DCIT CC-33, MUMBAI V. THE BANK OF RAJASTHAN LTD, MUMBAI

ITA 3238/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55209 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 05-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOLI SRINIWAS RAO
• Keywords: Opportunity of being heard; Earning of tax free income; Cost of acquisition; Bad and doubtful debts; Capital expenditure
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI R.V. EASWAR, PRESIDENT AND SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 3238/MUM/2010. ASSESSMENT YEAR : 2007-08. DY. COMMISSIONER OF INCOME-TAX, M /S THE BANK OF RAJASTHAN LTD., CENTRAL CIRCLE-33, MUMBAI. VS. 11/12, RAGHUVANSHI MILL COMPOUND, LOWER PAREL (WEST), MUMBAI . PAN : AAACA 1028P APPELLANT. RESPONDENT. C. O. NO. 21/MUM/2011. (IN ITA NO. 3238/MUM/2010) ASSE SSMENT YEAR : 2007-08. ICICI BANK LTD., DY. COMMISSIONER OF INCOME-TAX, (EARSTWHILE THE BANK OF VS. CIRCLE-3(1), MUMBAI. RAJASTHAN LTD.), ICICI BANK TOWERS, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI 400051 PAN AAACT 7434N. CROSS OBJECTOR. RESPONDENT. DEPARTMENT BY : SHRI GOLI SRINIWAS RAO. ASSESSEE BY : SMT. ARATI VISSANJI. DATE OF HEARING : 05-09-2011 DATE OF PRONOUNCEMENT : 2 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST TH E ORDER OF LEARNED CIT(APPEALS)-41, MUMBAI DATED 25-02-2010 AND THE SA ME IS BEING DISPOSED OF ALONG WITH THE CROSS OBJECTION FILED BY THE ASSESSE E BEING C.O. NO.21/MUM/2011. 2. IN GROUND NO.1 OF ITS APPEAL, THE REVENUE HAS CH ALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS .3,99,318/- MADE BY THE AO ON ACCOUNT OF EXCESS CASH RECEIVED AT THE CASH COUNTER S OF THE BRANCHES OF THE ASSESSEE. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN BANKING BUSINESS AND LEASING ACTIVITY. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 01-11-2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE AO THAT THE EXCESS CASH RECEIVED AT THE CASH COUNTERS OF THE BRANCHES OF THE ASSESSEE COMPANY WAS SHOWN AS LIABI LITY. RELYING ON THE STAND TAKEN IN THE ASSESSMENTS FOR THE EARLIER YEARS ON A SIMILAR ISSUE, THE EXCESS CASH OF RS.3,99,318/- SO RECEIVED WAS TREATED BY THE AO AS INCOME OF THE ASSESSEE AND THE SAME WAS ADDED TO ITS TOTAL INCOME. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE SAID ADDITION MADE BY THE AO FOLLOWING THE ORDE RS OF HIS PREDECESSOR AS WELL AS THE TRIBUNAL IN THE EARLIER YEARS GIVING RELIEF TO THE ASSESSEE ON A SIMILAR ISSUE WHEREIN THE EXCESS CASH RECEIVED BY THE ASSESSEE WA S TREATED AS ITS LIABILITY. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL FOR THE EARLIER YEARS AS WEL L AS THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN ASSESSEES OWN CASE FOR ASSESS MENT YEARS 2002-03, 2004-05 3 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. AND 2005-06. COPIES OF THE RELEVANT ORDERS ARE ALSO PLACED ON RECORD BEFORE US AND A PERUSAL OF THE SAME SHOWS THAT A SIMILAR ADDITION MADE ON ACCOUNT OF EXCESS CASH HAS BEEN FOUND TO BE NOT MAINTAINABLE BY THE TRIBUN AL CONSISTENTLY IN THE EARLIER YEARS IN ASSESSEES OWN CASE. EVEN THE HONBLE HIGH COURT BY ITS JUDGMENT DATED 23 RD APRIL, 2010 PASSED IN INCOME TAX APPEAL NO. 3093 O F 2009 HAS UPHELD THE DECISION OF THE TRIBUNAL GIVING RELIEF TO THE ASSES SEE ON SIMILAR ISSUE IN ASSESSMENT YEAR 2002-03 HOLDING THAT COLLECTION OF EXCESS CAS H IN THE FACTS AND CIRCUMSTANCES OF THE CASE DID NOT REPRESENT INCOME OF THE ASSESSE E BANK AND THE SAME REPRESENTED ITS LIABILITY AS RIGHTLY HELD BY THE TRIBUNAL. THE HONBLE BOMBAY HIGH COURT HAS ALSO UPHELD THE DECISION OF THE TRIBUNAL ON A SIMIL AR ISSUE IN ASSESSMENT YEARS 2004-05 AND 2005-06. RESPECTFULLY FOLLOWING THE SAI D DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE IMPUGNED O RDER OF THE CIT(APPEALS) DELETING THE ADDITION MADE BY THE AO ON ACCOUNT OF EXCESS CASH RECEIVED AT THE CASH COUNTERS OF THE ASSESSEES BRANCHES AND DISMIS S GROUND NO.1 OF THE REVENUES APPEAL. 5. IN GROUND NO.2, THE REVENUE HAS CHALLENGED THE A CTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.17,77,9 6,300/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF ASSESSEES CLAIM FOR DED UCTION U/S 36(1)(VIIA) TO THAT EXTENT. 6. IN ITS COMPUTATION OF TOTAL INCOME, DEDUCTION U/ S 36(1)(VIIA) ON ACCOUNT OF BAD AND DOUBTFUL DEBTS TO THE EXTENT OF RS.26,49,00 ,000/- WAS CLAIMED BY THE ASSESSEE BEING 10% OF AVERAGE ADVANCES MADE BY ITS RURAL BRANCHES AT VARIOUS PLACES. THE SAID ADVANCES WERE INCLUSIVE OF AN AMOU NT OF RS.177,39,63,000/- MADE BY THE RURAL BRANCHES OF THE ASSESSEE BANK TO F.C.I . KEEPING IN VIEW THE STAND TAKEN IN THE ASSESSMENTS COMPLETED IN ASSESSEES OW N CASE FOR THE EARLIER YEARS, THE 4 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. ADVANCES MADE TO F.C.I. WERE HELD TO BE NOT ELIGIBL E FOR DEDUCTION U/S 36(1)(VIIA) BY THE AO. ACCORDINGLY THE CLAIM OF THE ASSESSEE FO R DEDUCTION U/S 36(1)(VII) WAS DISALLOWED BY HIM TO THE EXTENT OF RS.17,73,96,300/ -. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE SAID DISALLOWANCE MADE BY THE AO FOLLOWING THE ORDERS OF HIS PREDECESSORS AS WELL AS THE TRIBUNAL IN ASSE SSEES OWN CASE FOR THE EARLIER YEARS GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE ORDERS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR E ARLIER YEARS CONSISTENTLY ALLOWING RELIEF TO THE ASSESSEE ON THIS ISSUE. EVEN THE HON BLE BOMBAY HIGH COURT HAS UPHELD THE DECISION OF THE TRIBUNAL GIVING RELIEF T O THE ASSESSEE ON THIS ISSUE FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05 HOLDI NG THAT THE PROVISION MADE BY THE ASSESSEE ON ACCOUNT OF BAD AND DOUBTFUL DEBT S TO THE EXTENT OF 10% OF THE ADVANCES MADE TO F.C.I. THROUGH ITS RURAL BRANCHES WAS ELIGIBLE FOR DEDUCTION U/S 36(1)(VIIA). RESPECTFULLY FOLLOWING THE SAID DECISI ONS OF HONBLE JURISDICTIONAL HIGH COURT, WE UPHOLD THE IMPUGNED ORDER OF THE LEA RNED CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE AO ON THIS ISSUE AND D ISMISS GROUND NO.2 OF REVENUES APPEAL. 8. IN GROUND NO. 3, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.11,77,2 3,000/- MADE BY THE AO BY WAY OF DISALLOWANCE OF DEDUCTION CLAIMED BY THE ASS ESSEE ON ACCOUNT OF AMORTIZATION OF PREMIUM PAID FOR SECURITIES HELD U NDER HELD TO MATURITY (HTM) CATEGORY. 9. THE AMORTIZED AMOUNT OF PREMIUM PAID FOR SECURIT IES HELD UNDER HTM CATEGORY AMOUNTING TO RS.11.77 CRORES WAS CLAIMED B Y THE ASSESSEE AS DEDUCTION IN 5 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. ITS COMPUTATION OF TOTAL INCOME. THE SAME, HOWEVER , WAS DISALLOWED BY THE AO HOLDING THAT THE EXPENDITURE INCURRED ON PREMIUM PA ID FOR SECURITIES HELD UNDER HTM CATEGORY WAS A CAPITAL EXPENDITURE NOT ALLOWABL E AS DEDUCTION. HE HELD THAT THE SAID SECURITIES WERE IN THE NATURE OF INVESTMEN T AND NOT STOCK IN TRADE. ON APPEAL, THE LEARNED CIT(APPEALS) DELETED THE DISALL OWANCE MADE BY THE AO ON THIS ISSUE. BESIDES RELYING ON HIS OWN ORDER IN ASSESSEE S OWN CASE ON A SIMILAR ISSUE FOR THE EARLIER YEAR, THE LEARNED CIT(APPEALS) ALSO RELIED ON CBDT INSTRUCTION NO. 17/2008 DATED 26-11-2008 PUBLISHED IN 220 CTR (STAT UTE) PAGE 41. HE HELD THAT THE ASSESSEE COMPANY WAS BOUND TO CLASSIFY ITS INVE STMENT AS PER RBI GUIDELINES DATED 16-10-2010 AND AS PER THE SAID GUIDELINES, IN VESTMENT CLASSIFIED UNDER HTM CATEGORY WAS REQUIRED TO BE CARRIED AT ACQUISITION COST UNLESS IT WAS MORE THAN THE FACE VALUE. HE HELD THAT THE PREMIUM ON SUCH INVEST MENTS WAS ALSO REQUIRED TO BE AMORTIZED OVER THE PERIOD REMAINING TO MATURITY. HE HELD THAT THE CLAIM OF THE ASSESSEE THUS WAS AS PER RBI GUIDELINES AND CBDT IN STRUCTION WHICH CLARIFIED THAT PREMIUM AMORTIZED OVER THE PERIOD REMAINING TO MATU RITY WAS LIABLE TO BE ALLOWED AS DEDUCTION. 10. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS ALSO SQUARELY COVERE D IN FAVOUR OF THE ASSESSEE BY THE VARIOUS ORDERS OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE FOR EARLIER YEARS. COPIES OF THE SAID ORDERS ARE PLACED ON RECORD BEF ORE US AND A PERUSAL OF THE SAME SHOWS THAT IN ONE OF SUCH ORDERS DATED 22 ND DEC., 2010 PASSED IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 TO 2006-07, THE C OORDINATE BENCH OF THIS TRIBUNAL HAS DIRECTED THE AO TO ALLOW THE PREMIUM A MORTIZED BY THE ASSESSEE OVER THE PERIOD REMAINING TO MATURITY HOLDING THAT THE S AME WAS CLAIMED AS PER THE RELEVANT RBI GUIDELINES AND EVEN THE CBDT HAS ISSUE D INSTRUCTIONS TO ALLOW THE 6 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. SAME. RESPECTFULLY FOLLOWING THE SAID ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEARS, WE UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DIS MISS GROUND NO. 3 OF THE REVENUES APPEAL. 11. IN GROUND NO.4, THE REVENUE HAS CHALLENGED THE ACTION OF THE LEARNED CIT(APPEALS) IN DELETING THE ADDITION OF RS.95,48,9 79/- MADE BY THE AO ON ACCOUNT OF COMMISSION, EXCHANGE AND DISCOUNT INCLUD ING LOCKER RENT. 12. UPTO ASSESSMENT YEAR 2001-02, INCOME RECEIVED F ROM COMMISSION, EXCHANGE AND DISCOUNT INCLUDING LOCKER RENT IN ADVA NCE WAS BEING OFFERED TO TAX BY THE ASSESSEE ON RECEIPT BASIS BY FOLLOWING CASH SYS TEM OF ACCOUNTING. IN ASSESSMENT YEAR 2002-03, THE ASSESSEE CHANGED THE S AID METHOD AND OFFERED TO TAX INCOME FROM COMMISSION, EXCHANGE AND DISCOUNT INCLU DING LOCKER RENT ON ACCRUAL BASIS. ACCORDINGLY SUCH INCOME RECEIVED IN ADVANCE WAS NOT OFFERED TO TAX IN ASSESSMENT YEAR 2002-03 AND THE SAME WAS SHOWN ON T HE LIABILITY SIDE OF BALANCE SHEET. THIS NEW METHOD ADOPTED BY THE ASSESSEE WAS SUBSEQUENTLY FOLLOWED IN THE SUCCEEDING YEARS INCLUDING THE YEAR UNDER CONSIDERA TION. IN THE ASSESSMENT COMPLETED FOR ASSESSMENT YEAR 2002-03, THE AO REJEC TED THE NEW METHOD ADOPTED BY THE ASSESSEE AND BROUGHT TO TAX INCOME FROM COMM ISSION, EXCHANGE AND DISCOUNT INCLUDING LOCKER RENT RECEIVED IN ADVANCE IN THAT YEAR ON RECEIPT BASIS. FOLLOWING THE SAID STAND TAKEN IN ASSESSMENT YEAR 2 002-03, THE AO BROUGHT TO TAX THE SIMILAR INCOME RECEIVED IN ADVANCE ON RECEIPT B ASIS IN THE SUBSEQUENT YEARS ALSO INCLUDING THE YEAR UNDER CONSIDERATION. ON APP EAL, THE LEARNED CIT(APPEALS) DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE I N THE YEAR UNDER CONSIDERATION FOLLOWING THE ORDERS OF HIS PREDECESSOR AS WELL AS THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS GIVING RELIEF TO THE ASS ESSEE ON A SIMILAR ISSUE. 7 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. 13. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE, INTER ALIA, BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN ASS ESSEES OWN CASE FOR ASSESSMENT YEARS 2002-03 AND 2003-04 WHEREIN THE DE CISION OF THE TRIBUNAL ACCEPTING THE CHANGE IN THE METHOD OF ACCOUNTING AD OPTED BY THE ASSESSEE HAS BEEN UPHELD BY THE HONBLE BOMBAY HIGH COURT, INTER ALIA , BY OBSERVING AS UNDER : THE ASSESSEE IS LISTED WITH THE JAIPUR STOCK EXCH ANGE. BY A COMMUNICATION DATED 11 SEPTEMBER 2001, THE STOCK EX CHANGE INFORMED THE ASSESSEE OF A REQUIREMENT COMMUNICATED TO IT BY SEC URITIES AND EXCHANGE BOARD OF INDIA ON 31 ST AUGUST 2001 BY WHICH AMENDMENTS TO LISTING AGREEMENTS WERE NOTIFIED. CLAUSE 50 RELATES TO COMP LIANCE WITH ACCOUNTING STANDARDS. SEBI BY ITS COMMUNICATION DATED 31 AUGUS T, 2001 MANDATED THAT A NEW CLAUSE SHALL BE ADDED TO THE LISTING AGREEMEN T, AS CLAUSE 50, TO PROVIDE THAT COMPANIES SHALL MANDATORILY COMPLY WITH ALL TH E ACCOUNTING STANDARDS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FROM TIME TO TIME. THE STOCK EXCHANGES WERE ADVISED TO INCORPORATE THE AMENDMENT IN THE LISTING AGREEMENTS IMMEDIATELY AND TO REPORT COMPLI ANCE. THE COMMISSIONER (APPEALS) OBSERVED IN THE PRESENT CASE THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY FINDING THAT ANY OF THE E NTRIES IN THE BOOKS OF ACCOUNT ARE INCORRECT OR THAT THE ASSESSEE WAS NOT EMPLOYING A METHOD OF ACCOUNTING ON A REGULAR BASIS AND IT WAS NOT THE FI NDING OF THE ASSESSING OFFICER THAT THE TRADING RESULTS COULD NOT BE DEDUC ED FROM THE ENTRIES IN THE BOOKS OF ACCOUNT REGULARLY MAINTAINED. THE COMMISSI ONER (APPEALS) ALSO OBSERVED THAT OUT OF THE FOUR ITEMS, BANK LOCKER RE NT WAS RECEIVED FOR A PERIOD OF UPTO THREE YEARS AND OTHER CHARGES ARE RE CEIVED FOR ABOUT SIX TO NINE MONTHS. THE LOCKER RENT OF ONE YEAR ALONE OUGH T TO BE TREATED AS TAXABLE INCOME IN THE ACCOUNTS FOR THE PARTICULAR YEAR RATH ER THAN THE ENTIRE ADVANCE LOCKER RENT OF THE TWO SUBSEQUENT YEARS. THE ADVANC E LOCKER RENT OF THE FOLLOWING TWO YEARS WAS SHOWN AS INCOME IN THE RESP ECTIVE SUBSEQUENT YEARS. THE FINDING OF FACT WHICH WAS ARRIVED AT BY THE COMMISSIONER (APPEALS) WAS HAT THE CHANGE IN THE METHOD OF ACCOU NTING WAS BONAFIDE AND 8 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. IT HAS BEEN FOLLOWED REGULARLY AND CONSISTENTLY IN THE SUBSEQUENT ASSESSMENT YEARS. THE CHANGED METHOD HAS BEEN HELD TO BE A BET TER METHOD FOR PREPARING AND PRESENTING FINANCIAL STATEMENTS OF IN COME OF THE ASSESSEE. THE TRIBUNAL HAS, IN APPEAL, ALSO ARRIVED AT A CONCLUSI ON THAT THE CHANGE IN THE METHOD OF ACCOUNTING IS NOT DETERMINED TO THE INTER EST OF THE REVENUE. THE TRIBUNAL AFFIRMED THE FINDING OF FACT OF THE COMMIS SIONER (APPEALS) THAT THE CHANGE WAS BONAFIDE AND CONSISTENTLY FOLLOWED AFTER THE YEAR IN WHICH IT WAS CHANGED. THIS IS A PURE FINDING OF FACT OF BOTH THE COMMISSIONER (APPEALS) AND BY THE TRIBUNAL. IN THE RESULT, ON THE BASIS OF THE MATERIAL ON RECORD, THE REVENUE HAS NOT ESTABLISHED BEFORE THE COURT ANY PE RVERSITY IN THE FINDINGS OF THE TRIBUNAL OR ANY ILLEGALITY ON THE PART OF TH E ASSESSEE. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATI ON AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSESSMENT YE AR 2002-03 & 2003-04, WE RESPECTFULLY FOLLOW THE JUDGMENT OF HONBLE BOMBAY HIGH COURT FOR THE SAID YEARS AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(AP PEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE. GROUND NO.4 OF THE REVENUE S APPEAL IS ACCORDINGLY DISMISSED. 14. AS REGARDS THE CROSS OBJECTION FILED BY THE ASS ESSEE, THE GRIEVANCE PROJECTED IN GROUND NO. 1 THEREOF IS THAT THE ISSUE RELATING TO ADDITION OF RS.2,25,24,330/- MADE BY THE AO ON ACCOUNT OF INTEREST ON GOVERNMENT SECURITIES HAS NOT BEEN DECIDED BY THE LEARNED CIT(APPEALS) DESPITE THE FAC T THAT THE SAME WAS RAISED SPECIFICALLY IN GROUND NO.4 OF ITS APPEAL FILED BY THE ASSESSEE BEFORE HIM. SINCE THIS POSITION IS CLEARLY APPARENT FROM RECORD INCLU DING THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS), WE REMIT THE MATTER TO THE LE ARNED CIT(APPEALS) WITH A DIRECTION TO DECIDE THIS ISSUE ON MERIT AFTER GIVIN G THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. GROUND NO. 1 OF THE ASSESSEES CROSS O BJECTION IS ACCORDINGLY ALLOWED. 9 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. 15. THE REMAINING ISSUE RAISED IN GROUND NO.2 AND 3 OF THE ASSESSEES CROSS OBJECTION RELATES TO THE DISALLOWANCE MADE BY THE A O AND CONFIRMED BY THE LEARNED CIT(APPEALS) U/S 14A OF THE ACT READ WITH RULE 8D O F INCOME TAX RULES, 1962, 16. IN ITS RETURN OF INCOME, DIVIDEND AND TAX FREE INTEREST RECEIVED DURING THE YEAR UNDER CONSIDERATION AMOUNTING TO RS.4,71,11,88 0/- WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE. NO DISALLOWANCE ON ACCOUNT OF EXPE NSES INCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOWEVER, WAS MADE BY THE ASSESS EE IN THE COMPUTATION OF TOTAL INCOME AS REQUIRED BY THE PROVISIONS OF SECTI ON 14A. THE AO, THEREFORE, WORKED OUT THE QUANTUM OF SUCH EXPENDITURE AT 10% O F THE TOTAL EXEMPT INCOME AND MADE A DISALLOWANCE OF RS.47,11,188/- U/S 14A. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO IN MAKING A DISALLOWANCE U/S 14A IN PRINCIPLE. RELYING ON THE DECISION OF SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. REPORTED IN 117 ITD 169(MUM.)(S.B.), HE, HOWEVER, DIRECTED THE AO TO RECOMPUTE THE DISALLOWA NCE TO BE MADE U/S 14A BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962. 17. AFTER CONSIDERING THE RIVAL SUBMISSION AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ISSUE INVOLVED IN T HESE GROUNDS RAISED BY THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF HO NBLE BOMBAY HIGH COURT IN THE CASE OF DCIT VS. GODREJ AND BOYCE MFG. CO. LTD. 32 8 ITR 81 WHEREIN IT WAS HELD THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEA R 2008-09 AND PRIOR TO ASSESSMENT YEAR 2008-09, THE QUANTUM OF DISALLOWANC E TO BE MADE U/S 14A HAS TO BE DETERMINED BY ADOPTING SOME REASONABLE METHOD. K EEPING IN VIEW THE SAID DECISION OF HONBLE JURISDICTIONAL HIGH COURT, WE S ET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DETERMINE THE QUANTUM OF DISALL OWANCE OF EXPENSES TO BE MADE 10 ITA NO. 3238/MUM/2010 & C.O. NO. 21/MUM/2011 ASSTT. YEAR : 2007-08. U/S 14A BY ADOPTING SOME REASONABLE METHOD. AS SUBM ITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE DECISION OF COCHIN BENCH OF I TAT IN THE CASE OF STATE BANK OF TRAVANCORE VS. ACIT 195 TAXMAN 47 ALSO HAS A DIRECT BEARING ON THIS ISSUE. THE AO IS, THEREFORE, DIRECTED TO TAKE INTO CONSIDERATI ON THE SAID DECISION OF THE TRIBUNAL WHILE DECIDING THE ISSUE AFRESH. GROUND NO S. 2 AND 3 OF THE ASSESSEES CROSS OBJECTION ARE ACCORDINGLY TREATED AS PARTLY A LLOWED. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS TREATED AS PARTLY ALLO WED AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 9 TH DAY OF SEPT., 2011. SD/- SD/- (R.V. EASWAR) (P.M. J AGTAP) PRESIDENT. ACC OUNTANT MEMBER MUMBAI, DATED: 9 TH SEPT., 2011. COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI BENCHES , MUMBAI. WAKODE