ACIT, New Delhi V. M/s. Apollo Finance Ltd., New Delhi

ITA 520/DEL/2012

• Counselvise Citation: 52020114 RSA 2012
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 27-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MRS GEET MALA MOHANANEYDR
• Assessee Lawyers: M K GIRI ARS
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI A BENC H BEFORE SHRI HARI OM MARATHA, JM & SHRI A.N. PAHUJA, AM ITA NO.520/DEL/2012 ASSESSMENT YEAR:2008-09 ASSISTANT. CIT, CIRCLE 2(1), ROOM NO. 398D,CR BUILDING, IP ESTATE, NEW DELHI V/S . M/S APOLLO FINANCE LTD., 414/1, DDA COMMERCIAL COMPLEX, DISTRICT CENTRE, JANAKPURI,NEW DELHI [PAN : AAACA 5354J] (APPELLANT) (RESPONDENT) ASSESSEE BY S/SHRI ANOOP SHARMA & M.K. GIRI, ARS REVENUE BY MRS. GEET MALA MOHANANEY,DR DATE OF HEARING 27-08-2012 DATE OF PRONOUNCEMENT 31-08-2012 O R D E R A.N.PAHUJA:- THIS APPEAL FILED ON 02.02.2012 BY THE REVENUE AGAI NST AN ORDER DATED 25 TH NOVEMBER, 2011 OF THE LD. CIT(A)-V, NEW DELHI, RAI SES THE FOLLOWING GROUNDS:- 1. THE LD. CIT(A) HAS ERRED IN REDUCING THE DISALL OWANCE MADE BY THE AO U/S 14A OF THE INCOME-TAX ACT TO ONLY ` `10,000/-. 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD, OR FORGO ANY GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T RETURN DECLARING LOSS OF ` ` 5,51,91,000/- FILED ON 29.09.2008 BY THE ASSESSEE, CARRYING ON THE BUSINESS OF FINANCING, LEASING AND INVESTMENT ACTIVITIES, A FTER BEING PROCESSED ON 05.08.2009 U/S 143 (1) OF THE INCOME-TAX ACT, 1961, (HEREINAFTER REFERRED TO AS ITA N O.520 /DEL./2012 2 THE ACT), WAS SELECTED FOR SCRUTINY WITH THE SERVIC E OF A NOTICE U/S 143(2) OF THE ACT, ISSUED ON 06.08.2009 DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED DIVIDEND INCOME OF ` ` 10,000/- EXEMPT U/S 10(34) OF THE ACT. IN RESPONSE TO A SHOWCAUSE NOTICE VIDE ORDERSHEET ENTRY DATED 2.8.2010 BY TH E AO, ASKING AS TO WHY DISALLOWANCE IN TERMS OF PROVISIONS U/S 14A OF THE ACT R.W.R. 8D OF THE I.T. RULES, 1962 BE NOT MADE, THE ASSESSEE MERELY REPLIED THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME. HOWEVER, THE ASSESSEE WORKED OUT DISALLOWANCE OF ` `5,42,74,410/- IN TERMS OF PROVISIONS OF SECTION 14 A OF THE ACT, UNDER PROTEST. IN THE LIGHT OF THIS REPLY OF THE ASSESSEE, THE AO WHI LE RELYING UPON DECISIONS IN CIT VS. UNITED GENERAL TRUST, 200 ITR 488 (SC); SOUTHER N PETRO CHEMICALS INDUSTRIES (2005), 93 TTJ 161; HARISH KRISHNAKANTA BHATT (2004), 91 ITD 311; S.G. INVESTMENTS AND INDUSTRIES LTD. (2004), 89 ITD 44 AND EVERPLUS SECURITIES & FINANCE LTD. (2006), 285 ITR (AT) 112 DISALLOWED AN AMOUNT OF ` ` 5,45,52,862/- IN TERM OF PROVISIONS OF SECTION 14A OF THE ACT REA D WITH RULE 8D OF THE I.T. RULES 1962 ,OBSERVING, INTER ALIA, THAT ISSUE IS NOT ONLY OF THE EXPENSES INCURRED FOR RECEIVING THE DIVIDEND INCOME BUT SIZE OF THE INVES TMENT AND COST INCURRED ON INVESTMENT AND MANAGEMENT OF HUGE INVESTMENTS FOR E ARNING INCOME WHICH DID NOT FORM PART OF TOTAL INCOME, ARE ALSO MATERIAL. 