment should be ee has actually earned the exempted income and investment on which no exempt income is earned 8.3 The brief facts year under consideration assessee received dividend ₹6,91,13,757/- on shares held in stock in trade and preferential shares held as non dividend reported by the assessee is as under: Sr. No. Name of the scrips 1. Edelweiss Securities Limited 2. Indiabulls Mutual Funds Total 8.4 The assessee made suo considering employee cost incurred for earning exempt income. The Ld. Assessing Officer rejected the contention and invoke of ‘Rules’ observing as under: “7.3 In response to the said notice, the assessee, vide reply dated 03.02.2020, has stat disallowance should be made us 14A of the IT Act. The submission of the assessee has been perused, however the same is not acceptable. The case records and the replies submitted by the assessee have been perused. It is a fact that the as tune of Rs. 6,92,95,7571 management of its investment. Further, investment decisions being complex in nature require market research, day to day analysis and planning. Furthermore, the assessee has not maintained separate accounts for its taxable and exempt income. Hence, the present case is a fit case to invoke Rule 8D of the I T Rules. 7.4 In view of the above, Rule 8D of the IT Rules is invoked and the disallowance us 14A of the IT Act is wor M/s Edelweiss Rural & Corporate Services Ltd. The brief facts qua the issue in dispute are that during the year under consideration assessee received dividend on shares held in stock in trade and preferential shares held as non-current investments. The s dividend reported by the assessee is as under: Name of the scrips Dividend Amount Balance on 31/03/2016 Edelweiss Securities 1,82,000 26,00,00,000 Indiabulls Mutual 6,91,13,757 - 6,92,95,757 26,00,00,000 assessee made suo-moto disallowance of considering employee cost incurred for earning exempt income. The Assessing Officer rejected the contention and invoke observing as under: 7.3 In response to the said notice, the assessee, vide reply dated 03.02.2020, has stated that no further disallowance should be made us 14A of the IT Act. The submission of the assessee has been perused, however the same is not acceptable. The case records and the replies submitted by the assessee have been perused. It is a fact that the assessee cannot earn Exempt income to the tune of Rs. 6,92,95,7571-without any systematic management of its investment. Further, investment decisions being complex in nature require market research, day to day analysis and planning. Furthermore, the has not maintained separate accounts for its taxable and exempt income. Hence, the present case is a fit case to invoke Rule 8D of the I T Rules. 7.4 In view of the above, Rule 8D of the IT Rules is invoked and the disallowance us 14A of the IT Act is wor M/s Edelweiss Rural & Corporate Services Ltd. 11 ITA No. 2471/M/2022 qua the issue in dispute are that during the year under consideration assessee received dividend income of on shares held in stock in trade and ₹1,82,000/-on current investments. The scrip wise Amount Balance on Balance on 31/03/2015 26,00,00,000 26,00,00,000 - 26,00,00,000 26,00,00,000 moto disallowance of ₹15,59,662/- considering employee cost incurred for earning exempt income. The Assessing Officer rejected the contention and invoked Rule 8D 7.3 In response to the said notice, the assessee, vide ed that no further disallowance should be made us 14A of the IT Act. The submission of the assessee has been perused, however the same is not acceptable. The case records and the replies submitted by the assessee have been perused. It is sessee cannot earn Exempt income to the without any systematic management of its investment. Further, investment decisions being complex in nature require market research, day to day analysis and planning. Furthermore, the has not maintained separate accounts for its taxable and exempt income. Hence, the present case is a 7.4 In view of the above, Rule 8D of the IT Rules is invoked and the disallowance us 14A of the IT Act is worked out following the ruling of the Apex court in the case of Maxopp Investments [(2018) 402 ITR 0640 (SC)]. Rule 8D (i) Rule 8D(ii) Rule 8D(iii) 0.5% of Rs.7133115170 Disallowance u/s 14A as per Rule 8D Less Disallowance already made Total disallowance u/s 14A 8.5 The Ld. CIT(A) upheld the disallowance observing as under: “7.3 I have carefully considered the facts of the case. As per provisions of Section14A of the Act, the expenditure incurred by a taxpayer in relation to income that excludes total income as per the provisions of the Act should not be considered as deductio of the taxpayer. It is relevant to mention over here that the AO in his assessment order has stated that, he is not satisfied with the assessee's claim that no expenditure has been incurred to earn exempted income, since expenditure would definitely have been incurred for making and maintaining such investments. With respect to the expenses incurred for earning exempt income, the assessee submitted that, assessee has earned exempt income in the form of dividend for wh incurred any expenditure and was therefore not required to calculate any disallowance of gh, expenses w/s. 14A rwr. 8D of the act. On perusal of Capital a/c of the assessee, the A noticed that, expenses incurred includes demat charges debited. Further, AO was also not satisfied with the contention of the assessee that, no expenditure was incurred to earn exempt income. It is a common knowledge that a person cannot make investment without due diligence and necessary analysis and the investment decisions are very complex in nature which require substantial market research, day market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriat Therefore, being not satisfied about claim of assessee, he worked out the disallowance at Rs. 3,56,65,576/ rule 8D read with sec 14A of the Act @ 1% of average M/s Edelweiss Rural & Corporate Services Ltd. following the ruling of the Apex court in the case of Maxopp Investments [(2018) 402 ITR 0640 (SC)]. Rule 8D (i) Rule 8D(ii) Rule 8D(iii) 0.5% of Rs.7133115170 Disallowance u/s 14A as per Rule 8D Disallowance already made Total disallowance u/s 14A Ld. CIT(A) upheld the disallowance observing as under: 7.3 I have carefully considered the facts of the case. As per provisions of Section14A of the Act, the expenditure incurred by a taxpayer in relation to income that excludes total income as per the provisions of the Act should not be considered as deduction while computing the total income of the taxpayer. It is relevant to mention over here that the AO in his assessment order has stated that, he is not satisfied with the assessee's claim that no expenditure has been incurred to earn exempted income, since expenditure would definitely have been incurred for making and maintaining such investments. With respect to the expenses incurred for earning exempt income, the assessee submitted that, assessee has earned exempt income in the form of dividend for which assessee has not incurred any expenditure and was therefore not required to calculate any disallowance of gh, expenses w/s. 14A rwr. 8D of the act. On perusal of Capital a/c of the assessee, the A noticed that, expenses incurred includes demat charges and other suchexpenses which have been debited. Further, AO was also not satisfied with the contention of the assessee that, no expenditure was incurred to earn exempt income. It is a common knowledge that a person cannot make investment without due nce and necessary analysis and the investment decisions are very complex in nature which require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriat Therefore, being not satisfied about claim of assessee, he worked out the disallowance at Rs. 3,56,65,576/ rule 8D read with sec 14A of the Act @ 1% of average M/s Edelweiss Rural & Corporate Services Ltd. 12 ITA No. 2471/M/2022 following the ruling of the Apex court in the case of Maxopp Nil Nil 3,56,65,576/- 3,56,65,576/- 15,59,662/- 3,41,05,914/- Ld. CIT(A) upheld the disallowance observing as under: 7.3 I have carefully considered the facts of the case. As per provisions of Section14A of the Act, the expenditure incurred by a taxpayer in relation to income that excludes total income as per the provisions of the Act should not be n while computing the total income of the taxpayer. It is relevant to mention over here that the AO in his assessment order has stated that, he is not satisfied with the assessee's claim that no expenditure has been incurred to earn exempted income, since some expenditure would definitely have been incurred for making and maintaining such investments. With respect to the expenses incurred for earning exempt income, the assessee submitted that, assessee has earned exempt ich assessee has not incurred any expenditure and was therefore not required to calculate any disallowance of gh, expenses w/s. 14A rwr. 8D of the act. On perusal of Capital a/c of the assessee, the A noticed that, expenses incurred includes and other suchexpenses which have been debited. Further, AO was also not satisfied with the contention of the assessee that, no expenditure was incurred to earn exempt income. It is a common knowledge that a person cannot make investment without due nce and necessary analysis and the investment decisions are very complex in nature which require day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time. Therefore, being not satisfied about claim of assessee, he worked out the disallowance at Rs. 3,56,65,576/- as per rule 8D read with sec 14A of the Act @ 1% of average value of investment in assets, income from which was claimed as exempted and add of the assesse.The assessee had argued that, it has not incurred expenses in excess of Rs.34,46,555/ earning exempt income during the year and therefore the disallowance should be restricted to Rs. 15,59,662/ However, the AO did not agree with that. 7.4 Here, it is relevant to mention that, Hon'ble Bombay High Court decision dated 12.08.2010 and Hon'ble Supreme Court decision dated 8 Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal No.7020 of 2011, has examined this issue in great length and has upheld the constitutional validity of the provision of sec. 14A as also of the rule 8D. The relevant part of the said decision Hon'ble Bombay High Court is as under: "iii) The provisions of sub section 14A of the Income Tax Act 1961 are constitutionally valid; iv)The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more particularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008 vi)Even prior to A was not applicable, the Assessing Officer has to enforce the BC 121 ITXA626.10 provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has b incurred in relation to income which does not form part of the total income under the Act. 74. Our conclusions in this judgment are as follows : i) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Ta 1961, as was applicable for Assessment Year 2002 not includible in computing the total income of the M/s Edelweiss Rural & Corporate Services Ltd. value of investment in assets, income from which was claimed as exempted and added back to the total income of the assesse.The assessee had argued that, it has not incurred expenses in excess of Rs.34,46,555/- earning exempt income during the year and therefore the disallowance should be restricted to Rs. 15,59,662/ the AO did not agree with that. 7.4 Here, it is relevant to mention that, Hon'ble Bombay High Court decision dated 12.08.2010 and Hon'ble Supreme Court decision dated 8-5-2017 in the case of Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal 2011, has examined this issue in great length and has upheld the constitutional validity of the provision of sec. 14A as also of the rule 8D. The relevant part of the said decision Hon'ble Bombay High Court is as under: ) The provisions of sub sections (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv)The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more icularly sub section (2) and do not offend Article 14 of the Constitution; v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09; vi)Even prior to Assessment Year 2008-09, when Rule 8D was not applicable, the Assessing Officer has to enforce the BC 121 ITXA626.10 provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has b incurred in relation to income which does not form part of the total income under the Act. 74. Our conclusions in this judgment are as follows : ) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Ta 1961, as was applicable for Assessment Year 2002 not includible in computing the total income of the M/s Edelweiss Rural & Corporate Services Ltd. 13 ITA No. 2471/M/2022 value of investment in assets, income from which was ed back to the total income of the assesse.The assessee had argued that, it has not towards earning exempt income during the year and therefore the disallowance should be restricted to Rs. 15,59,662/-. 7.4 Here, it is relevant to mention that, Hon'ble Bombay High Court decision dated 12.08.2010 and Hon'ble 2017 in the case of Godrej & Boyce Mfg. Co. Ltd. v/s DCIT in Civil Appeal 2011, has examined this issue in great length and has upheld the constitutional validity of the provision of sec. 14A as also of the rule 8D. The relevant part of the said decision Hon'ble Bombay High Court is as under: s (2) and (3) of Section 14A of the Income Tax Act 1961 are constitutionally valid; iv)The provisions of Rule 8D of the Income Tax Rules as inserted by the Income Tax (Fifth Amendment) Rules 2008 are not ultra vires the provisions of Section 14A, more icularly sub section (2) and do not offend Article 14 of v) The provisions of Rule 8D of the Income Tax Rules which have been notified with effect from 24 March 2008 shall 09, when Rule 8D was not applicable, the Assessing Officer has to enforce the BC 121 ITXA626.10 provisions of sub section (1) of Section 14A. For that purpose, the Assessing Officer is duty bound to determine the expenditure which has been incurred in relation to income which does not form part of 74. Our conclusions in this judgment are as follows : ) Dividend income and income from mutual funds falling within the ambit of Section 10(33) of the Income Tax Act 1961, as was applicable for Assessment Year 2002-03 is not includible in computing the total income of the assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does income under the Act, by virtue of the provisions of Section 14A(1);" 7.5 Further, the principles laid down by Hon'ble Supreme Court are relevant while disposing of this ground. While deciding the first question before the Hon'bl Court that Sec. 14A would apply to dividend income on which tax is payable u/s 115 by the Apex Court that: "The literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent scheme of the Act and the object/purpose of levy of tax on income. Therefore, the well entrenched principle of interpretation that where the words of the statute are clear and unambiguous recourse cannot be had to principles of interpretation oth answering the said question this Court considered the object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been noticed. Noticing the objects and reasons beh introduction of Section 14A of the Act this Court held that: "Expenses allowed can only be in respect of earning of taxable income." In paragraph 17, this Court went on to observe that: "Therefore, one needs to read the words "expenditure incurred" in scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the "total income" for the purpose of chargeability to tax" 7.6 Further, the CBDT vide Circular No. 5/2014, Dated 11.02.2014 clarified that,"Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt incom reproduced as under: "Thus, legislative intent is to allow only that expenditure which is-relatable to earning of income and it therefore M/s Edelweiss Rural & Corporate Services Ltd. assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to such income which does not form part of the total income under the Act, by virtue of the provisions of Section 7.5 Further, the principles laid down by Hon'ble Supreme Court are relevant while disposing of this ground. While deciding the first question before the Hon'ble Supreme Court that Sec. 14A would apply to dividend income on which tax is payable u/s 115-0 of the Act, it is enunciated by the Apex Court that:- "The literal meaning of Section 14A, far from giving rise to any absurdity, appears to be wholly consistent scheme of the Act and the object/purpose of levy of tax on income. Therefore, the well entrenched principle of interpretation that where the words of the statute are clear and unambiguous recourse cannot be had to principles of interpretation other than the literal view will apply. While answering the said question this Court considered the object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been noticed. Noticing the objects and reasons beh introduction of Section 14A of the Act this Court held that: "Expenses allowed can only be in respect of earning of taxable income." In paragraph 17, this Court went on to observe that: "Therefore, one needs to read the words "expenditure incurred" in section 144 in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the "total income" for the purpose of bility to tax" 7.6 Further, the CBDT vide Circular No. 5/2014, Dated 11.02.2014 clarified that,"Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income." The relevant portion of the circular is reproduced as under:- "Thus, legislative intent is to allow only that expenditure relatable to earning of income and it therefore M/s Edelweiss Rural & Corporate Services Ltd. 14 ITA No. 2471/M/2022 assessee. Consequently, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation not form part of the total income under the Act, by virtue of the provisions of Section 7.5 Further, the principles laid down by Hon'ble Supreme Court are relevant while disposing of this ground. While e Supreme Court that Sec. 14A would apply to dividend income on 0 of the Act, it is enunciated "The literal meaning of Section 14A, far from giving rise to with the scheme of the Act and the object/purpose of levy of tax on income. Therefore, the well entrenched principle of interpretation that where the words of the statute are clear and unambiguous recourse cannot be had to principles of er than the literal view will apply. While answering the said question this Court considered the object of insertion of Section 14A in the Income Tax Act by Finance Act, 2001, details of which have already been noticed. Noticing the objects and reasons behind introduction of Section 14A of the Act this Court held that: "Expenses allowed can only be in respect of earning of taxable income." In paragraph 17, this Court went on to observe that: "Therefore, one needs to read the words section 144 in the context of the scheme of the Act and, if so read, it is clear that it disallows certain expenditure incurred to earn exempt income from being deducted from other income which is includible in the "total income" for the purpose of 7.6 Further, the CBDT vide Circular No. 5/2014, Dated - 11.02.2014 clarified that,"Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned e." The relevant portion of the circular is "Thus, legislative intent is to allow only that expenditure relatable to earning of income and it therefore follows that the expenses which are relatable to earning exempt income ha irrespective of the fact whether such income has been earned during the financial position is further clarified by the usage of term 'includible' in the Heading to section heading-to "Rule 8D of it is not necessary that exempt income should necessarily be included in a particular years income, for disallowance to be triggered. Also, section 14A of the Act does not the word "income also indicates that invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration" 7.7 Further the issue of concerns has been decided by the Hon'ble Supreme Court In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 SC). In this judgment the Hon'ble Court held that making strategic investment does not absolve the assessee from disallowance us 14A and that such disallowance should be made in accordance with the expenditure incurred in proportion to the exempted income. For clarity the relevant portion of the judgment is reproduced as under : "Fact remains that such dividend income i this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and can not be treated as a business expenditure. Keeping this objective behind section 14A in mind, the said provision has to be interpreted particularly the word ' in relation to income' that does not form part of the total income.Considered in this hue, the principle ofapportionment of expenses comes into play as that is principle which is engrained in section 14A." "intentions of Holding Investment is irrelevant for computation of disallowance us 14A. The strategic investment claimed by assessee in inconsequential investments must be considered for 14A disallow per plain and clear language of Rule 8D." M/s Edelweiss Rural & Corporate Services Ltd. follows that the expenses which are relatable to earning exempt income have to be considered for disallowance, irrespective of the fact whether such income has been earned during the financial-year or not. 4' The above position is further clarified by the usage of term 'includible' in the Heading to section-14A of the Act and to "Rule 8D of-I-T.Rules,!962 which indicates that it is not necessary that exempt income should necessarily be included in a particular years income, for disallowance to be triggered. Also, section 14A of the Act does not the word "income of the year" but "income under the Act". This also indicates that invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration" 7.7 Further the issue of strategic investments in group concerns has been decided by the Hon'ble Supreme Court In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 SC). In this judgment the Hon'ble Court held that making strategic investment does not absolve the assessee from allowance us 14A and that such disallowance should be made in accordance with the expenditure incurred in proportion to the exempted income. For clarity the relevant portion of the judgment is reproduced as under : "Fact remains that such dividend income is non taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and can not be treated as a business expenditure. Keeping ive behind section 14A in mind, the said provision has to be interpreted particularly the word ' in relation to income' that does not form part of the total income.Considered in this hue, the principle ofapportionment of expenses comes into play as that is principle which is engrained in section 14A." "intentions of Holding Investment is irrelevant for computation of disallowance us 14A. The strategic investment claimed by assessee in inconsequential investments must be considered for 14A disallow per plain and clear language of Rule 8D." M/s Edelweiss Rural & Corporate Services Ltd. 15 ITA No. 2471/M/2022 follows that the expenses which are relatable to earning ve to be considered for disallowance, irrespective of the fact whether such income has been year or not. 4' The above position is further clarified by the usage of term 'includible' 14A of the Act and-also-the T.Rules,!962 which indicates that it is not necessary that exempt income should necessarily be included in a particular years income, for disallowance to be triggered. Also, section 14A of the Act does not the of the year" but "income under the Act". This also indicates that invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under strategic investments in group concerns has been decided by the Hon'ble Supreme Court In case of Maxopp Investments Ltd. Vs CIT402 IT 640 9 SC). In this judgment the Hon'ble Court held that making strategic investment does not absolve the assessee from allowance us 14A and that such disallowance should be made in accordance with the expenditure incurred in proportion to the exempted income. For clarity the relevant s non taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and can not be treated as a business expenditure. Keeping ive behind section 14A in mind, the said provision has to be interpreted particularly the word ' in relation to income' that does not form part of the total income.Considered in this hue, the principle ofapportionment of expenses comes into play as that is the "intentions of Holding Investment is irrelevant for computation of disallowance us 14A. The strategic investment claimed by assessee in inconsequential - all investments must be considered for 14A disallowance as 7.8Apart from that the Chennai Bench of the Income Appellate Tribunal in the case of Mr. M. A. Alagappan vide order dated 03.04.2017 has held that, even in cases where no expenditure has been incurred, has to apply Rule 8D of the Income disallowance of expenditure under Section 14A of the Income-tax Act. The relevant para of the said decision is as under: "6. We considered the arguments of both the sides in detail. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable income of the assessee. Sec. 14A( determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery provision as far as sec.14A is concerned. In that provision. it has been provided that if the Assessing Officer is not satisfied with the correctness of the computations made by an assessee. he shall compute the quantum in accordance with ITA No3290./16: 6 prescribed. For this matter. Rule 8D has already been prescribed.Sub where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where th no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner. Literally speaking, it may even be considered for the purpose of convenience as a deeming provision.When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutorypresumption and the Assessing Officer has to follow the consequences stated in the statute. It that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry M/s Edelweiss Rural & Corporate Services Ltd. 7.8Apart from that the Chennai Bench of the Income Appellate Tribunal in the case of Mr. M. A. Alagappan vide order dated 03.04.2017 has held that, even in cases where no expenditure has been incurred, the tax authority has to apply Rule 8D of the Income-tax Rules, 1962 for the disallowance of expenditure under Section 14A of the tax Act. The relevant para of the said decision is as "6. We considered the arguments of both the sides in l. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable income of the assessee. Sec. 14A(2) provides for determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery provision as far as sec.14A is concerned. In that provision. it has been provided that if the Assessing Officer is not th the correctness of the computations made by an assessee. he shall compute the quantum in accordance with ITA No3290./16: 6 -: the method that may be prescribed. For this matter. Rule 8D has already been prescribed.Sub-sec. (3) further provides that even where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub sec.(2) read with Rule prescribed. Therefore, it becomes clear that even in a case where the assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner. Literally speaking, it may even be considered for the purpose of nce as a deeming provision.When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutorypresumption and the Assessing Officer has to follow the consequences stated in the statute. It that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry M/s Edelweiss Rural & Corporate Services Ltd. 16 ITA No. 2471/M/2022 7.8Apart from that the Chennai Bench of the Income-tax Appellate Tribunal in the case of Mr. M. A. Alagappan vide order dated 03.04.2017 has held that, even in cases the tax authority tax Rules, 1962 for the disallowance of expenditure under Section 14A of the tax Act. The relevant para of the said decision is as "6. We considered the arguments of both the sides in l. Sec.14A(1) declares the law that the expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act shall not be allowed as a deduction in computing the taxable 2) provides for determining the quantum of such expenditure which shall not be allowed as a deduction. That is the machinery provision as far as sec.14A is concerned. In that provision. it has been provided that if the Assessing Officer is not th the correctness of the computations made by an assessee. he shall compute the quantum in accordance : the method that may be prescribed. For this matter. Rule 8D has already been in a case where an assessee claims that no expenditure was incurred, the assessing authority has to presume the incurring of such expenditure as provided under sub- sec.(2) read with Rule prescribed. Therefore, it becomes e assessee claims that no expenditure was so incurred, the statute has provided for a presumptive expenditure which has to be disallowed by force of the statute. In a distant manner. Literally speaking, it may even be considered for the purpose of nce as a deeming provision.When such deeming provision is made on the basis of statutory presumption, the requirement of factual evidence is replaced by statutorypresumption and the Assessing Officer has to follow the consequences stated in the statute. It means that even in a case where no expenditure is stated to have been incurred, the assessing authority has to apply Rule 8D. As the statutory presumption substitutes the requirement of factual evidence, the question of enquiry does not arise. In the resu dismissed." 7.9 I am of the considered view that, all the assets which either yield exempted income or could yield exempted income should to be considered for working out the disallowance under rule 8D. As stated above, the constitutional validity of the rule 8D has been upheld by the Hon'ble Bombay High Court in the case of Godrej and Boyce manufacturing Company Limited, later upheld by the Hon'ble Supreme Court in the same case. 7.10 It is also noted that, vide notificatio the method of computation of disallowance us 14A r.w.r. 8D is amended with effect from02.06.2016. The amended provisions read as under: Rule 8D(2) applicable we.f 02.06.2016 [As per Notification No 43/2016, dated 02.06.16.J (2) The expenditu form part of the total income shall be the aggregate of following amounts, namely: (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one p of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income : Provided that the amount referred to in clause (i) and clause (i) shall the assessee. 7.11 The above amendment has been brought on statutory we.f. 02.06.2016which states that an amount equal to 1% of the average investments income from which does not or shall not form part of the total income and that the disallowanceshall not exceed the to amended rule does not say that, only those assets wherefrom exempted income is earned, should be considered. The use of the "Shall" in addition to "does not" takes within its fold those investments too, which have not M/s Edelweiss Rural & Corporate Services Ltd. does not arise. In the result the appeal of the assessee is 7.9 I am of the considered view that, all the assets which either yield exempted income or could yield exempted income should to be considered for working out the disallowance under rule 8D. As stated above, the constitutional validity of the rule 8D has been upheld by the Hon'ble Bombay High Court in the case of Godrej and Boyce manufacturing Company Limited, later upheld by the Hon'ble Supreme Court in the same case. 7.10 It is also noted that, vide notification no. 43/2016, the method of computation of disallowance us 14A r.w.r. 8D is amended with effect from02.06.2016. The amended provisions read as under: Rule 8D(2) applicable we.f 02.06.2016 [As per Notification No 43/2016, dated 02.06.16.J (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely: (i) the amount of expenditure directly relating to income which does not form part of total income; and (ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income : Provided that the amount referred to in clause (i) and clause (i) shall not exceed the total expenditure claimed by the assessee. 7.11 The above amendment has been brought on statutory we.f. 02.06.2016which states that an amount equal to 1% of the average investments income from which does not or shall not form part of the total income and that the disallowanceshall not exceed the total expenditure. The amended rule does not say that, only those assets wherefrom exempted income is earned, should be considered. The use of the "Shall" in addition to "does not" takes within its fold those investments too, which have not M/s Edelweiss Rural & Corporate Services Ltd. 17 ITA No. 2471/M/2022 lt the appeal of the assessee is 7.9 I am of the considered view that, all the assets which either yield exempted income or could yield exempted income should to be considered for working out the disallowance under rule 8D. As stated above, the constitutional validity of the rule 8D has been upheld by the Hon'ble Bombay High Court in the case of Godrej and Boyce manufacturing Company Limited, later upheld by n no. 43/2016, the method of computation of disallowance us 14A r.w.r. 8D is amended with effect from02.06.2016. The amended Rule 8D(2) applicable we.f 02.06.2016 [As per Notification re in relation to income which does not form part of the total income shall be the aggregate of (i) the amount of expenditure directly relating to income er cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which Provided that the amount referred to in clause (i) and not exceed the total expenditure claimed by 7.11 The above amendment has been brought on statutory we.f. 02.06.2016which states that an amount equal to 1% of the average investments income from which does not or shall not form part of the total income and that the tal expenditure. The amended rule does not say that, only those assets wherefrom exempted income is earned, should be considered. The use of the "Shall" in addition to "does not" takes within its fold those investments too, which have not vielded any exemp consideration. 7.12 The assessee's claim that, the disallowance should have been computed only on investments from which exempted income was earned is erroneous. The provision says that "even those investments income from whi shall not form part of the total income have to be considered and not only the ones from which it is earning exempted income." 7.13 The above proposition is confirmed by Hon'ble Mumbai Tribunal in the case of Apurva Natvar Parikh & Co. Pvt. Ltd. bearing following words 2.3 Another argument is that while computing the disallowance, only those investments are to be considered which have yielded exempt income during the year. This plea is also to be rejected since after amendment 8D w.e.f.02/06/2016, the computation u/r 8D has undergone change and it has been made clear that the amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which form part of total income, shall be disallowed. Therefore, post 02/06/2016, the plea to exclude the non yielding investment is to be rejected. 7.14 Apart from that even before the amendment took place, Hon'ble Karnataka High C Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 (Kar.) had held that section 14A is applicable even where motive of acquiring shares is to obtain controlling interest in companies. Also in cases where pre provisions apply, Hon'ble Mumbai ITAT in the case of Mrs. mimt. or Varsha R. Taurani vs ACIT (2013) 40 taxmann.com 517 (Mum "The marginal note to section 144 clearly states that exenditure incurred in relation to income not "includible" in total income which means that if the income is not includible in total income whether it is actually earned or not, the corresponding expenditure has to be disallowed." M/s Edelweiss Rural & Corporate Services Ltd. vielded any exempt income during the year under consideration. 7.12 The assessee's claim that, the disallowance should have been computed only on investments from which exempted income was earned is erroneous. The provision says that "even those investments income from whi shall not form part of the total income have to be considered and not only the ones from which it is earning exempted income." 7.13 The above proposition is confirmed by Hon'ble Mumbai Tribunal in the case of Apurva Natvar Parikh & Co. Pvt. Ltd. bearing IT.A. No. 1704/Mum/2020 in following words- 2.3 Another argument is that while computing the disallowance, only those investments are to be considered which have yielded exempt income during the year. This plea is also to be rejected since after amendment 8D w.e.f.02/06/2016, the computation u/r 8D has undergone change and it has been made clear that the amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income, shall be disallowed. Therefore, post 02/06/2016, the plea to exclude the non yielding investment is to be rejected. 7.14 Apart from that even before the amendment took place, Hon'ble Karnataka High Court in the case of United Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 (Kar.) had held that section 14A is applicable even where motive of acquiring shares is to obtain controlling interest in companies. Also in cases where pre-amended apply, Hon'ble Mumbai ITAT in the case of Mrs. mimt. or Varsha R. Taurani vs ACIT (2013) 40 taxmann.com 517 (Mum - Trib.) has held as "The marginal note to section 144 clearly states that exenditure incurred in relation to income not "includible" in income which means that if the income is not includible in total income whether it is actually earned or not, the corresponding expenditure has to be disallowed." M/s Edelweiss Rural & Corporate Services Ltd. 18 ITA No. 2471/M/2022 t income during the year under 7.12 The assessee's claim that, the disallowance should have been computed only on investments from which exempted income was earned is erroneous. The provision says that "even those investments income from which shall not form part of the total income have to be considered and not only the ones from which it is earning 7.13 The above proposition is confirmed by Hon'ble Mumbai Tribunal in the case of Apurva Natvar Parikh & IT.A. No. 1704/Mum/2020 in 2.3 Another argument is that while computing the disallowance, only those investments are to be considered which have yielded exempt income during the year. This plea is also to be rejected since after amendment to Rule 8D w.e.f.02/06/2016, the computation u/r 8D has undergone change and it has been made clear that the amount equal to 1% of the annual average of the monthly averages of the opening and closing balances of the value does not or shall not form part of total income, shall be disallowed. Therefore, post 02/06/2016, the plea to exclude the non-income 7.14 Apart from that even before the amendment took ourt in the case of United Breweries Ltd. Vs Dy. CIT (2016) 72 taxmann. com 102 (Kar.) had held that section 14A is applicable even where motive of acquiring shares is to obtain controlling interest amended apply, Hon'ble Mumbai ITAT in the case of Mrs. mimt. or Varsha R. Taurani vs ACIT (2013) 40 "The marginal note to section 144 clearly states that exenditure incurred in relation to income not "includible" in income which means that if the income is not includible in total income whether it is actually earned or not, the corresponding expenditure has to be disallowed." In view of the above, the contention of the assessee in this regard, is rejected. Therefore, the computation done by the AO is found to be fully in accordance with the law following above judicial precedence and hence deserved to be upheld. 7.15 Finally, the Finance Bill 2022 has again amended and inserted an Explanation to section 14A of the Act, clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during t an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. This amendment has nullified several judgements as relied by the appellant wherein it was held that no disallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt income, in the absence of any exempt income. 7.16 In the light of the foregoing discussion, I am convinced that, all the assets which have either yield exempt income during the year or could have yielded exempted income will be considered for working out the disallowance under rule 8D. All contentions of the appellant in this regard deserved to be dismissed. Also the case laws relied upon by the appell on facts as well as recent changes in the law. Accordingly, the disallowance of Rs. 3,56,65,576/ is upheld. The grounds no. 3 is accordingly dismissed. 8.5 Before us the disallowance on two grounds. invoking Rule 8D of the record dissatisfaction on the claim of the assessee having regard to its books of accounts. Investments P. Ltd (supra) restricted to investments, which has yielded dividend income. M/s Edelweiss Rural & Corporate Services Ltd. In view of the above, the contention of the assessee in this regard, is rejected. the computation done by the AO is found to be fully in accordance with the law following above judicial precedence and hence deserved to be upheld. 7.15 Finally, the Finance Bill 2022 has again amended and inserted an Explanation to section 14A of the Act, clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. This amendment has nullified several judgements as relied by the appellant wherein it was held sallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt income, in the absence of any exempt income. 7.16 In the light of the foregoing discussion, I am convinced that, all the assets which have either yield exempt income during the year or could have yielded exempted income will be considered for working out the disallowance under rule 8D. All contentions of the appellant in this regard deserved to be dismissed. Also the case laws relied upon by the appellant are distinguishable on facts as well as recent changes in the law. Accordingly, the disallowance of Rs. 3,56,65,576/-made by AO us. 14A is upheld. The grounds no. 3 is accordingly dismissed. us the Ld. counsel of the assessee contested the disallowance on two grounds. Firstly, according to him before 8D of the Rules, the Assessing Officer was required to record dissatisfaction on the claim of the assessee having regard to its books of accounts. Secondly, following finding of Vi Investments P. Ltd (supra), the disallowance should have been restricted to investments, which has yielded dividend income. M/s Edelweiss Rural & Corporate Services Ltd. 19 ITA No. 2471/M/2022 In view of the above, the contention of the assessee in this the computation done by the AO is found to be fully in accordance with the law following above judicial 7.15 Finally, the Finance Bill 2022 has again amended and inserted an Explanation to section 14A of the Act, to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or he previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt income. This amendment has nullified several judgements as relied by the appellant wherein it was held sallowance u/s 14A of the Act could be made in respect of any expenditure incurred in earning any exempt 7.16 In the light of the foregoing discussion, I am convinced that, all the assets which have either yielded exempt income during the year or could have yielded exempted income will be considered for working out the disallowance under rule 8D. All contentions of the appellant in this regard deserved to be dismissed. Also the ant are distinguishable on facts as well as recent changes in the law. Accordingly, made by AO us. 14A is upheld. The grounds no. 3 is accordingly dismissed.” of the assessee contested the according to him before , the Assessing Officer was required to record dissatisfaction on the claim of the assessee having regard to Secondly, following finding of Vireet , the disallowance should have been restricted to investments, which has yielded dividend income. According to the learne verified the expenses already disallowed by the assessee parti in the view of the expenses debited in the books of accounts. The Assessing Officer has made only presumption of expenses for systematic management of the investment and market research, whereas the assessee earned dividend from the investment counsel of the assessee submitted that the learne Officer for invoking statement asserting exempt income cannot be earned without incurring expenses, without made by the assessee was not correct. The learne submitted that as per the provisions of section 14 Assessing Officer shall determine the amount disallowable as per Rule 8D, if he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to exempt income. It is the contention of the assessee Officer has nowhere in the body of the assessment order discus his dissatisfaction on the claim made by the assessee. 8.6 Further the Ld. counsel of the decision of the special bench in the case of Vire private Limited (supra) only the investment yielding exempt income were to be considered for the purpose of computation of the disallowance under opening and closing stock of M/s Edelweiss Rural & Corporate Services Ltd. According to the learned counsel, the Assessing Officer verified the expenses already disallowed by the assessee parti in the view of the expenses debited in the books of accounts. The as made only presumption of expenses for systematic management of the investment and market research, whereas the assessee earned dividend of Rs.6,91, from the investment in ‘India Bulls mutual funds l of the assessee submitted that the learne Officer for invoking Rule 8D of the Rules has recorded general statement asserting exempt income cannot be earned without g expenses, without recording as how the disallowance made by the assessee was not correct. The learne submitted that as per the provisions of section 14A Assessing Officer shall determine the amount disallowable as per 8D, if he is not satisfied with the correctness of the claim of respect of such expenditure in relation to exempt income. It is the contention of the assessee that nowhere in the body of the assessment order discus his dissatisfaction on the claim made by the assessee. Ld. counsel of the assessee submitted that in view of the decision of the special bench in the case of Vire supra) only the investment yielding exempt income were to be considered for the purpose of computation of the disallowance under Rule 8D of the Rules and there being no opening and closing stock of ‘India Bulls mutual fund M/s Edelweiss Rural & Corporate Services Ltd. 20 ITA No. 2471/M/2022 the Assessing Officer has not verified the expenses already disallowed by the assessee particularly in the view of the expenses debited in the books of accounts. The as made only presumption of expenses for systematic management of the investment and market research, 91,13,757/-mainly funds’. The learned l of the assessee submitted that the learned Assessing has recorded general statement asserting exempt income cannot be earned without the disallowance made by the assessee was not correct. The learned counsel A of the Act the Assessing Officer shall determine the amount disallowable as per 8D, if he is not satisfied with the correctness of the claim of respect of such expenditure in relation to exempt that the Assessing nowhere in the body of the assessment order discussed his dissatisfaction on the claim made by the assessee. of the assessee submitted that in view of the decision of the special bench in the case of Vireet investment supra) only the investment yielding exempted income were to be considered for the purpose of computation of the and there being no India Bulls mutual fund’, the disallowance computed under rule 8D(2) income from India bulls Mutual fund works out to nil. As far as disallowance for remaining di suo-moto disallowance by the assessee being exceeding the exempted income, no disallowance was called for in view of the decision dated 2/09/2015 case of Cheminvest P Ltd 9. The Ld. DR on the other hand, relied on the order of the lower authorities. 10. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. against the dividend income earned of has made sou-moto disallowance of employee cost incurred for earning exempted income. The detail the disallowance computed by the assessee is reproduced as under: Particulars Amount debited to profit and loss account Employee Cost 36,31,97,672/ Auditor Remuneration 23,08,270 Communication 96,27,773 Computer Exp 1,94,58,253 Electricity Exp 3,49,10,427 Office Expenses 7,95,62,364 Printing and Stationery 28,22,308 Rent 5,34,83,120 Miscellaneous 10,95,530 M/s Edelweiss Rural & Corporate Services Ltd. wance computed under rule 8D(2), corresponding to dividend ncome from India bulls Mutual fund works out to nil. As far as disallowance for remaining dividend income of Rs. 1,82,000/ moto disallowance by the assessee being exceeding the exempted income, no disallowance was called for in view of the dated 2/09/2015 of the Hon’ble Delhi High Court in the Cheminvest P Ltd in ITA 749 of 2014. DR on the other hand, relied on the order of the lower We have heard rival submission of the parties on the issue in and perused the relevant material on record. against the dividend income earned of ₹6,92,95,757/ oto disallowance of ₹15,59,662/- employee cost incurred for earning exempted income. The detail the disallowance computed by the assessee is reproduced as under: Amount debited to profit and loss account Expenses disallowance u/s 14A 36,31,97,672/- 10,00,000 23,08,270 6,355.41 96,27,773 26,508.36 1,94,58,253 53,574.83 3,49,10,427 96,119.63 7,95,62,364 2,19,060.78 28,22,308 7,770.72 5,34,83,120 1,47,256.23 10,95,530 3,016.35 M/s Edelweiss Rural & Corporate Services Ltd. 21 ITA No. 2471/M/2022 , corresponding to dividend ncome from India bulls Mutual fund works out to nil. As far as end income of Rs. 1,82,000/-, the moto disallowance by the assessee being exceeding the exempted income, no disallowance was called for in view of the of the Hon’ble Delhi High Court in the DR on the other hand, relied on the order of the lower We have heard rival submission of the parties on the issue in and perused the relevant material on record. We find that 757/-the assessee -considering the employee cost incurred for earning exempted income. The detail of the disallowance computed by the assessee is reproduced as under: Basis of allocation Proportionate employee cost of an employee % of employee cost % of employee cost % of employee cost % of employee cost % of employee cost % of employee cost % of employee cost % of employee cost expenses Total 10.1 As per the provisions of the section 14 Assessing Officer can invoke the rule 8D of the disallowance, if he’s not satisfied with the correctness of the claim of the assessee in respect of expenditure for earning exempt income. We find that the Assessing Officer did not record a specific satisfaction as why the claim of the assessee of disallowance in terms of the employee cost was not correct. The Assessing Officer only recorded that assessee cannot any systematic management of its investments which being complex in nature require market research, data analysis and planning. Whereas the assessee has duly various expenses out of the employee cost, auditor remuneration, communication, computer expenses, electricit expenses etc, which according to the assessee were part of the expenses which ought to have been incurred as Assessing Officer. In view of the above facts and circumstances, we are of the opinion that the Assessing Officer has not fulfilled the requirement of the recording dissatisfaction under provisions of the section 14A of the Act in accordance with law. The second argument of considering Only the investment which has yielded exempted income of computation of disallowance under rule 8D(2) academic only and therefore w M/s Edelweiss Rural & Corporate Services Ltd. 1,59,662 provisions of the section 14A of the Assessing Officer can invoke the rule 8D of the Rules disallowance, if he’s not satisfied with the correctness of the claim of the assessee in respect of expenditure for earning exempt income. find that the Assessing Officer did not record a specific satisfaction as why the claim of the assessee of disallowance in terms of the employee cost was not correct. The Assessing Officer only recorded that assessee cannot earn exempt income without ystematic management of its investments which being complex in nature require market research, data analysis and planning. Whereas the assessee has duly itself various expenses out of the employee cost, auditor remuneration, omputer expenses, electricity expenses, office , which according to the assessee were part of the expenses which ought to have been incurred as proposed Assessing Officer. In view of the above facts and circumstances, we on that the Assessing Officer has not fulfilled the requirement of the recording dissatisfaction under provisions of the Act and therefore invoking of the rule 8D is not in accordance with law. The second argument of considering Only ich has yielded exempted income, for the purpose f disallowance under rule 8D(2) academic only and therefore we are not adjudicating the same M/s Edelweiss Rural & Corporate Services Ltd. 22 ITA No. 2471/M/2022 of the Act, the Rules for computing disallowance, if he’s not satisfied with the correctness of the claim of the assessee in respect of expenditure for earning exempt income. find that the Assessing Officer did not record a specific satisfaction as why the claim of the assessee of disallowance in terms of the employee cost was not correct. The Assessing Officer exempt income without ystematic management of its investments which being complex in nature require market research, data analysis and itself disallowed the various expenses out of the employee cost, auditor remuneration, y expenses, office , which according to the assessee were part of the proposed by the Assessing Officer. In view of the above facts and circumstances, we on that the Assessing Officer has not fulfilled the requirement of the recording dissatisfaction under provisions of the and therefore invoking of the rule 8D is not in accordance with law. The second argument of considering Only , for the purpose f disallowance under rule 8D(2), is rendered e are not adjudicating the same. The finding of the Ld. CIT(A) on the issue in dispute is set aside disallowance made by the Assessing Officer is deleted. The ground of the appeal of the assessee is accordingly allowed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on Sd/- (ABY T VARKEY JUDICIAL MEMBER Mumbai; Dated: 31/03/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// M/s Edelweiss Rural & Corporate Services Ltd. finding of the Ld. CIT(A) on the issue in dispute is set aside disallowance made by the Assessing Officer is deleted. The ground of the appeal of the assessee is accordingly allowed. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on 31/03/2023. sd/- ABY T VARKEY) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai M/s Edelweiss Rural & Corporate Services Ltd. 23 ITA No. 2471/M/2022 finding of the Ld. CIT(A) on the issue in dispute is set aside and the disallowance made by the Assessing Officer is deleted. The ground In the result, the appeal of the assessee is allowed. /03/2023. - OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai Original dictation pad is enclosed at the end of file 1. Draft dictated on: 2. Draft placed before author: 3. Draft proposed & placed before the second member: 4. Draft discussed/approved by Second Member: 5. Approved Draft comes to the Sr. PS/PS: 6. Order pronounced on: 7. File sent to the Bench Clerk: 8. Date on which file goes to the Head Clerk: 9. Date on which file goes to AR M/s Edelweiss Rural & Corporate Services Ltd. Date Initials Original dictation pad is enclosed at Draft dictated on: 31.03.2023 Draft placed before author: 31.03.2023 Draft proposed & placed before the Draft discussed/approved by Second Approved Draft comes to the Sr. Order pronounced on: File sent to the Bench Clerk: Date on which file goes to the Head Date on which file goes to AR M/s Edelweiss Rural & Corporate Services Ltd. 24 ITA No. 2471/M/2022 Sr. PS/PS Sr. PS/PS JM/AM JM/AM Sr. PS/PS Sr. PS/PS Sr. PS/PS