Kalyani Steels Ltd., Pune V. ACIT, Range-11, Pune

ITA 535/PUN/2010

• Counselvise Citation: 53524514 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 12-04-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY SINGH
• Assessee Lawyers: SUNIL PATHAK
• Keywords: Opportunity of being heard
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE SHRI I.C. SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU ACCOUNTANT MEMBER ITA NO. 535/PN/2010 (ASSTT. YEAR: 2006-07) M/S. KALYANI STEELS LTD , ... APPELLANT MUNDWA, PUNE 411 036 PAN: AAACK7315D V. ADDITIONAL C.I.T., RANGE 11, PUNE RESPONDENT PMT BUILDING, SWARGATE, PUNE 37 APPELLANT BY : SHRI SUNIL PATHAK RESPONDENT BY : SHRI SANJAY SINGH DATE OF HEARING :30.8.11 DATE OF PRONOUNCEMENT: .10.11 ORDER PER I.C. SUDHIR, JM THE ASSESSEE HAS QUESTIONED FIRST APPELLATE ORDER ON FOLLOWING GROUNDS : 1. ON THE FACTS OF THE CASE AND IN LAW, THE COMMI SSIONER OF INCOME TAX (APPEALS) I, PUNE ERRED IN CONFIRMING DISALLOWANC E OF RS.33,48,120/- AS EXPENDITURE INCURRED BY THE COMPANY IN RELATION TO EXEMPT DIVIDEND U/S. 14A OF THE INCOME TAX ACT, 1961 BY APPLYING RULE 8 D OF THE INCOME TAX RULES WHILE ASSESSING TOTAL INCOME AS PER REGULAR PROVISI ONS AND BOOK PROFIT U/S. 115JB OF THE INCOME TAX ACT, 1961. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) I, P UNE ERRED IN NOT APPRECIATING THAT THERE WAS NO DOMINANT AND IMMEDIA TE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE EXEMPT DIVIDEND R ECEIVED BY THE COMPANY 2 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 AND THAT THERE CANNOT BE ANY ADHOC DISALLOWANCE OUT OF GENERAL EXPENSES. HE ERRED IN NOT FOLLOWING THE RATIO OF THE FOLLOWIN G DECISIONS : (A) ITO V M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. (SB-MU M ITAT) (B) CIT V GENERAL INSURANCE CORPORATION OF INDIA (2002) 254 ITR 203 (BOM.) (C) CIT V BSES LTD. (2008) 113 TTJ 227 (MUM.) (D) SPACE FINANCIAL SERVICES V ACIT (2008) 115 TTJ 165 (DEL.) 3. WITHOUT PREJUDICE TO ABOVE, THE COMMISSIONER OF INCOME TAX (APPEALS) I, PUNE ERRED IN NOT APPRECIATING THAT RULE 8D WAS INTRODUCED AS A CONSEQUENCE OF AND TO GIVE EFFECT TO SUB-SECTION S (2) AND (3) OF SECTION 14A INTRODUCED W.E.F. 01.04.2007 I.E. ASSESSMENT YE AR 2007-08 AND CONSEQUENTLY RULE 8D COULD NOT BE APPLIED IN THE AP PELLANT COMPANYS CASE FOR ASSESSMENT YEAR 2006-07. HE ERRED IN NOT FOLLO WING THE RATIO OF THE BELOW MENTIONED DECISIONS : (A)ING INVESTMENT MANAGEMENT (INDIA) PVT. LTD. VS . DCIT ITA NO.(S.) 1435 & 5346/MUM/2005 (B) WIMCO SEEDLING LTD. V. DCIT (2007) 107 ITD 26 7 (DEL.) (TM ) 4. WITHOUT PREJUDICE TO GROUND NO. 1 TO 3, THE LEAR NED COMMISSIONER OF INCOME TAX (APPEALS) I, PUNE WHILE DISMISSING THE APPELLANT COMPANYS APPEAL ERRED IN DIRECTING THE LEARNED ASSESSING OFF ICER TO VERIFY AS TO WHETHER THE APPELLANT HAS INCURRED ANY EXPENDITURE BY WAY O F INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE T O ANY PARTICULAR INCOME OR RECEIPT AND IF SO, TO COMPUTE THE INTEREST EXPENDIT URE IN RELATION TO EXEMPT DIVIDEND AS PER FORMULA PROVIDED IN CLAUSE (II) OF RULE 8D. HE ERRED IN GIVING THE AFORESAID DIRECTIONS WITHOUT GIVING OPPORTUNITY OF HEARING TO THE APPELLANT COMPANY. 2. WE HAVE HEARD AND CONSIDERED THE ARGUMENTS ADVAN CED BY THE PARTIES IN VIEW OF THE ORDERS OF THE AUTHORITIES BELOW, MATERI AL AVAILABLE ON RECORD AND THE DECISIONS RELIED UPON. 3 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 GROUND NOS. 1, 2 & 3 3. THE RELEVANT FACTS ARE THAT IN ITS RETURN OF INC OME, THE ASSESSEE HAD CLAIMED INCOME RECEIVED AT RS. 7,59,80,177/- AS EXEMPT CON SISTING OF DIVIDEND TO THE EXTENT OF RS. 3,35,11,725/- AND CAPITAL GAINS OF R S. 4,24,68,452/-. THE ASSESSEE WAS ASKED TO BY THE A.O AS TO WHY DISALLOWANCE OF P ROPORTIONATE EXPENSES SHOULD NOT BE MADE IN RESPECT OF THE INCOME CLAIMED EXEMPT IN VIEW OF THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE I.T. RULES. THE A SSESSEE CONTENDED THAT INVESTMENT MADE IN EQUITY SHARES IN RESPECT OF WHICH DIVIDEND WAS RECEIVED, WAS OUT OF OWN FUNDS, AND HENCE NO DISALLOWANCE U/S. 14A WAS WARRA NTED. IT WAS ARGUED THAT RULE 8D WAS APPLICABLE FROM THE A.Y. 2008-09 ONWARDS ON LY AND HENCE, THE SAME HAD NO APPLICABILITY FOR THE A.Y. UNDER CONSIDERATION. THE A.O ACCEPTED THE EXPLANATION OF THE ASSESSEE ONLY IN RESPECT OF LONG TERM CAPIT AL GAINS CLAIMED EXEMPT U/S. 10(38) DERIVED ON SALE OF EQUITY SHARES. THE A.O W AS OF THE VIEW THAT THE RELATABLE EXPENDITURE IN RELATION TO DIVIDEND INCOME AMOUNTIN G TO RS. 3,35,11,725/- WHICH WAS CLAIMED EXEMPT, IS REQUIRED TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 14A. THE A.O ALSO DID NOT ACCEPT THE CONTE NTION OF THE ASSESSEE THAT RULE 8D OF THE I.T. RULES IS APPLICABLE FROM THE A.Y. 20 08-09 ONWARDS IN VIEW OF THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF I.T.O. VS. DAGA CAPITAL INVESTMENT MANAGEMENT PVT. LTD. (2009) (MUM) (S.B). ACCORDING TO THE A.O, EVEN IF THE CONTENTION OF THE ASSESSEE THAT NO DIRECT EXPEN DITURE WAS INCURRED FOR EARNING THE DIVIDEND INCOME IS ACCEPTED, DISALLOWANCE IS ST ILL WARRANTED IN VIEW OF PROCEDURES PRESCRIBED IN RULE 8D(2)(III) AS PER WH ICH, SUCH DISALLOWANCES SHALL BE AGGREGATE OF (I) EXPENDITURE DIRECTLY RELATED TO SU CH INCOME, (II) INTEREST EXPENDITURE RELATABLE TO SUCH INCOME AND (III) AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE VALUE OF SUCH INVESTMENTS. ACCORDINGLY, A DISALLOWANCE OF 0.5% AMOUNTING TO RS. 33,48,120/- WAS MADE ON AVERAGE VALUE OF INVESTMENT OF RS.66,96,24,011/-. 4 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 4. BEFORE THE LD CIT(A), THE ASSESSEE AGAIN CONTEND ED THAT RULE 8D IS INSERTED W.E.F. 24.3.2008 AS A LOGICAL COROLLARY TO THE INT RODUCTION OF SUB-SECTIONS (2) & (3) IN SECTION 14A OF THE INCOME TAX ACT 1961. IT WAS CONTENDED THAT THE AMENDMENT IN RULE 8D IS APPLICABLE FROM THE A.Y. 2 008-09 AND IT IS NEVER RETROSPECTIVE UNLESS AND UNTIL EXPRESSLY SPECIFIED. IT WAS ARGUED THAT EVEN IF SUCH AMENDMENT IS HELD TO BE RETROSPECTIVE, THE APPLICAT ION THEREON CAN NEVER DATE BACK PRIOR TO A.Y. 2007-08 SINCE THE BASIC PROVISIONS EN ABLING THE ABOVE FORMULA I.E. SUB- SECTION (2) & (3) OF SECTION 14A WERE BROUGHT ON S TATUTE BY THE FINANCE ACT (2006) W.E.F. 1.4.2007 I.E. A.Y. 2007-08. THE LD CIT(A) D ID NOT AGREE AND UPHELD THE DISALLOWANCE MADE BY THE A.O. 5. BEFORE THE TRIBUNAL, THE LD. A.R. REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE SUBMITTED THAT THE LD CIT(A) HAS FAILED TO APPRECIATE THAT THERE WAS NO DOMINANT AND IMMEDIATE CONNECTION BETW EEN THE EXPENDITURE INCURRED AND THE EXEMPT DIVIDEND RECEIVED BY THE COMPANY AND THAT THERE CANNOT BE ANY ADHOC DISALLOWANCE OUT OF GENERAL EXPENSES. IN THI S REGARD, HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : (A) ITO V M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. (SB-M UM ITAT) (B) CIT V GENERAL INSURANCE CORPORATION OF INDIA (2002) 254 ITR 203 (BOM.) (C) CIT V BSES LTD. (2008) 113 TTJ 227 (MUM.) (D) SPACE FINANCIAL SERVICES V ACIT (2008) 115 TTJ 165 (DEL.) THE LD. A.R. SUBMITTED THAT NO INVESTMENT IN SHARES WAS MADE IN THE A.Y. UNDER CONSIDERATION I.E. A.Y. A.Y. 2006-07. IN THIS REGA RD, HE DREW OUR ATTENTION TO THE BALANCE SHEET MADE AVAILABLE AT PAGE NO. 22 OF THE PAPER BOOK. HE ALSO REFERRED PAGE NOS. 32 AND 33 I.E. SCHEDULE 6 TO THE FINANCIA L STATEMENTS SHOWING THE INVESTMENTS, AT COST. THE LD. A.R. SUBMITTED THAT NO SUCH DISALLOWANCE WAS MADE IN THE LAST A.Y. 2005-06 AND DREW OUR ATTENTION TO PAGE NO. 54 OF THE PAPER BOOK IN 5 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 SUPPORT. HE SUBMITTED FURTHER THAT NO NEXUS HAVE BEEN ESTABLISHED BY THE A.O BETWEEN BORROWED FUNDS AND INVESTMENT IN SHARES, HE NCE DISALLOWANCE OF EXPENDITURE MADE BY THE A.O WAS NOT JUSTIFIED. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS : I) DCIT VS. MAHARASHTRA SEAMLESS LTD., ITA NO. 4063/DE L/2006, (A.Y. 2003-04), ORDER DT. 16.12.2010 II) M/S. GODREJ AGROVAT LTD. VS. ACIT, ITA NO. 1629/MUM /2009 (A.Y. 2005-06), ORDER DATED 17 SEPTEMBER 2010 III) CIT VS. K. RAHEJA CORPORATION PVT. LTD., ITA NO. 12 60 OF 2009, DATED 8 TH AUGUST 2011, HONBLE BOMBAY HIGH COURT IV) 323 ITR 518 ( PUN. & HAR.) V) 313 ITR 340 (BOM.) 6. THE LD. D.R, ON THE OTHER HAND, PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES BELOW. HE REFERRED CONTENTS OF PARA NO S. 5.2 AND 5.5 OF THE FIRST APPELLATE ORDER. 7. HAVING GONE THROUGH THE DECISIONS RELIED UPON BY THE LD. A.R., WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN ITS RECENT DECISIO N DATED 11 TH AUGUST 2011 IN THE CASE OF CIT VS. K. RAHEJA CORPORATION PVT. LTD. (SU PRA) HAS BEEN PLEASED TO HOLD THAT IN THE ABSENCE OF ANY MATERIAL OR BASIS TO HOL D THAT THE INTEREST EXPENDITURE DIRECTLY OR INDIRECTLY WAS ATTRIBUTABLE FOR EARNING THE DIVIDEND INCOME, THE DECISION OF THE TRIBUNAL IN DELETING THE DISALLOWANCE OF INT EREST MADE U/S. 14A OF THE ACT CANNOT BE FAULTED. IN THAT CASE, THE A.Y. INVOLVED WAS 2000-01. THE ASSESSEE HAD EARNED THE DIVIDEND INCOME OF RS.13,35,770/- FROM T HE INVESTMENTS OF MORE THAN RS. 20 CRORES MADE IN EQUITY SHARES, MUTUAL FUNDS ETC., FROM A.Y. 1994-95 ONWARDS. IN THE A.Y. 2000-01, THE ASSESSEE HAD CLA IMED DEDUCTION OF INTEREST AMOUNTING TO RS. 8.70 CRORES ON BORROWED FUNDS UTIL IZED FOR THE BUSINESS. OUT OF THE SAID AMOUNT OF INTEREST, THE A.O DISALLOWED INT EREST AMOUNTING TO RS. 2.79 6 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 CRORES ON THE BASIS THAT THE SAID AMOUNT WAS RELATA BLE TO EARNING DIVIDEND INCOME WHICH ARE EXEMPT U/S. 10(33) OF THE ACT (AS IT THEN STOOD) AND HENCE DISALLOWANCE U/S. 14A OF THE ACT. THE HONBLE HIGH COURT NOTED THE FINDINGS OF THE TRIBUNAL THAT THE INVESTMENT IN EQUITY SHARES AND MUTUAL FUNDS WE RE MADE BY THE ASSESSEE DURING THE A.YS. 1994-95 TILL 1998-99 AND THESE INV ESTMENTS HAVE BEEN MADE OUT OF ASSESSEES OWN FUNDS AND NOT OUT OF THE BORROWED F UNDS. THE HONBLE HIGH COURT NOTED FURTHER THAT EVEN THE INVESTMENTS MADE IN THE A.Y. 1999-2000 HAVE BEEN HELD BY THE TRIBUNAL TO BE OUT OF ASSESSEES OWN FUNDS A ND NOT OUT OF BORROWED FUNDS. UNDER THIS BACKGROUND, THE HONBLE BOMBAY HIGH COUR T HAS BEEN PLEASED TO HOLD AS UNDER : SAVE AND EXCEPT CONTENDING THAT SECTION 14A WAS NO T ON THE STATUTE BOOK WHEN THE INCOME TAX APPELLATE TRIBUNAL PASSED ORDE RS IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR IN QUESTION, COU NSEL FOR THE REVENUE COULD NOT POINT AS TO HOW INTEREST ON BORROWED FUND S TO THE EXTENT OF RS.2.79 CRORES WAS ATTRIBUTABLE TO EARNING DIVIDEND INCOME WHICH ARE EXEMPT UNDER SECTION 10(33) OF THE ACT (AS IT THEN STOOD). THER EFORE, IN THE FACT OF THE PRESENT CASE, IN THE ABSENCE OF ANY MATERIAL OR BAS IS TO HOLD THAT THE INTEREST EXPENDITURE DIRECTLY OR INDIRECTLY WAS ATTRIBUTABLE FOR EARNING THE DIVIDEND INCOME, THE DECISION OF THE INCOME TAX APPELLATE TR IBUNAL IN DELETING THE DIS- ALLOWANCE OF INTEREST MADE UNDER SECTION 14A OF THE ACT CANNOT BE FAULTED. 8. IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO . LTD. VS. DCIT (SUPRA), THE HONBLE BOMBAY HIGH COURT AFTER DETAILED DELIBERATI ONS HAS BEEN PLEASED TO HOLD THAT AS PER CLARIFICATIONS OF CBDT VIDE CIRCULAR NO . 14 OF 2006, THE AMENDMENT IN SECTION 14A WOULD BE APPLICABLE FROM THE A.Y. 2007 -08 ONWARDS AND PROVISIONS OF RULE 8D INSERTED BY I.T. (5TH AMENDMENT) RULES, 200 8 WHICH WERE TO COME INTO FORCE ON 24 TH MARCH 2008, IS APPLICABLE W.E.F. A.Y. 2008-09. THE HONBLE HIGH COURT HAS BEEN FURTHER PLEASED TO HOLD THAT EVEN IN THE A BSENCE OF SUB-SECTIONS (2) & (3) OF SECTION 14A AND OF RULE 8D, THE A.O. WAS NOT PRE CLUDED FROM MAKING APPORTIONMENT OF THE EXPENDITURE INCURRED ON THE IN COME NOT INCLUDED IN THE TOTAL INCOME. IN OTHER WORDS, THE DISALLOWANCE FOR EARL IER PERIOD IS TO BE DETERMINED BY 7 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 THE A.O ON REASONABLE BASIS. THE HONBLE BOMBAY HI GH COURT HAS BEEN PLEASED TO HOLD THAT A.O IS DUTY BOUND TO DETERMINE THE EXPEND ITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. THE A.O MUST ADOPT A REASONABLE BASIS OR METHOD CO NSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONAB LE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROC EEDINGS FOR A.Y. 2002-03 (INVOLVED THEREIN) WAS THUS REMANDED TO THE A.O TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR IN DIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUND WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U/S. 14A. IT WAS DIRECTED THAT THE A .O CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE A.O SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON T HE FACTS AND CIRCUMSTANCES OF THE CASE, HELD THE HONBLE HIGH COURT. 9. IN SUPPORT OF THE ALTERNATIVE CONTENTION RAISED IN GROUND NO. 3 THAT RULE 8D WAS INTRODUCED AS A CONSEQUENCE OF AND TO GIVE EFFE CT TO SUB-SECTION (2) & (3) OF SECTION 14A INTRODUCED W.E.F. 1.4.2009 I.E. A.Y. 20 07-08 AND CONSEQUENTLY RULE 8D COULD NOT BE APPLIED IN THE APPELLANT COMPANYS CAS E FOR A.Y. 2006-07, THE LD. A.R. PLACED RELIANCE ON THE FOLLOWING DECISIONS : (A)ING INVESTMENT MANAGEMENT (INDIA) PVT. LTD. VS. DCIT ITA NO.(S.) 1435 & 5346/MUM/2005 (B) WIMCO SEEDLING LTD. V. DCIT (2007) 107 ITD 267 (DEL.) (TM ) (C)GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT ( 2010), 328 ITR 81(BOM.) 10. IN THE CASE BEFORE US, THE A.Y. INVOLVED IS 200 6-07, THUS PROVISIONS OF SUB- SECTION (2) & (3) OF SECTION 14A INSERTED BY AN AME NDMENT BY FINANCE ACT (2006) W.E.F. APRIL 1, 2007 I.E. A.Y. 2007-08 AND RULE 8 D OF THE INCOME TAX RULES 1962 8 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 APPLICABLE W.E.F. A.Y. 2008-09 WAS ALSO NOT AVAILAB LE. WE THUS RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA) HOLD THAT THE AMENDED PROVISIONS U/S. 14A AND RULE 8D WERE NOT APPLICABLE IN THE CASE OF ASS ESSEE FOR THE A.Y. 2006-07, HENCE THE A.O WAS NOT JUSTIFIED IN FOLLOWING THE S AME FOR MAKING DISALLOWANCE OF 09.5% AMOUNTING TO RS. 33,48,120/- MADE ON THE AVER AGE VALUE OF INVESTMENT OF RS.66,96,24,011/-. THE SAME IS DELETED. WE, HOWEV ER, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA) HOLD FURTHE R THAT FOR THE A.Y. UNDER CONSIDERATION, IN THE CASE OF ASSESSEE, THE A.O MUS T ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. WE THUS REMAND THE MATTER TO THE FILE OF THE A.O TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR I NDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U/S. 14A. THE A.O CAN ADOPT A REASONA BLE BASIS FOR OFFERING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, TH E A.O SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCIN G ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THE GROUND NOS. 1 & 2 ARE THUS ALLOWED FOR STATISTI CAL PURPOSES. GROUND NO. 3 IS ALLOWED WITH THIS FINDING, AS DISCUSSED ABOVE THAT RULE 8D WAS NOT APPLICABLE IN THE ASSESSEES CASE FOR A.Y. 2006-07. GROUND NO. 4 11. SO FAR AS GROUND NO. 4 IS CONCERNED, IT IS AN ALTERNATIVE GROUND TO GROUND NOS. 1 TO 3 WHEREIN, THE ASSESSEE HAS QUESTIONED TH E ACTION OF THE LD CIT(A) IN DIRECTING THE A.O. TO VERIFY AS TO WHETHER THE ASSE SSEE HAS INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH I S NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AND IF SO, COMPUTE IN TEREST EXPENDITURE IN RELATION TO 9 ITA NO. 535/PN/2010 KALYANI STEELS LTD . A.Y. 2006- 07 EXEMPT DIVIDEND AS PER FORMULA PROVIDED IN CLAUSE ( II) OF RULE 8D. THE GRIEVANCE OF THE ASSESSEE SHOWN IN THE GROUND IS THAT THESE DIRE CTIONS HAVE BEEN GIVEN BY LD CIT(A) TO THE A.O WITHOUT GIVING OPPORTUNITY OF HEA RING TO THE ASSESSEE. IN VIEW OF OUR FINDING HEREINABOVE ON THE ISSUE RAISED IN GROU ND NOS. 1 TO 3, WE FIND THAT GRIEVANCE OF THE ASSESSEE HAS BEEN SATISFIED AS THE ISSUE RAISED IN GROUND NOS. 1 & 2 HAS BEEN REMANDED BACK TO THE FILE OF A.O TO DECI DE IT AFRESH AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND NO. 4 IS ACCORDINGLY REJECTED. 12. IN RESULT, APPEAL IS PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21ST OCTOBER 2011. SD/- SD/- (G.S.PANNU) ACCOUNTANT MEMBER (I.C. SUDHIR ) JUDICIAL MEMBER PUNE,DATED THE 21 ST OCTOBER, 2011 US COPY OF THE ORDER IS FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT -I, PUNE 4. THE CIT(A)-I, PUNE 4. THE D.R. A BENCH, PUNE 5. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE