DCIT 14(1)(2), MUMBAI V. GODREJ & BOYCE MFG CO.LTD, MUMBAI

ITA 4321/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1413 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 10-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Business expenditure; Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES C, MUMBAI BEFORE S/SHRI G S PANNU, AM, & SAKTIJIT DEY, JM I T A NO. 4040 /MUM/2015 ASSESSMENT YEAR 2011 - 12 GODREJ & BOYCE MFG. CO. LTD., PIROJSHA NAGAR, VIKHROLI MUMBAI- 400 079 PAN : AAACG1395D VS. ADDL. CIT RANGE 14(1) MUMBAI (APPELLANT) (RESPONDENT) I T A NO. 4321 /MUM/2015 ASSESSMENT YEAR 2011 - 12 DCIT RANGE 14(1)(2) MUMBAI VS. GODREJ & BOYCE MFG. CO. LTD., PIROJSHA NAGAR, VIKHROLI MUMBAI- 400 079 PAN : AAACG1395D (APPELLANT) (RESPONDENT) FOR THE ASSESSEE : SHRI M M GOLVALA & MS. SONALI GO DBOLE FOR THE REVENUE : SHRI SAURABH KUMAR RAI (DR) DATE OF HEARING : 22 .0 3 .201 7 DATE OF PRONOUNCEMENT : 05.04 .2017 O R D E R PER SAKTIJIT DEY, JUDICIAL MEMBER: THE AFORESAID CROSS-APPEALS BY THE ASSESSEE AND THE DEPARTMENT ARE AGAINST THE COMMON ORDER DATED 17.04.2015, OF THE L EARNED CIT(A)-22, MUMBAI FOR THE A.Y. 2011-12. ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 2 2. ITA NO. 4040 /MUM/2015 GROUND NOS. 1 TO 3 PERTAIN TO DISALLOWANCE OF ASSES SEES CLAIM ON DEPRECIATION ON ASSETS ACQUIRED ON DEMERGER. 3. BRIEFLY, THE FACTS ARE, THE ASSESSEE, A COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKETING OF STEEL FU RNITURE, SECURITY EQUIPMENTS, TYPEWRITERS, ELECTRONIC EQUIPMENTS, MAC HINE TOOLS, FORK LIFT TRUCKS, LOCKS, PRESS TOOLS ETC. IN THE COURSE OF A SSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRECIATI ON OF RS.82,16,84,008/- AND IN THE TAX AUDIT REPORT IT WAS STATED BY THE AS SESSEE THAT SUCH DEPRECIATION IS CLAIMED ON THE WDV OF ASSETS TRANSF ERRED FROM GODREJ APPLIANCES LTD., PURSUANT TO DEMERGER OF THE SAID C OMPANY. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE CLAIM OF DEPRE CIATION SHOULD NOT BE DISALLOWED. THOUGH, THE ASSESSEE JUSTIFIED ITS CLA IM THROUGH AN ELABORATE SUBMISSION MADE BEFORE THE AO, HOWEVER, THE AO TAKI NG NOTE OF THE AMENDMENT MADE TO EXPLANATION 2B TO SECTION 43(6) O F THE ACT FROM A Y 2004-05 DISALLOWED ASSESSEES CLAIM OF DEPRECIATION ON ASSETS ACQUIRED ON DEMERGER AND, ACCORDINGLY, REDUCED THE CLAIM OF DEP RECIATION BY AN AMOUNT OF RS.3,09,61,631/- THEREBY ALLOWING DEPRECIATION O F RS.79,07,22,377/-. THOUGH, THE ASSESSEE CHALLENGED THE PART DISALLOWA NCE OF DEPRECIATION BEFORE THE FIRST APPELLATE AUTHORITY, HE ALSO CONFI RMED THE DISALLOWANCE TAKING ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 3 NOTE OF THE FACT THAT IN ASSESSEES OWN CASE ITAT H AS DECIDED THE ISSUE AGAINST THE ASSESSEE. 