3. ON APPEAL, THE LD. CIT(A) RESTRICTED THE DISALL OWANCE TO ` ` 10,000/- I.E TO THE EXTENT OF DIVIDEND INCOME EARNED, IN TH E FOLLOWING TERMS:- 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER, SUBMISSIONS OF THE APPELLANT AND VARIOUS CASE LAWS RELIED ON BY THE APPELLANT AS WELL AS THE ASSESSING OFFICER. THE MU MBAI HIGH COURT IN THE CASE OF CIT VS. GODREJ AND BOYCE HAS RULED T HAT RULE 8D IS APPLICABLE FROM ASSESSMENT YEAR 2008-09. THE YEAR UNDER CONSIDERATION IN THIS CASE NOW IS ALSO 2008-09. IN A RECENT DECISION, THE ITAT MUMBAI B BENCH IN I.T.A. NO.10 50/MUM/2010 (FOR ASSESSMENT YEAR 2008-09) IN THE CASE OF MULTI COMMODITY EXCHANGE OF (INDIA) LTD. AFTER CONSIDERATION OF THE HONBLE BOMBAY HIGH COURT IN I.T.A. NO.626 OF 2010 IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. MUMBAI VS. DY. CIT, RANGE 10(2), MUMB AI & ANR. 328 ITR 81 (BOM) HAS HELD THAT IT IS ONLY WHEN ASSE SSING OFFICER IS ITA N O.520 /DEL./2012 3 NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, HE CA N HAVE RECOURSE TO RULE 8D. THIS IS THE VIEW OF THE JURISDICTIONAL ITAT IN THE LATEST CASE OF JINDAL PHOTO LTD. VS. DCIT IN I.T.A. NO.814 (DEL) 2011. IN THE CASE UNDER CONSIDERATION TOO, IT IS ALSO SEE N THAT THE AO HAS PROCEEDED TO APPLY RULE 8D WITHOUT GIVING AN Y FINDING WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE APPEL LANT THAT THERE WAS NO DISALLOWABLE EXPENSES. IN FACT, THE ASSESSI NG OFFICER HAS INADVERTENTLY MENTIONED THAT HE IS SATISFIED WITH T HE CLAIM OF THE ASSESSEE, HOWEVER, FROM PERUSAL OF THE ORDER, IT IS SEEN THAT IT IS AN INADVERTENT ERROR. FROM THE VARIOUS JUDICIAL RULIN GS, IT IS CLEAR THAT THE ASSESSING OFFICER CANNOT APPLY RULE 8D AUTOMATI CALLY BUT CAN DO SO ONLY WHERE HE RECORDS SATISFACTION ON AN OBJE CTIVE BASIS THAT THE ASSESSEE IS UNABLE TO ESTABLISH THE CORRECTNESS OF ITS CLAIM. THE HONBLE ITAT DELHI BENCH D IN THE CASE OF DCI T VS. JINDAL PHOTO LTD. FOR ASSESSMENT YEAR 2008-09 HAS ALSO SIM ILARLY HELD THAT WITHOUT RECORDING ANY FINDINGS ABOUT THE ASSESSEES CLAIM BEING INCORRECT AND WITHOUT RECORDING SATISFACTION ABOUT SUCH INCORRECTNESS OF CLAIM, TO INVOKE RULE 8D IS INCORR ECT. THE RECORDING OF SATISFACTION IN TERMS OF MANDATE IN SU B-SECTION (2) OF SEC 14A IS NOT MERELY A FORMALITY BUT THE REASONS R ECORDED MUST JUSTIFY THE GROUND ON WHICH THE CLAIM MADE BY THE A SSESSEE IS NOT ACCEPTED. IN ABSENCE OF ANY RECORDING OF SUCH SATI SFACTION BY AO, THE FACTS OF THE CASE AND RESPECTFULLY FOLLOWING TH E DECISION OF THE HONBLE JURISDICTIONAL TRIBUNAL THE ADDITION IS SUS TAINED ONLY TO THE EXTENT OF `10,000/- WHICH IS THE AMOUNT OF DIVIDEND RECEIVED DURING THE YEAR. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. DR WHILE REFERRI NG TO AUTHORIZATION ISSUED U/S 253(2) OF THE ACT BY THE LD. CIT ON 31 ST JANUARY, 2012 SUBMITTED THAT THE ASSESSEE MERELY CLAIMED THAT NO EXPENDITURE HAS BEE N INCURRED FOR EARNING DIVIDEND INCOME WHILE IT DID NOT FILE ANY WORKING// COMPUTATION TO SHOW THAT INTEREST OF ` ` 7,46,14,000/- AND THE DEMAT EXPENSES OF ` ` 82,000/- DEBITED TO PROFIT AND LOSS ACCOUNT WERE INCURRED FOR THE PURPOSE OTHE R THAN MAKING INVESTMENTS OF ` `74,99,18,000/-. IN THE ABSENCE OF ANY SUCH WORKIN G/COMPUTATION, THE AO COULD NOT COMMENT ON THE CORRECTNESS OF THE BARE/CRYPTIC CLAIM THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND. THE INITIAL ONU S WAS ON THE ASSESSEE TO SHOW THAT NO SUCH EXPENDITURE HAD BEEN INCURRED FOR EARN ING EXEMPT INCOME. MOREOVER, THE ASSESSEE DID NOT FURNISH ANY CASH FLO W STATEMENT OR DETAILS, ITA N O.520 /DEL./2012 4 EVIDENCING THAT THE BORROWED FUNDS HAD INDEED BEEN UTILIZED FOR PURPOSES OTHER THAN AFORESAID HUGE INVESTMENTS. ACCORDINGLY, WHILE REFERRING TO THE DECISION DATED 6 TH JULY, 2012 OF THE ITAT IN I.T.A. NOS.1934 AND 1935 /DEL./2012 IN ACIT VS. M/S HINDUSTAN SYRINGES AND MEDICAL DEVICES LTD. ,THE LD. DR VEHEMENTLY ARGUED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN RES TRICTING THE DISALLOWANCE TO ` `10,000/- WITHOUT ANY BASIS EVEN WHEN THE ASSESSEE DID NOT FURNISH ANY DETAILS BEFORE THE AO . 5. ON THE OTHER HAND, THE LD. AR ON BEHALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A) WHILE CONTENDING THA T IN PARA 3.6 OF THE ASSESSMENT ORDER, THE AO ACCEPTED THEIR CLAIM THAT NO EXPENDIT URE HAD BEEN INCURRED FOR EARNING INCOME WHICH DID NOT FORM PART OF TOTAL IN COME. TO A QUERY BY THE BENCH, THE LD. AR DID NOT REPLY AS TO WHY THE AMOUN T OF ` ` 82,000/- WHICH ADMITTEDLY WAS DIRECTLY RELATED TO INCOME WHICH DID NOT FORM PART OF TOTAL INCOME, HAD NOT BEEN OFFERED FOR DISALLOWANCE SUO MOTU NOR REPLIED AS TO WHETHER HUGE INVESTMENTS OUTSTANDING AS ON 31.03.2008 TO THE EXT ENT OF ` ` 74,99,18,000/-WERE MADE OUT OF BORROWED FUNDS OR OWN FUNDS AND WHETHER ANY CASH FLOW STATEMENT WAS SUBMITTED BEFORE THE AO OR THE LD. CIT(A). HOWE VER, THE LD. AR FEEBLY ARGUED THAT SUCH DETAILS WERE NEVER REQUISITIONED N OR THESE ISSUES HAD BEEN EXAMINED BY THE LOWER AUTHORITIES. 6. WE HAVE HEARD FOR BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE AO DISALLOWED THE AFORESAID AMOUNT OF ` 5,45,52,862/-, INVOKING PROVISIONS OF SECTION 14A(2) OF THE ACT RE AD WITH RULE 8D OF I.T. RULES, 1962,WITHOUT EVEN ANALYZING THE NATURE OF THE EXPE NDITURE NOR IT APPEARS THAT RELEVANT DETAILS OF EXPENDITURE AND ACCOUNTS OR CAS H FLOW STATEMENT WERE PLACED BEFORE THE AO OR THE LD. CIT(A). THE ASSESSEE MERE LY SUBMITTED THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING DIVIDEND INCOME EVEN WHEN HUGE INVESTMENTS WERE MADE TO THE EXTENT OF` ` 74,99,18,000/- UNTIL 31.3.2008 AND DID NOT EVEN OFFER FOR DISALLOWANCE, AN AMOUNT OF ` 82,200/- WHICH ADMITTEDLY WAS INCURRED FOR EARNING INCOME WHICH DID NOT FORM PART OF TOTAL INCOME. THERE IS ITA N O.520 /DEL./2012 5 NOTHING TO SUGGEST AS TO WHETHER OR NOT ANY CASH FL OW STATEMENT OR SOURCES OF THE INVESTMENT IN THE VARIOUS FUNDS BY THE ASSESSE E WERE PLACED BEFORE THE AO OR THE LD. CIT(A) . APPARENTLY, THE ASSESSEE DID NO T FURNISH ANY DETAILS OF EXPENDITURE INCURRED FOR MANAGEMENT AND SUPERVISION OF AFORESAID HUGE INVESTMENTS EVEN WHEN THE ASSESSEE ITSELF STATED TH AT AN EXPENDITURE OF ` 82,000 /- WAS INCURRED FOR EARNING INCOME WHICH DID NOT F ORM PART OF TOTAL INCOME. IN ANY CASE, NO MATERIAL WAS PLACED BEFORE THE AO IN ORDER TO ENABLE HIM TO RECORD HIS SATISFACTION WHILE THE LD.CIT(A) CONCLUDED THAT THE AO WAS REQUIRED TO RECORD HIS SATISFACTION ON THE CLAIM OF THE ASSESSEE U/S 14A(2) OF THE ACT, IRRESPECTIVE OF THE FACT OF FILING OF DETAILS OR OTHERWISE .THERE IS NO APPARENT BASIS NOR THERE IS ANY SUCH PROVISION, RESTRICTING THE DISALLOWANCE TO DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE YEAR. HO NBLE APEX COURT IN KANTAMANI VENKATA NARAYANA AND SONS V. FIRST ADDL. ITO [1967] 63 ITR 638 AND AGAIN IN MALEGAON ELECTRICITY CO. P. LTD. V. CI T [1970] 78 ITR 466 (SC) OBSERVED THAT IT IS THE DUTY OF THE ASSESSEE TO BRI NG TO THE NOTICE OF THE INCOME TAX OFFICER PARTICULAR ITEMS IN THE BOOKS OF ACCOUN T OR PORTIONS OF DOCUMENTS WHICH ARE RELEVANT. THE LAW CASTS A DUTY ON THE AS SESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSM ENT FOR THAT YEAR. NOT EVEN A WHISPER HAS BEEN MADE BEFORE US AS TO WHETHER OR NO T RELEVANT ACCOUNTS WERE PLACED BEFORE THE AO OR THE LD. CIT(A) IN ORDER TO ENABLE THEM TO EXAMINE THE CLAIM OF THE ASSESSEE. THE LD. CIT(A) MERELY REFERR ED TO CERTAIN DECISIONS IN RELATION TO THE DISALLOWANCE WITHOUT EVEN EXAMININ G THE RELEVANT ACCOUNTS OR ASCERTAINING THE RELEVANT FACTS AND CIRCUMSTANCES . 6.1. HONBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) WHILE ADJUDICATING A SIMILAR ISSUE IN THE CONTEXT OF PROVISIONS OF SEC. 14A OF THE ACT AND RULE 8D OF THE IT RULES,1962 CONCLUDED THAT RULE 8D, INSERTED W.E.F 24.3.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECAUSE IT ENAC TS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITURE RELATABLE TO TAX-F REE INCOME. IT APPLIES ONLY W.E.F AY 2008-09. FOR THE ASSESSMENT Y EARS WHERE ITA N O.520 /DEL./2012 6 RULE 8D DOES NOT APPLY, THE AO WILL HAVE TO DETERMI NE THE QUANTUM OF DISALLOWABLE EXPENDITURE BY A REASONABLE METHOD HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES, THE HONBLE HIG H COURT CONCLUDED. 6.2 HONBLE SUPREME COURT IN THEIR DECISION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS (P.) LTD.,326 ITR 1, INTER ALIA, OBSERVED THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RE LATIONSHIP WITH THE TAX EXEMPT INCOME. THE THEORY OF APPORTIONMENT OF E XPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A, HONBLE APEX COURT CONCLUDED. 6.3 HONBLE PUNJAB & HARYANA HIGH COURT IN THE IR DECISION IN CIT VS. HERO CYCLES LTD.,323 ITR 518 HAVE OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A C ANNOT STAND. 6.4 IN CHEMINVEST LTD. V. INCOME-TAX OFFICER,317I TR(AT)86,SPECIAL BENCH HELD THAT WHEN THE EXPENDITURE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER THE DISALLOW ANCE IRRESPECTIVE OF THE FACT WHETHER ANY INCOME IS EARNED BY THE ASSESSEE OR NOT AND THE PROVISIONS OF SEC. 14A OF THE ACT DO NOT ENVISAGE ANY SUCH EXCEPTION. 6.5 HONBLE JURISDICTIONAL HIGH COURT IN A RECEN T DECISION DATED 18.11.2011 IN MAXOPP INVESTMENT LTD. VS. CIT,[2011] 15 TAXMANN.CO M 390 (DELHI) HELD AS UNDER: '41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEE N, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXP ENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 'IN ITA N O.520 /DEL./2012 7 ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSI NG OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE I N RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPL ICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLIC IT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14 A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPEN DITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, S ECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) & (3) WOULD RE QUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJECTION MUST BE FOR DISCLOSE D COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXP ENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING OF FICER WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB-SECTI ONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, N OT RETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATIS FY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGAR D TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REF LECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE O THER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THA T THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRE CT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BAS IS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APP ROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO TH E FOLLOWING EFFECT:- ' THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A .' SO, EVEN FOR THE PRE-RULE 8D PERIOD, WHENEVER THE I SSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST O F ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRE CTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE C LAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASS ESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCER NED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UP ON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 1 4A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS ITA N O.520 /DEL./2012 8 FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPO RTIONMENT.' . 6.6. HONBLE CALCUTTA HIGH COURT IN DHANUKA & SONS VS. CIT,12 TAXMANN.COM 227(CAL.) HELD THAT AFTER HEARING THE LEARNED COUNSEL APPEARIN G FOR THE PARTIES AND AFTER GOING THROUGH THE MATERIALS ON RECORD AND THE DECISIONS C ITED BY MR. KHAITAN, WE FIND THAT THE SUPREME COURT IN THE CASES OF CIT V. MAHAR ASTRA SUGAR MILLS LTD. [1971] 82 ITR 452 AND RAJASTHAN STATE WAREHOUSING CORPN. V. CIT [200 0] 242 ITR 450 / 109 TAXMAN 145 HAVING HELD THAT WHERE THERE IS ONE INDIVISIBLE BU SINESS GIVING RISE TO TAXABLE INCOME AS WELL AS EXEMPT INC OME, THE ENTIRE EXPENDITURE INCURRED IN RELATION TO THAT BUSINESS WOULD HAVE TO BE ALLOWED EVEN IF A PART OF THE INCOME EARNED FROM THE BUSINESS IS EXEMPT FROM TAX, SECTION 14A OF THE ACT WAS ENACTED TO OVERCOME THOSE JUDICIAL PRONOUNCEMENTS. THE OBJECT OF SECTION14A OF THE ACT IS TO DISALLOW THE DIRECT AND INDIRECT EXPE NDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . 8. IN THE CASE BEFORE US, THERE IS NO DISPUTE THAT PA RT OF THE INCOME OF THE ASSESSEE FROM ITS BUSINESS IS FROM DIVIDEND WHICH I S EXEMPT FROM TAX WHEREAS THE ASSESSEE WAS UNABLE TO PRODUCE ANY MATERIAL BEF ORE THE AUTHORITIES BELOW SHOWING THE SOURCE FROM WHICH SUCH SHARES WERE ACQU IRED. MR. KHAITAN STRENUOUSLY CONTENDED BEFORE US THAT FOR THE LAST F EW YEARS BEFORE THE RELEVANT PREVIOUS YEAR, NO NEW SHARE HAS BEEN ACQUIRED AND T HUS, THE LOAN THAT WAS TAKEN AND FOR WHICH THE INTEREST IS PAYABLE BY THE ASSESSEE WAS NOT FOR ACQUISITION OF THOSE OLD SHARES AND, THEREFORE, THE AUTHORITIES BELOW ERRED IN LAW IN GIVING BENEFIT OF PROPORTIONATE DEDUCTION. 9. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WE RE OLD ONES AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSESSEE TO S HOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEV ANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN, EVEN FOR INSTANCE, FIVE OR TEN YEARS AGO, IT IS FOR THE ASSESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LO ANED AMOUNT HAD ALREADY BEEN PAID BACK AND FOR THE RELEVANT ASSESSMENT YEAR , NO INTEREST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERIALS PLACED BY THE ASSESSEE, IN OUR OPINION, T HE AUTHORITIES BELOW RIGHTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE DISALLOWED HAVING REGARD TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN TH E ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHIC H IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. ITA N O.520 /DEL./2012 9 6.7 AS ALREADY OBSERVED, IN THE INSTANT CASE, T HE ASSESSEE DENIED INCURRING ANY EXPENDITURE FOR EARNING INCOME, WHICH DID NOT FORM PART OF TOTAL INCOME DURING THE COURSE OF ASSESSMENT PROCEEDINGS EVEN WHEN HUGE INVESTMENTS WERE MADE BY THE ASSESSEE IN SECURITIE S . IN TERMS OF THE AFORESAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N MAXOPP INVESTMENT LTD.(SUPRA), EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO IS REQUIRED TO VERIFY THE CORRECTNESS OF SUCH CLAIM. I N CASE , THE AO IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE AS SESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVIN G DONE SO, THE AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T, HONBLE HIGH COURT CONCLUDED . FOLLOWING THE VIEW TAKEN IN THIS DECISION, HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. MACHINO PLASTIC LTD IN THEIR DECI SION DATED 28.2.2012 IN ITA NO. 92 OF 2011, RESTORED THE MATTER TO THE FILE OF THE AO, BEING HANDICAPPED BECAUSE OF FAILURE OF THE ASSESSEE TO FURNISH RELEVANT DETA ILS AND PARTICULARS .IN THE INSTANT CASE ALSO, THE AO WAS HANDICAPPED, BECAUSE OF FAILU RE OF THE ASSESSEE TO FURNISH RELEVANT DETAILS/PARTICULARS AND ACCOUNTS W HILE MAKING THE DISALLOWANCE IN TERMS OF PROVISIONS OF SEC. 14A OF THE ACT. THERE I S NOTHING IN THE ASSESSMENT ORDER OR IMPUGNED ORDER AS TO WHETHER THE ASSESSEE PLACED THE RELEVANT DETAILS & ACCOUNTS BEFORE THE AO NOR THE LD. CIT(A) SEEMS TO HAVE UNDERTAKEN ANY EXERCISE TO ASCERTAIN THE DETAILS OF EXPENDITURE OB JECTIVELY IN MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS IN VARI OUS FUNDS & SECURITIES. IN VIEW OF THE FOREGOING, WE CONSIDER IT FAIR AND APPR OPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER TO THE FILE OF THE AO FOR DECIDING THE ISSUE, AFRESH IN ACCORDANC E WITH LAW IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AND VARIOUS JUD ICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED TO ABOVE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE AO SHALL PASS A SPEAKING ORDER, GIVING ITA N O.520 /DEL./2012 10 REASONS FOR HIS SATISFACTION OR OTHERWISE, AS POIN TED OUT BY THE HONBLE JURISDICTIONAL HIGH COURT IN THEIR DECISION IN MAXOPP INVESTMENT LTD (SUPRA). THE ASSESSEE IS ALSO DIRECT ED TO FURNISH ALL THE RELEVANT DETAILS OF EXPENDITURE ACTUALLY INCURRED I N MANAGING AND SUPERVISING THE AFORESAID HUGE INVESTMENTS IN FUNDS & SECURITIES ALONG WITH RELEVANT ACCOUNTS AND CASH FLOW STATEMEN T. WITH THESE OBSERVATIONS, GROUND NO 1 IN THE APPEAL IS DISPOSED OF. 7. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE U S IN TERMS OF RESIDUARY GROUND NO.2 IN THE APPEAL, ACCORDINGLY, THIS GROUN D IS DISMISSED. 8.. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE U S. 9. IN THE RESULT, APPEAL IS ALLOWED BUT F OR STATISTICAL PURPOSES. SD/- SD/- ( HARI OM MARATHA) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. ASSISTANT. CIT, CIRCLE 2(1),ROOM NO. 398D,CR BUI LDING, IP ESTATE, NEW DELHI 3. CIT CONCERNED. 4. CIT(A)-V, NEW DELHI 5. DR, ITAT,A BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT