Appeal details
Counselvise Citation
44121114 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
5 month(s) 1 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
21-09-2011
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Assessment Year
2007-2008
Appeal Filed On
19-04-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SMT. P. MADHAVI DEVI, JUDICIAL MEMBER ITA NO.441/BANG/11 ASSESSMENT YEAR : 2007-08 M/S. SANSERA ENGINEERING PVT. LTD., # 261/C, BOMMASANDRA INDUSTRIAL AREA, BANGALORE 560 099. PAN : AAECS2440M VS THE COMMISSIONER OF INCOME TAX, LTU, BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI DEVARAJ, C.A. RESPONDENT BY : SHRI PRATAP SINGH, ADDL.CIT(DR) DATE OF HEARING : 16.09.2011 DATE OF PRONOUNCEMENT : 21.09.2011 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 16.03.2011 OF THE CIT, LTU, BANGALORE. 2. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS:- 1. THE ORDER OF THE CIT IS BAD IN LAW. ITA NO.441/BANG/11 PAGE 2 OF 15 2. THE CIT ERRED IN COMING TO THE CONCLUSION THAT T HE JUDGMENT FAVOURING THE APPELLANTS STAND WAS NOT APPLICABLE. THE CIT ERRED IN COMING TO THE CONCLUSION THAT THE JUDGEMENT FAVOURING THE APPELLANTS STAND WAS NOT APPLICABLE. 3. THE CIT ERRED IN COMING TO THE CONCLUSION THAT T HE PROVISIONS OF SECTION 14D READ WITH RULE 8D WOULD A PPLY EVEN FOR THE ASSESSMENT YEAR 2007-08, WHEN IN FACT THE SAID RULE WAS MADE EFFECTIVE FROM THE ASSESSMENT YE AR 2008-09. 4. THE CIT ERRED IN NOT APPRECIATING THE FACT THAT THE INVESTMENTS YIELDING THE TAX EXEMPT INCOME WAS OUT OF THE OWN FUNDS OF THE APPELLANT AND NOT OUT OF THE BORRO WED FUNDS. 5. THE CIT ERRED IN NOT APPRECIATING THE FACT THAT THE APPELLANT HAD NOT INCURRED ANY EXPENDITURE EITHER D IRECTLY OR INDIRECTLY IN EARNING THE TAX EXEMPT INCOME. 6. THE CIT ERRED IN NOT APPRECIATING THE FACT, WITH OUT PREJUDICE TO THE ABOVE GROUNDS, THAT THE DIVIDEND I NCOME WAS TO BE CATEGORIZED UNDER THE HEAD INCOME FROM OT HER SOURCES AND THAT THE APPELLANT HAD NO EXPENDITURE T HAT WOULD HAVE BEEN CLAIMED DEDUCTION U/S. 57(III) THER EBY NON-APPLICABILITY OF THE PROVISIONS OF SECTION 14A. 7. THE CIT ERRED IN NOT CONSIDERING THE WELL LAID L EGAL PRINCIPLE THAT WHEN THERE ARE TWO VIEWS POSSIBLE TH E ONE BENEFICIAL TO THE APPELLANT OUGHT TO HAVE BEEN APPL IED. THIS WOULD RESULT IN THE ORDER OF THE LAO NOT BEING ERRONEOUS. ON THE ABOVE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING YOUR APPELLANT PRAYS YOUR HONOUR TO CONS IDER THE FACTS AND CIRCUMSTANCES OF THE CASE AND RENDER JUSTICE. 3. FROM THE ABOVE GROUNDS, IT WOULD BE CLEAR THAT THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL RELATES TO THE ACTION OF TH E LD. CIT U/S. 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT IN SHORT). ITA NO.441/BANG/11 PAGE 3 OF 15 4. THE FACTS RELATED TO THIS CASE IN BRIEF ARE THAT THE ASSESSEE WAS ENGAGED IN THE ACTIVITY OF MANUFACTURING OF AUTOMOB ILE COMPONENTS AND FILED RETURN OF INCOME ON 26.10.2007 DECLARING AN I NCOME OF RS.13,66,81,654 WHICH WAS PROCESSED U/S. 143(1) OF THE ACT ON 11.8.2008. LATER ON THE CASE WAS SELECTED FOR SCRUTINY AND ASS ESSMENT U/S .143(3) WAS FRAMED ON 7.8.2009 BY ACCEPTING THE RETURN OF I NCOME. THEREAFTER, THE LD. CIT EXERCISED THE POWERS OF REVISION OF THE ASS ESSMENT ORDER U/S. 263 OF THE ACT BY OBSERVING AS UNDER: A PERUSAL OF THE RECORDS FOR A.Y. 2007-08 SHOWS TH AT THE COMPANY HAD CLAIMED THE ENTIRE DIVIDEND INCOME OF R S.80,14,144 AS EXEMPT WITHOUT APPLYING THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D. WITH EFFECT FROM, A.Y. 2007-08, AS P ER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, THE AS SESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE I NCURRED IN RELATION TO SUCH EXEMPT INCOME IN ACCORDANCE WITH T HE PROVISIONS OF SECTION 14A READ WITH RULE 8D. HENCE, IN THE PRE SENT CASE THE DISALLOWANCE IS AS FOLLOWS: = 41,75,08,000 + 13,80,000 = 21,46,44,000 2 0.5% OF 21,46,44,000 = 10,73,220/- HENCE A SUM OF RS.10,73,220/- BEING EXPENDITURE INC URRED FOR EXEMPTED INCOME IS TO BE ADDED BACK TO THE INCOME. THIS HAS RESULTED IN UNDER ASSESSMENT OF INCOME TO THE TUNE OF RS.10,73,220/- HAVING TAX EFFECT OF RS.3.61 LAKHS P LUS INTEREST THEREON. THIS HAS RESULTED IN THE ASSESSMENT ORDER BEING RENDERED ERRONEOUS IN THE SENSE THAT THE PROVISIONS OF THE I NCOME TAX ACT HAVE BEEN OMITTED TO BE APPLIED AND PREJUDICIAL TO THE INTEREST OF REVENUE IN VIEW OF TAX AND INTEREST FOREGONE. 5. THE LD. CIT ISSUED NOTICE DATED 15.11.10 U/S. 26 3 OF THE ACT TO THE ASSESSEE. IN RESPONSE TO THAT, THE ASSESSEE FURNIS HED SUBMISSION WHICH HAS BEEN MENTIONED IN PARA 2 OF THE IMPUGNED ORDER BY THE LD. CIT AND IS REPRODUCED VERBATIM AS UNDER: ITA NO.441/BANG/11 PAGE 4 OF 15 YOU ARE OF THE OPINION THAT THE ASSESSING OFFICER OUGHT TO HAVE APPLIED THE PROVISIONS OF SECTION 14A READ WIT H RULE 8D AS THE ASSESSEE HAD INCOME FROM DIVIDENDS TO THE EXTEN T OF RS.80,14,144, WHICH IS AN EXEMPTED INCOME UNDER SEC TION 10 OF THE INCOME TAX ACT, 1961 (ACT). FOR EXERCISING JURISDICTION UNDER SECTION 263 AGAIN ST AN ORDER, SUCH ORDER SHOULD HAVE BEEN AN ERRONEOUS AND ALSO PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSMENT ORDER IN OUR CASE, AS PASSED BY THE LAO IS NOT ERRONEOUS FOR THE FOLLOWIN G REASONS: THOUGH DURING THE COURSE OF THE ASSESSMENT PROCEEDI NGS THE ASSESSEE WAS NOT CONFRONTED WITH A QUESTION OF APPL ICABILITY OF RULE 8D READ WITH SECTION 14A, THE LAO, AFTER THE C OMPLETION OF THE ASSESSMENT, DID EXAMINE THE POSITION OF THE APPLICABILITY OF SECTION 14A FOR THE ASSESSMENT YEA R 2007-08. THE ASSESSEE DID NOT SUBMIT THE DETAILED WRITTEN AR GUMENTS AS TO WHY RULE 8D WOULD NOT APPLY FOR THE ASSESSMENT Y EAR 2007-08. THE SUBMISSIONS WERE: THOUGH SECTION 14A WAS INTRODUCED ON THE STATUTE B Y THE FINANCE ACT, 2001, RULE 8D HAS BEEN INTRODUCED WITH EFFECT FROM 24-03-2008. THUS, THE RULE IS EFFECTIVE FROM THE ASSESSMENT YEAR 2008-09 AND WOULD NOT APPLY TO ASSE SSMENT YEAR 2007-08. THIS PROPOSITION IS ALSO BACKED BY T HE RECENT DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GO DREJ AND BOYCE MANUFACTURING COMPANY LIMITED 2010-TIOL-564- HC-MUM-IT. THE BOMBAY HIGH COURT HAS HELD THAT RUL E 8D IS NOT RETROSPECTIVE BUT APPLIES ONLY FROM ASSES SMENT YEAR 2008-09 AND ONWARDS. THUS, THE MISTAKE YOU ARE PROP OSING TO RECTIFY IS NOT ONE APPARENT ON THE FACT OF THE RECO RDS. FOR THIS REASON WE ARE OF THE OPINION THAT THE ORDER CANNOT BE RECTIFIED U/S. 154. UNDER THE CIRCUMSTANCES, WE REQUEST YOU T O KINDLY DROP THE RECTIFICATION PROCEEDINGS INITIATED AND OB LIGE. FOR THE ASSESSMENT YEAR 2007-08 THE ASSESSEE HAS NO T INCURRED ANY EXPENDITURE DIRECTLY OR INDIRECTLY IN ORDER TO DERIVE THE EXEMPT INCOME. THE BASIC PROPOSITION OF SECTION 14A IS THAT ONLY WHEN AN ASSESSEE HAS INCURRED EXPENDITURE IN E ARNING THE EXEMPT INCOME, THE PROVISIONS OF SECTION 14A CAN BE INITIATED. IN THE ABSENCE OF ANY EXPENDITURE HAVING BEEN INCUR RED BY THE ASSESSEE, SECTION 14A CANNOT BE INVOKED. THUS, REC TIFYING THE ORDER IN ORDER TO INVOKE THE PROVISIONS OF SECTION 14A CANNOT BE A MISTAKE APPARENT ON THE FACE OF THE RECORD. F OR THIS REASON ALSO THE ASSESSMENT ORDER CANNOT BE MADE SUB JECT TO RECTIFICATION U/S 154. ITA NO.441/BANG/11 PAGE 5 OF 15 THE SETTLED LAW AT THE POINT OF TIME OF THE ASSESSM ENT WAS THAT RULE 8D WOULD APPLY PROSPECTIVELY FROM THE ASSESSME NT YEAR 2008-09 AND NOT RETROSPECTIVELY. WE REITERATE THE CONTENTS AS SUBMITTED BEFORE THE LAO FOR YOUR KIND CONSIDERATIO N. THE ONLY CONTRARY JUDGMENT TO THE EFFECT THAT RULE 8D WOULD EVEN APPLY TO ASSESSMENT YEAR 2007-08 WAS THAT OF T HE SPECIAL BENCH OF MUMBAI IN DAGA CAPITAL MANAGEMENT (P) LTD. , 117 ITD 168 / 119 TTJ 289. HOWEVER, THIS JUDGMENT HAS B EEN OVER RULED BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ (SUPRA). EVEN ASSUMING FOR THE TIME BEING THAT THE CONTRARY DECISION ALSO TO BE CONSIDERED, THEN IT IS A WELL LAID DOWN LEGAL PRINCIPLE THAT THERE BEING TWO PROPOSITIONS, THE ON E BENEFICIAL TO THE ASSESSEE HAS TO BE APPLIED VEGETABLE PRODU CTS LTD., 88 ITR 192 (SC). 6. THE LD. CIT DID NOT FIND MERIT IN THE SUBMISSION S OF THE ASSESSEE AND CONSIDERED THE ASSESSMENT ORDER PASSED BY THE ASSES SING OFFICER TO BE ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INT ERESTS OF REVENUE BY OBSERVING IN PARA 3.1 TO 3.10 AS UNDER: 3.1 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS PUT FORWARD BY THE ASSESSEE. FROM THE ASSESSMENT RECORD, IT IS CL EAR THAT THE ASSESSING OFFICER DID NOT CONSIDER THE QUESTION OF APPLICABILITY OF RULE 8D READ WITH SEC 14A. THE ASSESSING OFFICER E XAMINED THE ISSUE OF APPLICABILITY OF RULE 8D READ WITH SEC 14A ONLY AFTER ASSESSMENT WAS CONCLUDED AND AFTER THE FILE HAD BEE N EXAMINED BY THE UNDERSIGNED. THIS IS ALSO ADMITTED BY THE AS SESSEE. 3.2 A PERUSAL OF THE RETURN OF INCOME SHOWS THAT T HE ASSESSEE CLAIMED THE ENTIRE DIVIDEND INCOME OF RS.80,14,144/ - AS EXEMPT. AS THIS INCOME DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSEE SHOULD HAVE APPLIED THE PROVISIONS OF RULE 8D READ WITH SEC 14A. RULE 8D VISUALIZES A SITUATION EVEN WHERE NO EXPEND ITURE IS INCURRED DIRECTLY OR INDIRECTLY TO EARN THE EXEMPT INCOME. HENCE, THE ASSESSEES ARGUMENT IS NOT ACCEPTABLE. MOREOVER , THE ASSESSEES ARGUMENT THAT NO EXPENDITURE WAS INCURRE D ON THE INVESTMENT CANNOT BE ACCEPTED FOR ANOTHER REASON TH AT THE ITA NO.441/BANG/11 PAGE 6 OF 15 INVESTMENTS FLOW FROM A COMMON POOL OF FUNDS, VIZ., THE CURRENT OR CASH CREDIT/OVERDRAFT ACCOUNTS. THE BUSINESS RE CEIPTS AND PAYMENTS AS WELL AS INVESTMENTS ARE MADE FROM THESE ACCOUNTS. THEREFORE IT CANNOT BE SAID WITH ANY DEGREE OF CERT AINTY THAT THE INVESTMENTS WERE MADE EXCLUSIVELY OUT OF NON-INTERE ST BEARING OR SURPLUS FUNDS. CONSIDERING THE COMMONALITY OF THE EXPENSES, I AM SATISFIED THAT THE ASSESSEES CLAIM THAT NO EXPE NDITURE IS INCURRED, IS NOT CORRECT AND THEREFORE, THE PROVISI ONS OF SECTION 14A ARE TO BE APPLIED. 3.3 WITH REGARD TO THE ASSESSEES SUBMISSION THAT R ULE 8D IS EFFECTIVE FROM A.Y. 2008-09 WHICH IS SUPPORTED BY T HE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ AND BOYCE MANUFACTURING COMPANY LIMITED 2010-TIOL-564-H C- MUM-IT, IT IS RESPECTFULLY SUBMITTED THAT THE DECIS ION OF THE HONBLE BOMBAY HIGH COURT HAS NOT BEEN ACCEPTED BY THE DEPARTMENT. HENCE, RULE 8D READ WITH SEC 14A HAS TO BE APPLIED TO THE ASSESSMENT YEAR IN QUESTION. 3.4 WITH REGARD TO THE ASSESSEES SUBMISSION THAT W HERE THERE ARE TWO PROPOSITIONS, THE ONE BENEFICIAL TO THE ASS ESSEE HAS TO BE APPLIED IN TERMS OF THE DECISION OF THE HONBLE SUP REME COURT IN THE CASE OF M/S. VEGETABLE PRODUCT LTD., 82 ITR 192 , IT IS TO BE NOTED THAT THE DECISION OF THE HONBLE SUPREME COUR T WAS RENDERED IN THE FOLLOWING SET OF FACTS AND CIRCUMST ANCES NAMELY WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE TRIBUNAL WAS RIGHT IN HOLDING THAT IN CAL CULATING THE PENALTY LEVIABLE UNDER SECTION 271(1)(A)(I) OF THE INCOME TAX ACT, 1961, THE AMOUNT PAID BY THE ASSESSEE UNDER THE PRO VISIONAL ASSESSMENT UNDER SECTION 23B OF THE INDIAN INCOME T AX ACT, 1922, WAS TO BE DEDUCTED FROM THE AMOUNT OF TAX DET ERMINED UNDER SECTION 23(2) OF THAT ACT IN ORDER TO DETERMI NE THE AMOUNT OF TAX ON WHICH THE COMPUTATION OF THE PENALTY WAS TO BE BASED AND IN REDUCING THE AMOUNT OF THE PENALTY IMPOSED O N THE ASSESSEE TO RS.2,737? WHILE ANSWERING THE SAID QUESTION, THE HONBLE COU RT OBSERVED: THERE IS NO DOUBT THAT THE ACCEPTANCE OF ONE OR T HE OTHER INTERPRETATION SOUGHT TO BE PLACED ON SECTION 271(1 )(A)(I) BY THE PARTIES WILLFUL LEAD TO SOME INCONVENIENT RESULT, B UT THE DUTY OF THE COURT IS TO READ THE SECTION, UNDERSTAND ITS LA NGUAGE AND GIVE EFFECT TO THE SAME. IF THE LANGUAGE IS PLAIN, THE FACT THAT THE CONSEQUENCE OF GIVING EFFECT TO IT MAY LEAD TO SOME ABSURD RESULT IS NOT A FACTOR TO BE TAKEN INTO ACCOUNT IN INTERPR ETING A PROVISION. ITA NO.441/BANG/11 PAGE 7 OF 15 IT IS FOR THE LEGISLATURE TO STEP IN AND REMOVE THE ABSURDITY. ON THE OTHER HAND, IF TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISION ARE POSSIBLE, THAT CONSTRUCTION WHICH FAV OURS THE ASSESSEE MUST BE SEVERAL OF ITS DECISIONS. HENCE, ALL THAT WE HAVE TO SEE IS, WHAT IS THE TRUE EFFECT OF THE LANGUAGE EMPLOYED IN SECTION 271(1)(A)(I). IF WE FIND THAT LANGUAGE TO B E AMBIGUOUS OR CAPABLE OF MORE MEANINGS THAN ONE, THEN WE HAVE TO ADOPT THAT INTERPRETATION WHICH FAVOURS THE ASSESSEE, MORE PAR TICULARLY SO BECAUSE THE PROVISIONS RELATES TO IMPOSITION OF PEN ALTY. 3.5 THE LANGUAGE OF SECTION 14A READ WITH RULE 8D D OES NOT GIVE RISE TO TWO REASONABLE CONSTRUCTIONS. THE A CT IS CLEAR AND UNAMBIGUOUS. FURTHER, IT IS A WELL SETTLED LAW OF INTERPRETATION THAT WHEN THE PROVISIONS OF AN ENACTMENT ARE UNAMBI GUOUS, THERE IS NO NEED TO LOOK BEYOND THE SPECIFIC PROVISION. THIS IS EVIDENT FROM THE CASE LAWS DISCUSSED BELOW. (A) KARNATAKA FOREST PLANTATIONS CORPN. LTD. VS CI T 156 ITR 275 KAR. IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THER E IS NO PRESUMPTION AS TO TAX. (B) KARNATAKA STATE FINANCIAL CORPORATION VS CIT 1 74 ITR 206 KAR: NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. (C) SMT TARULATA SHYAM & ORS. VS CIT 108 ITR 345 S C: THERE IS NO SCOPE FOR IMPORTING INTO THE STATUTE WO RDS WHICH ARE NOT THERE. SUCH IMPORTATION WOULD BE, NOT TO CONSTRUE, BUT TO AMEND THE STATUTE. EVEN IF THERE B E A CASUS OMISSUS, THE DEFECT CAN BE REMEDIED ONLY BY LEGISLA TION AND NOT BY JUDICIAL INTERPRETATION. ALL THE ABOVE DECISIONS, OF THE JURISDICTIONAL HIGH COURT AND OF THE APEX COURT, MAKE IT VERY CLEAR THAT WHEN THE WO RDING IN A SECTION IS CLEAR AND SPECIFIC, IT HAS TO BE FOLLOWE D WITHOUT IMPUTING OR ASSIGNING ANY OTHER MEANING OR INTENTIO N. THEREFORE, AS SECTION 14A SPECIFICALLY SAYS IN SUB-SECTION (3) THAT THE PROVISIONS OF THE SECTION ARE TO BE APPLIED EVEN WH EN THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN REL ATION TO THE EXEMPT INCOME, THE PROVISIONS OF THIS SECTION ARE A PPLIED IN THIS CASE IN THE FACE OF THE ASSESSEES CLAIM THAT NO EX PENDITURE HAS BEEN INCURRED IN RELATION TO THE INVESTMENTS. 3.6 MOREOVER, THE PROVISIONS RELATE TO THE DISALLO WANCE OF EXPENDITURE. IN ORDER TO APPLY SECTION 14A READ WI TH RULE 8D, THE FIRST REQUIREMENT IS THE ASSESSING OFFICERS SA TISFACTION ABOUT ITA NO.441/BANG/11 PAGE 8 OF 15 THE CORRECTNESS OF THE ASSESSEES CLAIM IN RESPECT OF EXPENDITURE IN RELATION TO THE EXEMPT INCOME. THEREFORE THE AS SESSEES ARGUMENT AS NOTED IN THE PRECEDING PARAGRAPH NEEDS TO BE EXAMINED IN THIS LIGHT. SCHEDULE 6 TO THE FINANCIAL STATEMENTS OF THE ASSESSEE SHOWS THAT IN THIS YEAR THERE IS CONSI DERABLE INCREASE IN THE INVESTMENT ACCOUNT. SUCH INVESTMENT ACTIVIT IES CANNOT BE MADE ROUTINELY. NO PRUDENT BUSINESSMAN WOULD MAKE ANY INVESTMENT WITHOUT APPLYING THE RESOURCES WISELY. OBVIOUSLY, THIS ENTAILS EXPENDITURE, DIRECT AS WELL AS INDIREC T. THOUGH IT IS ARGUED FOR THE ASSESSEE THAT THE FINANCIAL PLANNING FOR THE INVESTMENT IS MADE BY THE FUNDS MANAGEMENT DIVISION OF THE ASSESSEES BANKERS, IT CANNOT BE FORGOTTEN THAT SUC H SERVICES ALSO COME AT A COST. BESIDES, SECTION 14A DOES NOT ENVI SAGE DISALLOWANCE OF DIRECT EXPENSES ALONE. THE METHODO LOGY OF COMPUTING THE DISALLOWANCE IS PROVIDED IN RULE 8D O F THE INCOME-TAX RULES. PERUSAL OF THE SAME SHOWS THAT TH E DISALLOWANCE CONTEMPLATED HERE IS OF BOTH DIRECT EX PENSES AS WELL AS INDIRECT EXPENSES. THEREFORE THE ASSESSEES CON TENTION THAT SINCE IT HAS NOT INCURRED ANY EXPENDITURE, NO DISAL LOWANCE CAN BE MADE UNDER SECTION 14A IS NOT ACCEPTABLE. MOREOVER , SUB-SECTION (3) OF SECTION 14A SAYS IN VERY CLEAR TERMS THAT TH E SECTION IS APPLICABLE EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE IS INCURRED. 3.7 IN THIS CONNECTION, IT MAY BE RELEVANT TO REFE R TO THE JUDGMENT OF DELHI BENCH OF HONBLE ITAT IN INDIAN S UGAR EXIM CORPN. LTD. VS DCIT IN ITA NO.1042(DEL)/2005, DATED 5 DECEMBER 2008. IT WAS HELD THAT THE DISALLOWANCE I S OF DIRECT AND ALL INDIRECT EXPENSES LIKE ADMINISTRATIVE EXPENSES AND THEREFORE THE ASSESSEES ARGUMENT THAT NO EXPENDITURE WAS INC URRED TO MAKE THE INVESTMENT, BY ITSELF DOES NOT LEAD TO AN INFER ENCE THAT NO EXPENDITURE WAS INCURRED. IT WAS HELD, THE REASON IS THAT THE MANAGEMENT HAS TO TAKE INVES TMENT DECISIONS IN ACCORDANCE WITH THE RULES AND REGULATI ONS OF THE COMPANY AND MAKE INVESTMENTS IN BONDS AND UNITS , AS THE CASE MAY BE. THE MANAGEMENT HAS ALSO TO PAY ATTENTION TOWARDS RISE OR FALL IN THE VALUE OF INVE STMENTS WITH A VIEW TO SUITABLY CHANGE THE INVESTMENT PATTE RN. ALL THESE ACTIVITIES LEAD TO EXPENDITURE, WHICH WILL BE IN THE NATURE OF ADMINISTRATIVE EXPENDITURE. [EMPHASIS SUPPLIED] THUS, THE FACT OF THE MATTER IS THAT WHEN AN INVEST MENT IS MADE, IT WILL INVOLVE CERTAIN INDIRECT EXPENSES LIKE ADMINIS TRATIVE EXPENSES AS WELL. AS DECIDED BY THE HONBLE ITAT IN THE DECISION CITED ABOVE, IT CANNOT BE ARGUED THAT THER E IS NO ITA NO.441/BANG/11 PAGE 9 OF 15 EXPENDITURE AT ALL. THIS VIEW ALSO FINDS SUPPORT I N DECISION OF THE APEX COURT IN CIT VS WALFORT SHARE & STOCK BROKERSK P LTD. 326 ITR 0001. IT WAS HELD: THE THEORY OF APPORTIONMENT OF EXPENSES BETWEEN TAXABLE AND NON-TAXABLE, HAS, IN PRINCIPLE, BEEN NO W WIDENED UNDER SECTION 14A. READING SECTION 14A IN JUXTAPOSITION WITH SECTIONS 15 TO 59, IT IS CLEAR T HAT THE WORDS EXPENDITURE INCURRED IN SECTION 14A REFERS TO EXPENDITURE ON RENT, TAXES, SALARY, INTEREST ETC. I N RESPECT OF WHICH ALLOWANCES ARE PROVIDED. 3.8 ANOTHER JUDGMENT WHICH SUPPORTS THIS VIEW IS T HE DECISION OF THE MUMBAI BENCH OF HONBLE TRIBUNAL IN ACIT VS CITICORP FINANCE (INDIA) LTD 108 ITD 457. IT WAS HELD, IT IS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE C AN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY E XPENSES WHATSOEVER INCLUDING MANAGEMENT OR ADMINISTRATIVE E XPENSES. BY SAME LOGIC, IT IS EQUALLY DIFFICULT TO ACCEPT TH AT THE ONLY EXPENSES INVOLVED IN EARNING THE DIVIDEND INCOME AR E THOSE INCURRED ON COLLECTION OF DIVIDEND OR ON ENCASHING A FEW DIVIDEND WARRANTS. A COMPANY CANNOT EARN DIVIDEND WITHOUT I TS EXISTENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMP LEX IN NATURE. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, D AY-TO-DAY ANALYSIS OF MARKET TRENDS AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES AT THE MO ST APPROPRIATE TIME. THEY REQUIRE HUGE INVESTMENT IN SHARES AND C ONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN THAT CAPITAL H AS COST AND THAT ELEMENT OF COST IS REPRESENTED BY INTEREST. BESIDE S, INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF TH E BOARD OF DIRECTORS FOR WHICH ADMINISTRATIVE EXPENSES ARE INC URRED. IT IS THEREFORE NOT CORRECT TO SAY THAT DIVIDEND INCOME C AN BE EARNED BY INCURRING NO OR NOMINAL EXPENDITURE. THIS ASPECT OF THE MATTER HAS ALSO RECEIVED CAREFUL ATTENTION OF CHENN AI BENCH OF THIS TRIBUNAL IN COMPREHENSIVE CONSIDERATION OF ALL THE RELEVANT ASPECTS OF THE CASE INCLUDING VERY STRATEGIC DECISI ONS IN WHICH TOP MANAGEMENT IS INVOLVED AND THEREFORE PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHI LE COMPUTING THE EXEMPT INCOME FROM DIVIDEND. [EMPHASIS SUPPLIED] 3.9 FURTHER, ASSUMING WITHOUT ACCEPTING, THAT THE ASSESSEE HAS NOT UTILIZED ANY OF THE BORROWED FUNDS TO MAKE INVE STMENT, EVEN THEN SECTION 14A HAS TO BE INVOKED TO DISALLOW ALL THE INDIRECT EXPENSES ALSO. CONSIDERING THE FACT THAT SUCH INDI RECT EXPENSES CANNOT BE ALLOCATED TO ANY SPECIFIC HEAD OF INCOME AND ALSO THAT ITA NO.441/BANG/11 PAGE 10 OF 15 THE ASSESSEE DOES NOT MAINTAIN THE ACCOUNTS IN SUCH MANNER AS TO ENABLE IT TO IDENTIFY THE EXPENDITURE RELATING TO E XEMPTED INCOME, THE PROVISIONS OF SECTION 14A ARE ATTRACTED AND ACC ORDINGLY ARE APPLIED. 3.10. EVEN THE METHODOLOGY PRESCRIBED IN RULE 8D TO QUANTIFY THE DISALLOWANCE ALSO SUPPORTS THIS VIEW. ACCORDIN G TO THE RULE, DISALLOWANCE WILL BE THE DIRECT EXPENDITURE AS WELL AS THE INDIRECT EXPENDITURE ESTIMATED IN THE MANNER LAID DOWN THERE IN. THUS CLEARLY, IT IS THE INTENTION OF THE SECTION THAT EV EN IN THE ABSENCE OF IDENTIFIABLE DIRECT EXPENDITURE, THE INDIRECT EX PENDITURE WILL HAVE TO BE ESTIMATED AND DISALLOWED. IN THE LIGHT OF THE ABOVE DISCUSSION, I AM SATISF IED THAT THE ORDER U/S. 143(3) DT 7-8-2009 IS ERRONEOUS IN SO FA R AS IT IS PREJUDICIAL TO THE INTERESTS OF REVENUE. THE ASSES SING OFFICER IS DIRECTED TO MAKE THE DISALLOWANCE U/S 14A READ WITH RULE 8D AS DISCUSSED ABOVE. 7. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT AND FURTHER SUBMITTED THAT RULE 8D OF THE INCOME-TAX RULES, 1962 WAS INSE RTED BY THE INCOME-TAX (5 TH AMENDMENT) RULES, 2008 W.E.F. 24.3.2008, HENCE THE SAME WAS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND NOT THE EARLIER ASSESSMENT YEARS. RELIANCE WAS PLACED UPON THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V. DCIT (2010) 328 I TR 81 . 8. IN HIS RIVAL SUBMISSIONS THE LD. DR STRONGLY SUP PORTED THE IMPUGNED ORDER PASSED BY THE LD. CIT. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON TH E RECORD. IN THE PRESENT CASE, THE LD. CIT DIRECTED THE AO TO INVOKE THE PRO VISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961. THE SAID PROVISION READS AS UNDER : ITA NO.441/BANG/11 PAGE 11 OF 15 14A. (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACC ORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RES PECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDIT URE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THIS ACT : PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOWE R THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECT ION 147 OR PASS AN ORDER ENHANCING THE ASSESSMENT OR REDUCING A REF UND ALREADY MADE OR OTHERWISE INCREASING THE LIABILITY OF THE A SSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNING ON O R BEFORE THE 1ST DAY OF APRIL, 2001. FROM THE ABOVE PROVISIONS IT WOULD BE CLEAR THAT TH E MANDATE OF SECTION 14A OF THE I.T. ACT IS TO PREVENT CLAIMS FOR DEDUCT ION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. THIS SECTION IS ENACTED TO ENSURE THAT ON LY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE INCOME ARE ALLOWED. ALL EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE I.T.ACT HAS TO BE DISALLOWED UNDE R SECTION 14A. UNDER SUB-SECTION (2) OF SECTION 14, THE AO IS REQUIRED T O 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 AC T IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED. IN THE PRESENT CA SE, ALTHOUGH NEITHER ITA NO.441/BANG/11 PAGE 12 OF 15 THE AO NOR THE CIT HAS ESTABLISHED THE NEXUS BETWEE N THE EXPENDITURE AND THE EXEMPTED INCOME (DIVIDEND) TO WORK OUT THE EXPE NDITURE BUT FOR MAKING DISALLOWANCE THE LD. CIT DIRECTED THE AO TO INVOKE THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962 WHICH ARE INSERTED BY THE INCOME-TAX (FIFTH AMENDMENT) RULES, 2008, W.E.F. 24.3.2008. HO WEVER, AS PER THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA), THE PROVISIONS OF RULE 8D AR E APPLICABLE PROSPECTIVELY AND NOT RETROSPECTIVELY. IN THE SAID CASE, THEIR LORDSHIPS OF THE HON'BLE BOMBAY HIGH COURT, WHILE INTERPRETING T HE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE INCOME-TAX RULES, 1962, OBSERVED AT PARAS 66 & 67 OF THE AFORESAID REFERRED TO ORDER (H EAD NOTE) AS UNDER : THE FIRST POINT TO BE NOTED ABOUT THE PROVISIONS O F S. 14A AND R. 8D IS THAT DIFFERENT DATES HAVE BEEN PROVIDED IN TH ESE PROVISIONS FOR THEIR ENFORCEMENT: (I) SUB-SEC. (1) OF S. 14A W AS INSERTED BY THE FINANCE ACT OF 2001 WITH RETROSPECTIVE EFFECT F ROM 1ST APRIL, 1962; (II) SUB-SS. (2) AND (3) WERE INSERTED IN S. 14A BY THE FINANCE ACT OF 2006 W.E.F. 1ST APRIL, 2007; (III) T HE PROVISO WAS INSERTED BY THE FINANCE ACT OF 2002 WITH RETROSPECT IVE EFFECT FROM 11TH MAY, 2001; (IV) RULE 8D WAS INSERTED BY T HE IT (FIFTH AMENDMENT) RULES, 2008 BY PUBLICATION IN THE GAZETT E DT. 24TH MARCH, 2008. SUB-R. (2) OF R.1 STIPULATES THAT THE RULES SHALL COME INTO FORCE FROM THE DATE OF THEIR PUBLICATION IN TH E OFFICIAL GAZETTE. THIS BY ITSELF IS NOT CONCLUSIVE. SECONDLY , PRIOR TO THE INSERTION OF S. 14A BY THE FINANCE ACT OF 2001 THE SUPREME COURT HAD HELD IN ITS DECISIONS IN CIT VS. INDIAN BANK LT D. AIR 1965 SC 1473, CIT VS. MAHARASHTRA SUGAR MILLS LTD. 1973 CTR (SC) 489: (1971) 82 ITR 452 (SC):(1971) 3 SCC 543 AND RA JASTHAN STATE WAREHOUSING CORPORATION VS. CIT (2000) 159 CT R (SC) 132 : (2000) 242 ITR 450 (SC) THAT IN THE CASE OF A COMPOSITE AND INDIVISIBLE BUSINESS WHICH RESULTED IN TAXABLE AND NON- TAXABLE INCOME, IT WAS IMPERMISSIBLE FOR THE AO TO APPORTION THE EXPENDITURE INCURRED IN RELATION TO SUCH BUSINESS A S BETWEEN THE EARNING OF TAXABLE AND NON-TAXABLE INCOME. SUB-SEC (1) OF S. 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 1ST APR IL, 1962 TO OVERCOME THE DECISIONS OF THE SUPREME COURT. AT THE SAME TIME, AS HAS BEEN NOTICED BY THE SUPREME COURT IN ITS DEC ISION IN CIT ITA NO.441/BANG/11 PAGE 13 OF 15 VS. WALFORT SHARE & STOCK BROKERS (P) LTD. (2010) 2 33 CTR (SC) 42 : (2010) 41 DTR (SC) 233, THE THEORY OF APPORTIO NMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER S. 14A. READING S. 14 IN JUXTAPOSITION WITH SS. 15 TO 59, IT HAS BEEN OBSERV ED THAT THE WORDS 'EXPENDITURE INCURRED' IN S. 14A REFER TO EXP ENDITURE ON RENT, TAX, SALARY, INTEREST ETC. IN RESPECT OF WHIC H ALLOWANCES ARE PROVIDED FOR. THIRDLY, SUB-SS. (2) AND (3) WERE INT RODUCED BY A LEGISLATIVE AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT OF 2006. THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FIN ANCE BILL OF 2006 RECOGNIZES THAT THE EXISTING PROVISIONS OF S. 14A DID NOT PROVIDE A METHOD OF COMPUTING THE EXPENDITURE INCUR RED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. CONSEQUENTLY, THERE WAS A CONSIDERABLE AMOUNT OF DI SPUTE BETWEEN THE TAXPAYERS AND THE DEPARTMENT ON THE MET HOD OF DETERMINING SUCH EXPENDITURE. IT WAS IN VIEW OF THE SE DISPUTES THAT PARLIAMENT INSERTED A NEW SUB-SEC. (2) TO PERM IT THE FRAMING OF SUBORDINATE LEGISLATION TO PROVIDE A MANDATORY M ETHOD FOR THE AO TO FOLLOW IN DETERMINING THE EXPENDITURE INCURRE D IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME, IF THE AO WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE MEMORANDUM PROVIDED THAT 'THIS AMENDMENT WILL T AKE EFFECT FROM 1ST APRIL, 2007 AND WILL, ACCORDINGLY APPLY IN RELATION TO THE ASST. YR. 2007-08 AND SUBSEQUENT YEARS'. A CIRCULAR WAS ISSUED BY THE CBDT ON 28TH DEC., 2006 ONCE AGAIN CLARIFYING T HE POSITION THAT THE AMENDMENT WOULD BE APPLICABLE 'FROM THE AS ST. YR. 2007- 08 ONWARDS'. AT ANY RATE THIS CONSTRUCTION WHICH HA S BEEN PLACED ON THE AMENDMENT BOTH IN THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE FINANCE BILL OF 2006 AND IN THE C IRCULAR OF THE CBDT DT. 28TH DEC., 2006 CAN BE REGARDED AS A REASO NABLE INTERPRETATION OF THE PROVISION. THE FOURTH ASPECT OF THE MATTER WHICH WOULD MERIT EMPHASIS, IS THE PRINCIPLE OF LAW THAT IN DETERMINING AS TO WHETHER A RULE IN A PIECE OF SUBO RDINATE LEGISLATION IS TO BE REGARDED AS PROSPECTIVE OR RET ROSPECTIVE, AN IMPORTANT ASPECT IS AS TO WHETHER THE RULE EMBODIES WHAT IS ESSENTIALLY A WELL KNOWN, A WELL SETTLED OR WELL AC CEPTED METHOD. AS A MATTER OF FACT IN THE PRESENT CASE THERE CAN B E NO DOUBT ABOUT THE POSITION THAT R. 8D HAS ESSENTIALLY PUT INTO PL ACE AN ARTIFICIAL METHOD OF ESTIMATING THE EXPENDITURE THAT CAN BE RE GARDED AS BEING RELATABLE TO INCOME THAT DOES NOT FORM PART O F THE TOTAL INCOME UNDER THE ACT. BEFORE THE INSERTION OF S. 14 A, THERE WAS NO SPECIFIC METHOD OF DETERMINING THE EXPENDITURE I NCURRED IN RELATION TO NONTAXABLE INCOME. LOOKING AT THE TOTAL ITY OF THE CIRCUMSTANCES, THE MEASURE OF 0.5 PER CENT PROVIDED IN R. 8D(2)(III) IS REASONABLE. HENCE, WHILE THE METHOD O F COMPUTATION PROVIDED IN R. 8D IS FAIR AND REASONABLE TO PASS MU STER UNDER ART. ITA NO.441/BANG/11 PAGE 14 OF 15 14, THE METHOD MUST TAKE EFFECT PROSPECTIVELY. FINA LLY, SUB-SEC. (4) OF S. 295 EMPOWERS THE RULE-MAKING AUTHORITY TO GIVE RETROSPECTIVE EFFECT TO SUBORDINATE LEGISLATION. HO WEVER, UNLESS EXPRESSLY OR BY NECESSARY IMPLICATION, A CONTRARY P ROVISION IS MADE, NO RETROSPECTIVE EFFECT IS TO BE GIVEN TO ANY RULE SO AS TO PREJUDICIALLY AFFECT THE INTERESTS OF THE ASSESSEE. EVEN IN THE ABSENCE OF SUB-SS. (2) AND (3) OF S. 14A AND OF R.8 D, THE AO WAS NOT PRECLUDED FROM MAKING APPORTIONMENT. SUCH AN APPORTIONMENT WOULD HAVE TO BE MADE IN ORDER TO GIV E EFFECT TO THE SUBSTANTIVE PROVISIONS OF SUB-S. (1) OF S. 14A WHICH PROVIDE THAT NO DEDUCTION WOULD BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE CHANGE WHICH IS BRO UGHT ABOUT BY THE INSERTION OF SUB-SS (2) AND (3) INTO S. 14A BY THE FINANCE ACT OF 2006 W.E.F. 1ST APRIL, 2007 IS THAT IN A SIT UATION WHERE THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN REGARD TO THE EXPENDITURE INCURRED BY I T IN RELATION TO THE NON-TAXABLE INCOME, THE AO WOULD HAVE TO FOLLOW THE METHOD WHICH IS PRESCRIBED BY THE RULES. THE AMENDMENT RUL ES WERE NOTIFIED TO COME INTO FORCE ON 24TH MARCH, 2008. IT IS A TRITE PRINCIPLE OF LAW THAT THE LAW WHICH WOULD APPLY TO AN ASSESSMENT YEAR IS THE LAW PREVAILING ON THE FIRST DAY OF APRI L. CONSEQUENTLY, R. 8D WHICH HAS BEEN NOTIFIED ON 24 TH MARCH, 2008 WOULD APPLY WITH EFFECT FROM ASST. YR. 2008-09. THE RULE CONSEQ UENTLY CANNOT HAVE APPLICATION IN RESPECT OF ASST. YR. 2002-03 WH ICH IS THE YEAR UNDER CONSIDERATION IN THIS CASE. 10. IT IS TRUE THAT THE AO HAD NOT DISCUSSED ABOUT THE EXPENDITURE RELATING TO DIVIDEND INCOME EARNED BY THE ASSESSEE. THEREFORE, THE LD. CIT WAS JUSTIFIED IN REMANDING THE MATTER TO THE AO BY INVOKING THE PROVISIONS OF SECTION 263 OF THE I.T. ACT, WE APPROVE THE AC TION OF THE LD. CIT, HOWEVER, THE LD. CIT HAS DIRECTED THE AO TO APPLY T HE PROVISIONS CONTAINED IN RULE 8D WHICH ARE APPLICABLE FROM A.Y. 2008-09 A S HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID REFERRED TO CASE, WHILE THE ASSESSMENT YEAR INVOLVED IN THIS CASE IS 2007-08. WE THEREFORE MODIFY THE ORDER OF THE LD. CIT TO THIS EXTENT THAT THE ASSESS ING OFFICER SHOULD DECIDE THE ISSUE IN ACCORDANCE WITH THE GUIDELINES LAID DO WN BY THE HONBLE ITA NO.441/BANG/11 PAGE 15 OF 15 BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. V. DCIT ( SUPRA ) AND COMPUTE THE DISALLOWANCE, IF ANY, BY APPLYING A REASONABLE METHOD HAVING REGARD TO THE FACTS OF THE CASE. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF SEPTEMBER, 2011. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 21 ST SEPTEMBER, 2011. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.