4. THE LEARNED AR FAIRLY SUBMITTED THAT THE ISSUE H AS BEEN DECIDED AGAINST THE ASSESSEE BY THE ITAT WHILE DECIDING ASS ESSEES APPEALS FOR A.YS. 2003-04 TO 2010-11 IN THREE SEPARATE ORDERS. THE L EARNED DR AGREED WITH THE AFORESAID SUBMISSIONS OF THE ASSESSEE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIAL ON RECORD. AS COULD BE SEEN, THE ISSUE RE LATING TO DISALLOWANCE OF ASSESEES CLAIM OF DEPRECIATION ON ASSETS ACQUIRED ON DEMERGER OF GODREJ APPLIANCE LTD. IS ARISING FROM A.YS. 2003-04 ONWARD S AND THE MATTER HAS TRAVELLED UPTO ITAT. IN THREE SEPARATE ORDERS I.E. ITA NO. 4538/MUM/2011 & ORS DATED 31.12.2014 (FOR A Y 2003-04); ITA 4540/MU M/2011 & ORS FOR AY 2005-06 DATED 13.04.2016 AND ITA 8488/MUM/2011 (FOR AY 2008-09) DATED 23.08.2016, THE TRIBUNAL HAS UPHELD THE ORDER OF TH E DEPARTMENTAL AUTHORITIES IN DISALLOWING ASSESSEES CLAIM OF DEPRECIATION ON ASSETS ACQUIRED ON DEMERGER. RESPECTFULLY, FOLLOWING THE CONSISTENT V IEW OF THE TRIBUNAL IN ASSESSES OWN CASE FOR THE PRECEDING ASSESSMENT YEA RS, WE UPHOLD THE DECISION OF THE CIT(A) ON THIS ISSUE AND DISMISS TH E GROUND RAISED BY THE ASSESSEE. 6. IN GROUND NOS. 4 TO 6, THE ASSESSEE HAS CHALLENG ED DISALLOWANCE OF CLAIM OF EXPENDITURE ON BRAND IMPROVEMENT. BRIEFLY , THE FACTS ARE DURING THE ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 4 ASSESSMENT PROCEEDINGS, THE AO NOTICING THAT PAYMEN T OF PROFESSIONAL FEES OF RS.88,93,432/- TO INTERBRAND UK FOR DEVELOPMENT OF BRAND, HAS BEEN CLAIMED AS REVENUE EXPENDITURE, CALLED UPON THE ASSESSEE TO EXPLAIN WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED AS IT IS IN TH E NATURE OF CAPITAL EXPENDITURE. IN REPLY, IT WAS EXPLAINED BY THE ASS ESSEE THAT THE EXPENDITURE INCURRED IS NOT FOR DEVELOPMENT OF THE BRAND AS IT IS IN EXISTENCE FOR MORE THAN 100 YEARS. IT WAS SUBMITTED, THE EXPENDITURE WAS INCURRED FOR MAINTAINING THE EXISTING BRAND NAME OF THE COMPANY. IT WAS SUBMITTED, TO MAINTAIN GOODWILL AND BRAND AWARENESS ATTACHED TO T HE GODREJ BRAND, ASSESSEE HAD APPOINTED INTERBRAND TO PROVIDE PROFES SIONAL CUSTOMIZED BRAND ASSESSMENT SERVICES, TO STUDY THE VALUE OF THE GOD REJ BRAND AND TO PROVIDE SERVICES TO MAINTAIN AND ENHANCE THE EXISTING BRAND . THEREFORE, IT WAS CLAIMED, THE EXPENDITURE INCURRED BEING FOR THE PUR POSE OF MAINTAINING BRAND TO PROMOTE THEIR BUSINESS AND SALES, IT IS ALLOWABL E AS BUSINESS EXPENDITURE. THE AO, HOWEVER, WAS NOT CONVINCED WITH THE EXPLANA TION OF THE ASSESSEE. ULTIMATELY, HE HELD THAT THE EXPENDITURE BEING IN T HE NATURE OF CAPITAL EXPENDITURE IS NOT ALLOWABLE AND ALLOWED DEPRECIATI ON @25% ON THE EXPENDITURE CLAIMED. THE LEARNED CIT(A) ALSO UPHEL D THE DECISION OF THE AO WHILE DECIDING ASSESSEES APPEAL. 7. THE LEARNED AR SUBMITTED, ISSUE STANDS DECIDED I N FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ITS OWN CASE FOR A.YS. 2008-09, ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 5 2009-10 AND 2010-11. THE LEARNED DR HAS NOT CONTRO VERTED THE AFORESAID SUBMISSION OF THE ASSESSEE. 8. WE HAVE HEARD THE PARTIES AND PERUSED THE MATERI AL ON RECORD. AS COULD BE SEEN, THE ASSESSEE HAS CLAIMED SIMILAR EXP ENDITURE IN A.YS. 2008-09, 2009-10 AND 2010-11 AS WELL. IN FACT, THE PAYMENTS IN THOSE ASSESSMENT YEARS WERE ALSO MADE TO THE SAME PARTY. HOWEVER, W HILE DECIDING ASSESSEES APPEALS, THE TRIBUNAL HAS ALLOWED ASSESSEES CLAIM OF EXPENDITURE BY HOLDING THAT EXPENDITURE INCURRED ON BRAND BUILDING IS REVE NUE IN NATURE. RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH E TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS. 8488/MUM/2011 & ORS DATED 23.08.20 16, WE DELETE THE ADDITION MADE BY THE AO WHILE ALLOWING ASSESSEES C LAIM. 9. AT THIS STAGE, IT IS RELEVANT TO OBSERVE THAT AP ART FROM THE GROUND RAISED IN THE MEMORANDUM OF APPEAL, THE ASSESSEE VIDE LETT ER DATED 22.03.2017 HAS SOUGHT TO RAISE ISSUES RELATING TO DISALLOWANCE MAD E U/S. 14A READ WITH RULE 8D BY WAY OF ADDITIONAL GROUNDS WHICH ARE AS UNDER: 1.0. BOTH THE LOWER AUTHORITIES ERRED IN APPLYING THE PROVISIONS OF SECTION 14A TO SHARES HELD BY THE APPELLANT. SI NCE THE DIVIDEND FROM SHARES/UNITS OF MUTUAL FUNDS IS SUBJECTED TO D IVIDEND DISTRIBUTION TAX, THE APPELLANT SUBMITS THAT RELEVA NT INCOME IS NOT TAX FREE AND, CONSEQUENTLY, THE PROVISIONS OF SECTI ON 14A ARE NOT ATTRACTED. 2.0 THE ASSESSING OFFICER ERRED IN APPLYING RULE 8D , WITHOUT RECORDING HIS SATISFACTION. 3.0 WITHOUT PREJUDICE, AND IN ANY EVENT, THE APPELL ANT SUBMITS THAT THE INVESTMENTS MADE IN SHARES OF ITS SUBSIDIA RY/GROUP ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 6 COMPANIES, ARE STRATEGIC INVESTMENTS AND THE SAME S HOULD NOT BE CONSIDERED FOR COMPUTING THE AVERAGE VALUE OF INVES TMENTS FOR THE PURPOSE OF RULE 8D. 4.0 BOTH THE LOWER AUTHORITIES ERRED IN HOLDING THA T DISALLOWANCE MADE U/S. 14A OF THE ACT UNDER NORMAL COMPUTATION O F INCOME WAS ALSO REQUIRED TO BE ADDED BACK FOR COMPUTING BOOK P ROFITS U/S. 115JB OF THE ACT. 5.0 WITHOUT PREJUDICE, AND IN ANY EVENT, THE DISALL OWANCE MADE U/S. 14A IN THE COMPUTATION OF BOOK PROFITS REQUIRE S TO BE REDUCED SUBSTANTIALLY. SINCE THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE CAN BE DECIDED ON THE BASIS OF FACTS AVAILABLE ON RECORD AND DO NOT REQUI RE INVESTIGATION INTO FRESH FACTS, WE ARE INCLINED TO ADMIT THE ADDITIONAL GROU NDS RAISED BY THE ASSESSEE FOR ADJUDICATION. 10. BRIEFLY, FACTS ARE, DURING THE COURSE OF ASSESS MENT PROCEEDINGS, THE AO NOTICING THAT THAT ASSESSEE HAD EARNED EXEMPT INCOM E OF RS.84,30,37,423/- FROM SHARES AND MUTUAL FUNDS BUT DID NOT DISALLOW A NY EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME, CALLED UP ON THE ASSESSEE TO EXPLAIN WHY EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCO ME SHOULD NOT BE DISALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED A DETAILED REPLY OBJECTING TO THE DISALLOWANCE PROPOSED BY THE AO. THE AO HOWEVE R, REJECTING THE CLAIM OF THE ASSESSEE PROCEEDED TO COMPUTE THE DISALLOWAN CE U/S. 14A AS PER THE METHOD PRESCRIBED IN RULE 8D AND ACCORDINGLY, QUANT IFIED THE DISALLOWANCE AT RS.5,11,85,000/- COMPRISING OF INTEREST EXPENDITURE OF RS.3,98,61,000/- AND ADMINISTRATIVE EXPENDITURE OF RS.1,13,24,000/- ASS ESSEE CHALLENGED THE ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 7 DISALLOWANCE BEFORE THE CIT(A). THE CIT(A) AFTER C ONSIDERING THE SUBMISSIONS OF THE ASSESSEE FOUND THAT THE ISSUE OF DISALLOWANCE U/S. 14A READ WITH RULE 8D IN ASSESSEES OWN CASE WAS CONSID ERED IN AY 2010-11 BY THE CIT(A) AND THE CIT(A) HAD HELD THAT AFTER INTRO DUCTION OF RULE 8D DISALLOWANCE U/S. 14A HAS TO BE MADE IN TERMS OF TH E METHOD PRESCRIBED UNDER THE SAID RULE. HE FURTHER OBSERVED THAT IN A Y 2010-11, THE CIT(A) WHILE SUSTAINING THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE MADE UNDER RULE 8D(2)(III) HAS DELETED THE DISALLOWANCE OF INT EREST EXPENDITURE MADE UNDER RULE 8D(2)(II) 11. BEING AGGRIEVED OF THE AFORESAID DECISION OF TH E CIT(A), BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US . WHILE THE ASSESSEE IS CHALLENGING THE PART DISALLOWANCE SUSTAINED BY THE CIT(A), THE DEPARTMENT HAS CHALLENGED RELIEF GRANTED BY THE CIT(A) TO THE ASSESSEE. 12. THE LEARNED AR CHALLENGING THE DISALLOWANCE OF EXPENDITURE U/S.14A READ WITH RULE 8D HAS ADVANCED THE FOLLOWING PROPOS ITIONS: I) WITHOUT RECORDING SATISFACTION WITH REGARD TO TH E CORRECTNESS OF ASSESSEES CLAIM OF EXPENDITURE WITH REFERENCE TO T HE BOOKS OF ACCOUNT OF THE ASSESSEE, THE AO CANOT MAKE DISALLOWANCE U/S . 14A READ WITH RULE 8D. IN SUPPORT OF THE AFORESAID CONTENTIONS, THE LEARNED AR HAS RELIED ON THE DECISION OF HONBLE BOMBAY HIGG COURT IN ITS OWN CASE I.E. GODREJ & BOYCE MANFUCTURING CO. LTD. V. DCIT (2010) 328 ITR 81. ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 8 II) PROVISIONS OF SECTION 14A IS NOT ATTRACTED ON D IVIDEND FROM SHARES/UNITS OF MUTUAL FUNDS. III) STRATEGIC INVESTMENTS MADE BY THE ASSESSEE FOR BUSINESS PURPOSE ARE TO BE EXCLUDED FOR COMPUTING AVERAGE INVESTMENT UNDER RULE 8D(2)(III). IV) DISALLOWANCE MADE U/S. 14A NOT TO BE CONSIDERED FOR COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 13. THE LEARNED DR, ON THE OTHER HAND, RELYING UPON THE OBSERVATIONS OF THE AO SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO SHOULD BE RESTORED IN ITS ENTIRETY. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTI ES AND PERUSED THE MATERIAL ON RECORD IN THE LIGHT OF THE DECISIONS RE LIED UPON. AT THE OUTSET, WE WILL DEAL WITH THE FIRST PROPOSITION ADVANCED BY TH E LEARNED AR VIZ. WITHOUT RECORDING SATISFACTION WITH REGARD TO THE CORRECTNE SS OF ASESSEES CLAIM IN RELATION TO EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME; NO DISALLOWANCE U/S. 14A CAN BE MADE. IT NEEDS TO BE OBSERVED, AS PER SECTION 14A(1) ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL NOT BE ALLOWED AS DEDUCTION. HOWEVER, AS PER SUB SECTION (2) OF SECTION 14A WHIC H WAS INTRODUCED IN THE STATUTE BOOK BY FINANCE ACT, 2006 W.E.F. 1.4.2007, BEFORE COMPUTING THE ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 9 EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOM E, THE AO HAVING REGARD TO THE BOOKS OF ACCOUNT OF THE ASSESSEE MUST RECORD A SATISFACTION THAT ASSESSEES CLAIM WITH REGARD TO THE EXPENDITURE INC URRED FOR EARNING EXEMPT INCOME IS NOT CORRECT. IN FACT, RULE 8D WHICH WAS I NTRODUCED TO THE STATUTE W.E.F. 24.03.2008 AND WHICH LAYS DOWN THE METHOD FO R COMPUTING EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME I S ALSO SIMILARLY WORDED AS SECTION 14A(2). THUS, FROM A CONJOINT READING OF S ECTION 14A(2) WITH RULE 8D(1), IT BECOMES CLEAR THAT BEFORE PROCEEDING TO D ISALLOW THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME EARNED BY THE ASSESSEE, THE AO MUST RECORD A SATISFACTION THAT ASSESSEES CLAIM IN RELA TION TO THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME IS NOT CORRECT. KEEPING IN VIEW THE AFORESAID LEGAL PRINCIPLE, WE HAVE TO EXAMINE THE F ACTS OF THE PRESENT CASE. AS COULD BE SEEN FROM THE MATERIAL ON RECORD, ALONG WITH THE RETURN OF INCOME ASSESSEE HAS SUBMITTED A COMPUTATION OF INAD MISSIBLE EXPENDITURE U/S. 14A AMOUNTING TO RS.13,66,635/-. IT IS THE CL AIM OF THE ASSESSEE THAT THE DISALLOWANCE MADE BY IT U/S. 14A IS AS PER THE BOOKS OF ACCOUNT AND CLEARLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. ON A PERUSAL OF THE ASSESSMENT ORDER, WE HAVE NOT FOUND ANY DISCUSSION BY THE AO WITH REGARD TO THE COMPUTATION OF INADMISSIBLE EXPENDITURE MADE BY THE ASSESSEE FORMING PART OF THE RETURN OF INCOME. THE AO HAS N OT RECORDED ANY SATISFACTION THAT THE WORKING OF INADMISSIBLE EXPEN DITURE U/S. 14A IS INCORRECT HAVING REGARD TO THE BOOKS OF ACCOUNT OF THE ASSESS EE. THE HONBLE BOMBAY ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 10 HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURIN G CO. LTD. V. DCIT (SUPRA), WHILE EXAMINING THE IMPORTANCE OF RECORDIN G OF SATISFACTION BY THE AO IN TERMS OF SECTION 14A(2) HAS HELD AS UNDER: UNDER SUB-SECTION (2), THE ASSESSING OFFICER IS REQ UIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. THE METHOD, HAVING REGARD TO THE MEANI NG OF EXPRESSION PRESCRIBED IN SECTION 2(33), MUST BE P RESCRIBED BY RULES MADE UNDER THE ACT. WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED MET HOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE COR RECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE INCURRED IN RELATION TO INC OME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOVER, THE SATISF ACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGA RD TO THE ACCOUNTS OF THE ASSESSEE. HENCE SUB-SECTION (2) DO ES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE MET HOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETH ER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE ACC OUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICE R MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSE SSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCR IBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNIS H AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATI SFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FO R, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SAT ISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LA W. ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 11 15. A CAREFUL READING OF THE AFORESAID EXTRACTED PO RTION OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT WOULD MAKE IT CLE AR, REGARD BEING HAD TO SUBSECTION (2) OF SECTION 14A, THE PROVISION DOES N OT EMPOWER THE AO TO APPLY RULE 8D STRAIGHTAWAY WITHOUT CONSIDERING THE CORRECTNESS OF ASSESSEES CLAIM IN RESPECT OF EXPENDITURE INCURRED IN RELATIO N TO EXEMPT INCOME. IF ONE APPLIES THE AFORESAID LEGAL PRINCIPLE TO THE FACTS OF THE PRESENT CASE, IT EMERGES THAT THOUGH THE ASSESSEE ALONG WITH RETURN OF INCOME HAS FURNISHED A COMPUTATION OF INADMISSIBLE EXPENDITURE U/S. 14A, THE AO HAS NEITHER EXAMINED SUCH CLAIM OF THE ASSESSEE NOR HAS RECORDE D ANY SATISFACTION WITH REGARD TO THE CORRECTNESS OR OTHERWISE OF ASSESSEE S CLAIM WITH REFERENCE TO THE BOOKS OF ACCOUNT. THAT BEING THE CASE, THE DIS ALLOWANCE MADE BY APPLYING RULE 8D IS NOT ONLY AGAINST THE STATUTORY MANDATE BUT CONTRARY TO LEGAL PRINCIPLES LAID DOWN IN THE JUDICIAL PRECEDEN TS REFERRED TO ABOVE. IN THE AFORESAID VIEW OF THE MATTER, THE DISALLOWANCE MADE BY THE AO AND PARTLY SUSTAINED BY THE CIT(A) WOULD HAVE NO LEG TO STAND. ACCORDINGLY, THE ADDITION MADE DESERVES TO BE DELETED. HOWEVER, THE DISALLOWANCE MADE U/S. 14A BY THE ASSESSEE ITSELF IS ALSO REQUIRED TO BE D ISALLOWED WHILE COMPUTING THE BOOK PROFIT U/S. 115JB IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YS. 2005-06 TO 2010-11 AS REFERRED T O ABOVE. ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 12 IN VIEW OF OUR AFORESAID DECISION, THE OTHER PROPOS ITIONS RAISED BY THE ASSESSEE CHALLENGING THE DISALLOWANCE U/S. 14A ARE NOT REQUIRED TO BE GONE INTO. THE GROUNDS RAISED ARE PARTLY ALLOWED. 16. ITA 4321/MUM/2015 THE ONLY ISSUE RAISED BY THE DEPARTMENT IS IN RELA TION TO THE DELETION OF ADDITION MADE ON ACCOUNT OF INTEREST EXPENDITURE U/ S. 14A READ WITH RULE 8D(2)(II). AS DISCUSSED EARLIER, THE AO WHILE COMP LETING THE ASSESSMENT HAD COMPUTED DISALLOWANCE U/S. 14A READ WITH RULE 8D FO R A TOTAL AMOUNT OF RS.5,11,85,000/- WHICH INCLUDED DISALLOWANCE OF INT EREST EXPENDITURE UNDER RULE 8D(2)(II) OF THE ACT. HOWEVER, THE LEARNED CI T(A) DELETED THE DISALLOWANCE OF INTEREST EXPENDITURE ON THE GROUND THAT THE ASSESSEE HAD SURPLUS INTEREST FREE FUND AVAILABLE WITH IT TO MAK E THE INVESTMENT IN EXEMPT INCOME EARNING ASSET. 17. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL ON RECORD. WHILE DECIDING THE ADDITIONAL GROUND RAISED BY THE ASSESS EE IN THE EARLIER PART OF THE ORDER, WE HAVE DELETED THE DISALLOWANCE MADE BY THE AO U/S. 14A READ WITH RULE 8D FOR THE REASONS DISCUSSED THEREIN. TH AT BEING THE CASE, THE ISSUE RAISED BY THE DEPARTMENT IN THE PRESENT APPEA L WOULD NO MORE SURVIVE. SUFFICE TO SAY THE CIT(A) HAS DELETED THE ADDITION MADE ON ACCOUNT OF INTEREST EXPENDITURE FOR THE REASON THAT THE ASSESS EE HAD SUFFICIENT INTEREST FREE SURPLUS FUND TO MAKE THE INVESTMENT. IN FACT, THE AO HIMSELF IN ITA NO. 4040 & 4321/MUM/2015 GODREJ & BOYCE MFG. CO. LTD. 13 ASSESSMENT ORDER HAS STATED THAT THE ASSESSEE HAD S UBSTANTIAL SURPLUS FUND AVAILABLE WITH IT. THAT BEING THE CASE, THE INTERE ST EXPENDITURE UNDER NO CIRCUMSTANCES CAN BE DISALLOWED U/S. 14A READ WITH RULE 8D(2)(II). THE GROUND RAISED BY THE DEPARTMENT IS THEREFORE DISMIS SED. 18. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED AND THE DEPARTMENTS APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 5 TH DAY OF APRIL 2017 SD/- SD/- (G S PANNU) (SAKTIJIT D EY) ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI; DATED : 5 TH APRIL, 2017. SA COPY OF THE ORDER FORWARDED TO : 1. THE APP ELL ANT. 2. THE RESPONDENT. 3. T HE CIT(A), MUMBAI. 4. THE CIT 5. DR, C BENCH, ITAT, MUMBAI BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI