LIC HOUSING FINANCE LTD, MUMBAI V. DY.CIT-2(2), MUMBAI

ITA 3535/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48539 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 05-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJEEV AGARWAL
• Assessee Lawyers: PRASAD BAPAT
• Keywords: Reopening of assessment; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI R,S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NOS. 3533, 3534 & 3535/MUM/2010 ASSESSMENT YEARS: 2001-02, 2001-02 & 2003-04 LIC HOUSING FINANCE LTD., APPELLANT BOMBAY LIFE BUILDING, 2 ND FLOOR, 45/47 VEER NARIMAN ROAD, MUMBAI. (PAN AAACL1799C) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT CIRCLE 2(2), AAYAKAR BHAVAN, MUMBAI. APPELLANT BY : MR. PRASAD BAPAT REVENUE BY : MR. RAJEEV AGARWAL . ORDER PER V. DURGA RAO, J.M.: THESE APPEALS PERTAINING TO SAME ASSESSEE ARE DIRE CTED AGAINST THE ORDERS OF CIT(A)- FOR THE ASSESSMENT YEARS 2001 -02 AND 2003-04. SINCE IDENTICAL ISSUES ARE INVOLVED IN THESE APPEAL S, THESE APPEALS WERE HEARD TOGETHER AND, THEREFORE, A COMMON ORDER IS PASSED FOR THE SAKE OF CONVENIENCE. ITA NO. 3533/MUM/2010 2. THE GROUND RAISED IN THIS APPEAL IS IN RESPECT O F SECTION 14A OF THE ACT. 3. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER HAD DISALLOWED EXPENSES OF RS. 9,94,23,807/- AND THE CI T(A) FOLLOWING THE ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 2 SPECIAL DECISION OF ITAT IN THE CASE OF DAGA CAPITA L INVESTMENT LTD., 26 SOT 603 (MUM)(SB) DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE IN PURSUANCE TO THE SAID DECISION AND IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D R.W. SECTION 14A OF THE ACT. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE TH E CIT(A). 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED RE PRESENTATIVES OF THE PARTIES HAVE AGREED THAT THIS ISSUE IS COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD., [2010] 328 ITR 81 (BOM.) WHEREIN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 3 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ITA NO. 3534/MUM/2010 7. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUND OF APPEAL:- THE LEARNED CIT(A) ERRED, IN NOT ACCEPTING THE APPE LLANTS PLEA THAT FULL DISCLOSURE WAS MADE WITH REGARD TO NON-CO NVERTIBLE DEBENTURES WRITTEN OFF IN THE AMOUNT OF RS. 4,68,34 ,997/- AS IRRECOVERABLE AS RECORDED IN THE ORIGINAL ASSESSMEN T AND AS SUCH THE REOPENING UNDER SECTION 147 OF THE ACT, 1961 CO NSTITUTED CHANGE OF OPINION WHICH IS NOT PERMISSIBLE AS PER T HE LATEST LARGER BENCH DECISION OF SUPREME COURT IN KELVINATO R OF INDIA LTD. (2010 TIOL 06). 8. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE FILED ITS RETURN OF INCOME ON 31/10/2001 DECLARING TOTAL INCOME OF R S. 87,84,10,820/-. ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON 26/02/04 DETERMINING THE TOTAL INCOME OF THE ASSESS EE AT RS. 89,23,61,930/-. THEREAFTER, THE ASSESSING OFFICER S ERVED NOTICE U/S 147 DATED 27/07/04 FOR ESCAPING ASSESSMENT ON THE G ROUND THAT THE ASSESSEE HAD CLAIMED A DEDUCTION OF RS. 20,15,06,23 7/- TOWARDS WRITE OFF NOT CHARGED TO P&L A/C, WHICH INCLUDED AN AMOUN T OF RS. 4,68,34,997/- AGAINST NON-CONVERTIBLE DEBENTURES AN D RS. 99,99,999/- AGAINST INTER CORPORATE DEPOSITS. THE B ALANCE OF RS. 14,46,71,241/- AGAINST MAIN ACTIVITY OF THE COMPANY . SINCE THE MAIN BUSINESS OF THE COMPANY WAS FINANCING FOR PURCHASE/ CONSTRUCTION OF RESIDENTIAL PREMISES, INVESTMENT IN NON-CONVERTIBLE DEBENTURES WAS IN THE NATURE OF INVESTMENT AND DID NOT CONSTITUTE ORD INARY COURSE OF BUSINESS. THEREFORE, THE ASSESSEE HAD REDUCE THIS A MOUNT OF RS. 4,68,34,997/- FROM PROVISIONS FOR CONTINGENCIES. B EFORE THE LEARNED CIT(A) THE ASSESSEE FILED WRITTEN SUBMISSIONS WHERE IN IT WAS STATED THAT IN VIEW OF DISCLOSURE OF FULL FACTS WITH REGAR D TO THE NON- CONVERTIBLE DEBENTURES WRITTEN OFF AS IRRECOVERABLE AS BROUGHT OUT IN PARAGRAPH 4 OF THE ORIGINAL ASSESSMENT ORDER, THERE FORE, THE PROCEEDINGS INITIATED U/S 147 ARE NOT VALID. IT WAS FURTHER STATED THAT ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 4 SINCE THERE BEING NO CHANGE IN THE RELEVANT FACTS, ANY PROPOSAL TO WITHDRAW OR DISALLOW THE DEDUCTION UNDER PROCEEDING S U/S 147 WOULD TANTAMOUNT TO A MERE CHANGE OF OPINION. FOR THIS CO NTENTION, THE ASSESSEE PLACED RELIANCE ON VARIOUS CASE LAWS INCLU DING THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD., 256 ITR 1. THE LEARNED CIT(A) FOLLOWING THE DECISION OF THE TRIBUNAL IN THE CASE OF CIBA INDIA P. LTD., VS. ITO [2009] 31 DTR 374 WHEREIN THE CLAIM FOR DEDUCTION U/S 35(1)(IV) WAS A LLOWED IN THE ORIGINAL ASSESSMENT ORDER. LATER THE ASSESSEE FOUND TO BE ENGAGED IN SCIENTIFIC RESEARCH NOT FOR ITSELF BUT FOR ITS GROU P COMPANIES. IT WAS HELD THAT REOPENING WAS VALID BY HOLDING THE CONDIT ION TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR AS SESSMENT IS INAPPLICABLE TO THE REASSESSMENT PROCEEDINGS INITI ATED WITHIN FOUR YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. IN VIEW OF THE ABOVE AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) HELD THAT THERE WAS NO INFIRMITY IN THE ACTION OF THE AS SESSING OFFICER IN ASSUMING JURISDICTION U/S 147 OF THE ACT. ON BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE IT AT. 9. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL THE MATE RIAL FACTS BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HAD DIS CUSSED THE ISSUE IN RESPECT OF NON-CONVERTIBLE DEBENTURES IN PARAGRAPH 4 OF HIS ORDER AND THERE IS NO NEW MATERIAL FOUND BY THE ASSESSEE, THE REFORE, INITIATION OF PROCEEDINGS U/S 147 WOULD TANTAMOUNT MERE CHANGE OF OPINION AND REOPENING OF ASSESSMENT U/S 147 IS NOT VALID IN THE EYE OF LAW. 10. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REP RESENTATIVE HAS SUPPORTED THE ORDER PASSED BY THE ASSESSING OFF ICER. 11. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF TH E PARTIES AND PERUSED THE RECORD. IN THE PRESENT CASE, THE ASSESS MENT WAS COMPLETED U/S 143(3) OF THE ACT, AFTER CONSIDERING THE MATERIAL ON ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 5 RECORD. THE ASSESSING OFFICER REOPENED THE ASSESSME NT FOR INCOME ESCAPING THE ASSESSMENT ON THE GROUND THAT THE ASSE SSEE HAD CLAIMED A DEDUCTION OF RS. 20,15,06,237/- TOWARDS WRITE OF F NOT CHARGED TO P&L A/C, WHICH INCLUDED AN AMOUNT OF RS. 4,68,34,99 7/- AGAINST NON-CONVERTIBLE DEBENTURES AND RS. 99,99,999/- AGAI NST INTER CORPORATE DEPOSITS AND THE BALANCE OF RS. 14,46,71, 241/-. THE ASSESSING OFFICER HELD THAT SINCE THE MAIN BUSINESS OF THE COMPANY WAS FINANCING FOR PURCHASE/CONSTRUCTION OF RESIDENT IAL PREMISES, INVESTMENT IN NON-CONVERTIBLE DEBENTURES WAS IN THE NATURE OF INVESTMENT AND DID NOT CONSTITUTE ORDINARY COURSE O F BUSINESS. HE FURTHER HELD THAT THE ASSESSEE HAD REDUCE THE SAID AMOUNT OF RS. 4,68,34,997/- FROM THE PROVISIONS FOR CONTINGENCIES , WHICH IS NOT IN ORDER. FROM THE ABOVE, IT IS VERY CLEAR THAT THE A SSESSING OFFICER HAS REOPENED THE ASSESSMENT ON THE GROUND THAT ACQUIRIN G DEBENTURES IS NOT NORMAL BUSINESS ACTIVITY OF THE ASSESSEE COMPAN Y. WE FIND THAT THERE IS NO ADDITIONAL MATERIAL ON RECORD BEFORE TH E ASSESSING OFFICER TO COME TO THE ABOVE CONCLUSION AND REOPENING THE A SSESSMENT U/S 147 FOR THE REASON THAT THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMENT. THE LEARNED CIT(A) HAS ALSO NOT DISPUTE D THIS FACT THAT THE ASSESSEE HAD NOT DISCLOSED FULLY AND TRULY ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. ACCORDING TO THE LEAR NED CIT(A) REOPENING IS VALID EVEN IF THE ASSESSEE HAS DISCLOS ED FULLY AND TRULY ALL THE MATERIAL FACTS THAT ARE NECESSARY FOR ASSESSMEN T IF THE REOPENING IS WITHIN 4 YEARS. IN OUR CONSIDERED OPINION THIS F INDING OF THE CIT(A) IS CONTRARY TO THE LAW LAID DOWN BY THE HONBLE SUP REME COURT AND ALSO THE HONBLE JURISDICTIONAL HIGH COURT. THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. KELVINATOR INDIA LTD., 320 ITR 561 HELD THAT AFTER 1 ST APRIL, 1999 THE ASSESSING OFFICER HAS POWER TO REO PEN THE ASSESSMENT U/S 147 OF THE ACT PROVIDED THE ASSE SSING OFFICER HAS REASON TO BELIEVE THAT THE INCOME HAS ESCAPED ASSES SMENT AND THERE IS A TANGIBLE MATERIAL TO COME TO THE CONCLUSION TH AT THERE IS AN ESCAPEMENT OF INCOME. MERE CHANGE OF OPINION CANNOT PER-SE BE THE REASON TO REOPEN THE ASSESSMENT. IN THE SIMILAR CIR CUMSTANCES, THE ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 6 HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AS IAN PAINTS LTD. VS. DCIT AND OTHERS, 308 ITR 195 HAS HELD THAT ISSUANCE OF NOTICE U/S 148 OF THE ACT FOR THE REASON THAT SOME MATERIAL WH ICH WAS AVAILABLE ON RECORD WHILE MAKING ASSESSMENT WAS INADVERTENTLY EXCLUDED FROM CONSIDERATION AMOUNT TO REOPENING OF ASSESSMENT U/S 147. REOPENING OF ASSESSMENT MERELY ON THE BASIS OF CHANGE OF OPIN ION IS NOT PERMISSIBLE UNDER THE LAW. THE CIT(A) HAS RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF CIBA INDIA P. LTD., VS. ITO (SUPRA) WHEREIN THE ASSESSMENT WAS MADE U/S 143(1) AND SUBSEQUENTLY IT WAS REOPENED WHEREAS, IN THE PRESENT CASE, THE ASSESSMENT WAS MA DE U/S 143(3) OF THE ACT AND SUBSEQUENTLY IT WAS REOPENED ON THE SAM E FACTS AND MATERIAL. THE FACTS OF THE CASE UNDER CONSIDERATION ARE ENTIRELY DIFFERENT FROM THE FACTS OF THE CASE RELIED UPON BY THE CIT(A). THEREFORE, RESPECTFULLY FOLLOWING THE RATIOS LAID D OWN BY THE HONBLE SUPREME COURT IN THE CASE OF KELVINATOR INDIA LTD.( SUPRA) AND THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF AS IAN PAINTS LTD. (SUPRA), WE HEREBY QUASH THE REOPENING ASSESSMENT M ADE BY THE ASSESSING OFFICER U/S 147 OF THE ACT. ACCORDINGLY, THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN THIS REGARD IS ALL OWED. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO. 3535/MUM/10 13. THE SSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE LEARNED CIT()A) ERRED ON THE FACTS AND IN T HE CIRCUMSTANCES OF THE CASE AND IN LAW, IN NOT ACCEPT ING THE APPELLANTS PLEA THAT THE PROVISIONS OF SECTION 14A OF THE ACT, 1961 ARE NOT APPLICABLE TO THE TAX FREE DIVIDEND AN D INTEREST INCOME EARNED BY THE APPELLANT. 2. WITHOUT PREJUDICE TO THE ABOVE GROUND, THE APPEL LANT CONTENDS THAT RULE 8D OF THE INCOME TAX RULES WAS NOT APPLIC ABLE TO THE APPELLANT IN ASSESSMENT YEAR UNDER APPEAL AND THAT IT WAS APPLICABLE ONLY PROSPECTIVELY WITH EFFECT FROM 24/0 3/2008. ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 7 14. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSE SSEE CLAIMED DIVIDEND AND INTEREST INCOME FROM TAX FREE BONDS U/ S 10(33) & 10(15) OF THE ACT AMOUNTING TO RS. 3,39,38,675/- WHICH WER E EXEMPT FROM TAX. THE ASSESSEE CONTENDED THAT PROVISIONS OF SECT ION 14A WERE NOT APPLICABLE IN ITS CASE AS WELL AS THE INVESTMENTS O F THE COMPANY HAD BEEN MADE OUT OF ITS OWN FUNDS. IT WAS CONTENDED TH AT THE BORROWINGS OF THE COMPANY WERE MAINLY LIC, BANKS NHB AND THROU GH ISSUE OF NON-CONVERTIBLE DEBENTURES AND IN ALL THESE CASES T HERE WAS A PROVISION IN THE LOAN AGREEMENT/OFFER DOCUMENTS THA T MONEY WILL BE USED FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY I.E. LENDING FOR PURCHASES OR CONSTRUCTION OF RESIDENTIAL HOUSE. THE ASSESSING OFFICER NOTED THAT THE CLAIM THAT ALL THE BORROWINGS HAD ON LY BEEN UTILIZED FOR THE ADVANCING LOANS FOR PURCHASE AND CONSTRUCTION O F RESIDENTIAL HOUSE ONLY, HAD NOT BEEN SUBSTANTIATED BY GIVING ST ATEMENT OF UTILIZATION OF THE SPECIFIC BORROWINGS, THE STATEME NT OF ACCOUNTS PREPARED BY THE ASSESSEE INCLUDED ITEM OF EXPENDITU RE WHICH HAD BEEN UTILIZED FOR EARNING INCOME INCLUDING INCOME C LASSIFIED AS EXEMPT. THE MAJOR SOURCE OF THE FUNDS FOR THE ASSES SEE WAS BORROWINGS ON WHICH INTEREST WAS PAID. ACCORDINGLY, THE ASSESSING OFFICER WORKED OUT BY APPORTIONING THE INTEREST EXP ENDITURE OF RS. 652,35,72,508/- TO ALL THE ACTIVITIES OF THE ASSESS EE IN PROPORTION TO THE INCOME EARNED FROM EACH ACTIVITY. THUS, THE DIS ALLOWANCE WAS WORKED OUT U/S 14A AT RS. 2,92,15,306/-. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). 15. BEFORE THE CIT(A), THE ASSESSEE FILED WRITTEN S UBMISSIONS WHEREIN, INTER-ALIA, IT WAS STATED THAT WHATEVER TA X FREE DIVIDEND ACCRUED TO THE ASSESSEE WAS ATTRIBUTABLE TO SHORT T ERM INVESTMENTS MADE OUT OF INTERNAL FUNDS. RELIANCE WAS PLACED ON CIT VS. HERO CYCLES (P&H). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) FOLLOWING THE SPECIAL BENCH DECISION OF ITAT IN THE CASE OF ITIO VS. DAGA CAPITAL INVESTMENT LTD. [2008] 26 SOT 603 (MUM)(SB), DIRECTED THE ASSESSING OFFICER TO VERIFY THE CORREC TNESS OF THE WORKING ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 8 OF DISALLOWANCE OF RS. 6,30,15,147/- SUBMITTED BY T HE ASSESSEE ON THE BASIS OF FIGURES AVAILABLE IN THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT AT HIS END AND IN THE LIGHT OF THE FORMULA PROVIDED IN RULE 8D. THE AMOUNT SO WORKED OUT IN TERMS OF RULE 8D WOULD SUBSTITUTE THE AMOUNT DISALLOWED AS PER THE ASSESSMENT, RESULTING IN ENHANCEMENT OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. AGGRIEVED THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 16. AT THE TIME OF HEARING BEFORE US, THE LEARNED R EPRESENTATIVES OF THE PARTIES HAVE AGREED THAT THIS ISSUE IS COVERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD., [2010] 328 ITR 81 (BOM.) WHEREIN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 17. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE J URISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. ITA NOS. 3533, 3534, & 3535/MUM/2010 LIC HOUSING FINANCE LTD. . 9 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29 TH APRIL, 2011. SD/- SD/- (R.S.SYAL) (V. DURGA R AO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 29 TH APRIL, 2011 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV