D.C.I.T. Cir-10, Kolkata, Kolkata V. M/s. Philips Carbon Black Ltd., Kolkata

ITA 566/KOL/2009

• Counselvise Citation: 56623514 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2011
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2009
• Court: TRIBUNAL
• Department Lawyers: D R SINDHAL CITD R
• Assessee Lawyers: D S DAMLE
• Keywords: Earning of tax free income; Difference of opinion
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : KOLKATA ( ) . . , , . . , , ) [BEFORE HONBLE SRI B.R. MITTAL, J.M. & HONBLE SRI C.D. RAO, A.M.] ! ! ! ! / I.T.A NO. 566/KOL/2009 '# $% / ASSESSMENT YEAR : 2004-2005 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- M/S . PHILIPS CARBON BLACK LTD., KOLKATA CIRCLE-10, KOLKATA (PAN : AABCP 5762E) (APPELLANT ) (RESPONDENT ) & C.O. NO. 39/KOL./2009 (IN ITA NO. 566/KOL./2009) M/S. PHILIPS CARBON BLACK LTD., KOLKATA -VS.- DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-10, KOLKATA (CROSS OBJECTOR) (RESPONDENT) FOR THE ASSESSEE : SHRI D.S. DAMLE, AR. FOR THE DEPARTMENT : SHRI D.R. SINDHAL, CIT-D.R . & / ORDER PER SHRI B. R. MITTAL, JUDICIAL MEMBER/ . . , : SINCE THERE WAS A DIFFERENCE OF OPINION BETWEEN TH E LD. MEMBERS CONSTITUTING THE DIVISION BENCH OF ITAT, KOLKATA WITH REGARD TO THE FOLLOWING QUESTION, THE MATTER WAS REFERRED TO THIRD MEMBER UNDER SECTION. 255(4) OF THE I.T. A CT, 1961 FOR HIS OPINION :- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE DISALLOWANCE OF RS.2 LAKHS ON AD HOC BASIS PROPOSED BY LD. J.M. OR DISALLOWANCE OF EXPENSES TO 1% OF THE TOTAL EXEM PTED INCOME PROPOSED BY LD. A.M. IS JUSTIFIED UNDER SECTION 14A OF THE I.T. ACT, 1961. 2. HONBLE PRESIDENT, ITAT NOMINATED SHRI G.D. AGRA WAL, HONBLE VICE PRESIDENT (AZ/KZ) AS THIRD MEMBER. THE HONBLE THIRD MEMBER V IDE HIS ORDER DATED 27.05.2011 HAS CONCURRED WITH THE FINDINGS OF LD. ACCOUNTANT MEMBE R BY OBSERVING AS UNDER :- 7. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE ORDERS PROPOSED BY LD. MEMBERS. THE DISPUTE IN THE PRESENT REFERENCE IS IN NARROW COMPASS. IN THE ASSESSMENT ORDER THE A .O. DISALLOWED ADMINISTRATIVE EXPENSES OF RS.42,130/- U/S. 14A OF THE ACT CALCULATED @ ITA N O. 566/KOL./2010 & CO-39/KOL./2009 2 1% OF THE TAX-FREE INCOME. THE ID. C.I.T.(A) BY APP LYING RULE 8D OF THE RULES DIRECTED THE A.O. TO DISALLOW RS.10,28,900/-, THEREBY ENHANCED THE TOTAL INCOME BY RS.9,86,770/-. IN THE GROUNDS OF CR OSS OBJECTION THE ASSESSEE OBJECTED TO THE ORDER OF THE ID. C.I.T.(A) ONLY ON THE ISSUE OF APPLICATION OF RULE 8D FOR THE PURPOSES OF MAKING D ISALLOWANCE U/S 14A OF THE ACT. PERUSAL OF THE GROUNDS OF CROSS OBJECTION SHOWED THAT THE ASSESSEE DID NOT CHALLENGE THE DISALLOWANCE MADE BY THE A.O. AT RS.42,130/-, BUT OBJECTED ONLY TO THE APPLICATION OF RULE 8D WHICH I N ITS OPINION WAS NOT APPLICABLE FOR ASSESSMENT YEAR UNDER CONSIDERATION, I.E. A.Y. 2004-05. I FIND MERIT IN THE SUBMISSIONS OF THE LEARNED COUNSE L FOR THE ASSESSEE THAT THE ASSESSEE NEVER CHALLENGED THE A.O..S ORDER DIS ALLOWING RS.42,130/- U/S 14A OF THE ACT BUT IT OBJECTED ONLY TO THE ENHA NCEMENT MADE BY THE ID. C.I.T.(A) BY RESORTING TO RULE 8D OF THE RULES. IT APPEARED FROM THE ORDERS PROPOSED BY BOTH THE LD. MEMBERS THAT BOTH OF THEM AGREED THAT RULE 8D WAS NOT APPLICABLE TO THE ASSESSEES CASE SINCE THE YEAR UNDER APPEAL WAS A.Y. 2004-05, WHEREAS RULE 8D WAS APPLICABLE PROSPE CTIVELY FROM A.Y. 2008-09. IN SUPPORT OF THIS FINDING BOTH THE LD. ME MBERS RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ & BOYCE MANUFACTURING CO. LTD (SUPRA). THEREFORE, ONCE BOTH THE LD. MEMBERS AGREED WITH THE SUBMISSIONS OF THE LEARNED FOR THE ASSESSEE THAT RULE 8D OF THE RULES WAS NOT APPLICABLE AND DISALLOWANCE U/ S. 14A OF THE ACT COULD NOT BE MADE WITH REFERENCE TO SAID RULE 8D IN ASSES SMENT YEAR 2005-06, THEN THE QUESTION REMAINS WHETHER IT WAS OPEN FOR T HE TRIBUNAL TO ESTIMATE AMOUNT DISALLOWABLE ON ANY BASIS OTHER THAN THE BAS IS ADOPTED BY THE A.O. THE ASSESSEE IN ITS CROSS OBJECTION DID NOT PER SE CHALLENGE THE DISALLOWANCE MADE BY THE A.O. U/S. 14A OF THE ACT I N THE ASSESSMENT ORDER BUT ONLY OBJECTED TO THE ENHANCEMENT OF DISALLOWANC E BY THE ID. C.I.T.(A) BY REFERENCE TO RULE 8D OF THE RULES. ONCE BOTH THE LD. MEMBERS AGREED THAT RULE 8B WAS NOT APPLICABLE TO THE ASSESSEES CA SE FOR ASSESSMENT YEAR 2004-05, THEN THE DIRECTION OF THE ID. C.I.T.(A) FO R MAKING DISALLOWANCE AS PER RULE 8D WAS REQUIRED TO BE VACATED. SINCE THE A SSESSEE DID NOT CHALLENGE THE ORDER OF THE A.O. MAKING THE DISALLOW ANCE U/S. 14A CALCULATING THE AMOUNT DISALLOWABLE @ 1% OF THE TOT AL EXEMPT INCOME, THEN IT WAS NOT OPEN FOR THE TRIBUNAL TO GO INTO TH E QUESTION OF QUANTIFICATION OF AMOUNT DISALLOWABLE, BECAUSE NEIT HER THE ASSESSEE NOR THE REVENUE HAD CHALLENGED THE ESTIMATION OF AMOUNT DISALLOWABLE, AS MADE BY THE A.O. IN THE ASSESSMENT ORDER. IN THESE CIRCUMSTANCES, THE TRIBUNAL CANNOT GO INTO THE QUESTION OF REASONABLEN ESS OF THE ESTIMATE OF THE AMOUNT DISALLOWABLE MADE BY THE A.O. BECAUSE NE ITHER THE ASSESSEE NOR THE REVENUE HAD CHALLENGED THE FINDINGS OF THE A.O. MAKING THE DISALLOWANCE U/S. 14A OF THE ACT AT RS.42,130/-. CO NSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AGREE WI TH THE FINDINGS OF THE LD. A.M. THAT THE AMOUNT DISALLOWABLE U/S. 14A OF THE A CT SHOULD HAVE BEEN 1% OF THE TOTAL EXEMPT INCOME. 8. THE MATTER WILL NOW GO TO THE REGULAR BENCH FOR PASSING THE ORDER AS PER THE MAJORITY VIEW. ITA N O. 566/KOL./2010 & CO-39/KOL./2009 3 THEREFORE, IN ACCORDANCE WITH THE MAJORITY VIEW, TH E APPEAL OF THE DEPARTMENT IS DISMISSED WHEREAS CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10.06.2011. SD/- SD/- [C.D. RAO/ . . ] [ B.R. MITTAL / . . ] ACCOUNTANT MEMBER/ JUDICIAL MEMBER/ DATED : 10/ 06/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. PHILIPS CARBON BLACK LTD., 31, N.S. ROAD, KOLK ATA-700 001; 2 DCIT, CIRCLE-10, KOLKATA, 3. COMMISSIONER OF INCOME-TAX (APPEALS)- , KOLKATA, 4 CIT, KOLKATA- 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSIS TANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S. ITA N O. 566/KOL./2010 & CO-39/KOL./2009 4 IN THE INCOME TAX APPELLATE TRIBUNAL : B BENCH : KOLKATA [ BEFORE SHRI G.D.AGRAWAL, V.P. AS THIRD MEMBER ] I.T.A. NO. 566 (KOL) OF 2009 ASSESSMENT YEAR 2004-05 DY.COMMISSIONER OF INCOME-TAX, -VS- M/S. PHI LIPS CARBON BLACK LTD., CIRCLE-10, KOLKATA. KOLKATA. ( PAN-AABCP5762E) [ APPELLANT ] [ RESPONDENT ] C.O. NO. 39 (KOL) OF 2009 [IN ITA NO. 566/KOL/2009] ASSESSMENT YEAR 2004-05. M/S. PHILIPS CARBON BLACK LTD., -VS- DY. COMMISSIONER OF INCOME- TAX, KOLKATA. CIRCLE-10, KOLKATA. [CROSS-OBJECTOR] [ RESPONDENT ] DEPARTMENT BY : SRI D.R. SINDHAL, CIT-DR ASSESSEE BY : SRI D.S. DAMLE O R D E R SINCE THERE WAS A DIFFERENCE OF OPINION BETWEEN T HE LD. MEMBERS CONSTITUTING B BENCH OF I.T.A.T., KOLKATA IN RESPECT OF THE AFORES AID CROSS OBJECTION, I WAS NOMINATED AS THIRD MEMBER BY THE HONBLE PRESIDENT, I.T.A.T. U/S.255(4) OF I.T. ACT, 1961. THE QUESTION REFERRED TO ME READS AS UNDER :- WHETHER, IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE DISALLOWANCE OF RS. 2 LAKHS ON AD HOC BASIS PROPOSED BY LD. J.M. OR DISAL LOWANCE OF EXPENSES TO 1% OF THE TOTAL EXEMPTED INCOME PROPOSED BY LD. A.M. IS J USTIFIED UNDER SECTION 14A OF THE I.T. ACT, 1961. 2. THE BRIEF FACTS OF THE CASE AS FOUND BY THE LD. MEMBERS ARE THAT DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE EARNED TAX-FREE INCOME OF RS.42,12,853/- BY WAY OF DIVIDEND AND INTEREST ON UTI TAX-FREE BONDS. BEFOR E THE A.O. THE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED IN RELATION TO EAR NING OF SUCH TAX-FREE INCOME. THE ASSESSEE ALSO CLAIMED THAT INVESTMENTS WERE ACQUIRE D OUT OF ITS OWN FUND AND, THEREFORE, ITA N O. 566/KOL./2010 & CO-39/KOL./2009 5 THE ASSESSEE CLAIMED THAT NO EXPENDITURE INCLUDING INTEREST WAS DISALLOWABLE U/S. 14A OF THE ACT. THE A.O., HOWEVER, HELD THAT SOME EXPENDIT URE MUST HAVE BEEN INCURRED BY THE ASSESSEE TO EARN THE TAX-FREE INCOME AND, THEREFORE , HE REASONABLY ESTIMATED 1% OF THE GROSS TAX-FREE INCOME, I.E. RS.42,130/- AS EXPENDIT URE INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF EXEMPT INCOME AND DISALLOWED THE SAME U/S 14A OF THE ACT. THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. C.I.T.(A). THE LD. C.I.T.(A) IN PARA 6.2 OF HIS APPELLATE ORDER AGREED WITH THE ASSESSEE THAT SINCE NO BORROWED FUNDS WERE UTILIZED FOR ACQUIRING INVESTMENTS, INTEREST PAID ON SUCH BORROW ED FUNDS WAS NOT REQUIRED TO BE DISALLOWED U/S. 14A OF THE ACT. AS REGARDS ADMINIS TRATIVE EXPENSES, HOWEVER, THE LD. C.I.T.(A) HELD THAT EVEN FOR MONITORING THE EARNIN G OF TAX-FREE INCOME AND ITS ACCOUNTING, SOME EXPENDITURE OUT OF COMMON BUSINESS ESTABLISHMENT EXPENSES WAS REQUIRED TO BE INCURRED. THE LD. C.I.T.(A) THEN NOT ED THAT RULE 8D WAS NOTIFIED IN THE I.T. RULES, 1962 W.E.F. 24/03/2008 FOR THE PURPOSE OF M AKING DISALLOWANCE U/S. 14A OF THE ACT. AS PER RULE 8D(2)(III) OF THE RULES, 0.5% OF THE AVERAGE INVESTMENT WAS TO BE DISALLOWED OUT OF COMMON BUSINESS ESTABLISHMENT EXP ENSES. THE LD. C.I.T.(A) FURTHER NOTED THAT THE SPECIAL BENCH OF I.T.A.T., MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD IN ITA NO. 8057/ MUM/2003 DATED 20.10.2008 HAD HELD THAT RULE 8D WAS RETROSPECTIVE IN NATURE. THE LD. C.I.T.(A), THEREFORE, HELD THAT EXPENDITURE OF RS.10,28,900/-, DETERMINED IN THE MANNER PRESCRI BED IN RULE 8D(2)(III) OF THE RULES, SHOULD HAVE BEEN DISALLOWED U/S. 14A OF THE ACT AS AGAINST RS. 42,130/- DISALLOWED BY THE A.O. HE, ACCORDINGLY, DIRECTED THE A.O. TO DISALLO W RS.10,28,900/- U/S. 14A OF THE ACT AS AGAINST RS.42,130/- DISALLOWED BY THE A.O., RESULTI NG IN ENHANCEMENT OF RS.9,86,770/-. 3. AGAINST THE LD. C.I.T.(A)S ORDER, ENHANCING TH E DISALLOWANCE U/S. 14A OF THE ACT, THE ASSESSEE FILED CROSS-OBJECTION NO. 39 (KOL)/200 9, ARISING IN ITA NO. 566/KOL/2009, RAISING THE FOLLOWING GROUNDS:- 1. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN ENHANCING THE DISALLOWANCE ON ACCOUNT OF EXPENSES ALLEGEDLY AS RELATABLE TO EA RNING OF EXEMPT INCOME BY ITA N O. 566/KOL./2010 & CO-39/KOL./2009 6 RESORTING TO RULE 8D OF THE INCOME TAX RULES ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. FOR THAT THE COMMISSIONER OF INCOME T AX (APPEALS) SHOULD HAVE SEEN THAT THE PROVISIONS OF RULE 8D WERE NOT APPLICABLE ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE. ON PERUSAL OF THE ABOVE GROUNDS OF CROSS OBJECTION , I FIND THAT THE ASSESSEE HAS ONLY CHALLENGED THE ORDER OF THE LD. C.I.T.(A) OBJECTING TO APPLICATION OF RULE 8D FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A OF THE ACT AND ENHANCEMENT OF THE AMOUNT DISALLOWED BY THE A.O. THEREFORE, IT APPEARS THAT THE ASSESSEE PER SE DID NOT OBJECT TO THE DISALLOWANCE OF RS.42,130/- MADE BY THE A.O. U /S. 14A OF THE ACT IN THE ASSESSMENT ORDER. 4. ON PERUSAL OF THE ORDERS PROPOSED BY BOTH THE L D. MEMBERS, I FIND THAT BOTH THE LD. MEMBERS HAVE IN PRINCIPLE AGREED THAT RULE 8D O F THE RULES WAS NOT APPLICABLE TO THE ASSESSEES CASE, BECAUSE THE ASSESSMENT YEAR IN QU ESTION WAS A.Y. 2004-05. WITH REFERENCE TO THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD VS. DCIT REPORTED IN (2 010) 194 TAXMAN 203 (BOM), BOTH THE LD. MEMBERS HELD THAT THE DECISION OF THE SPECI AL BENCH OF ITAT, MUMBAI WAS NO LONGER APPLICABLE BECAUSE THE BOMBAY HIGH COURT HAD HELD THAT RULE 8D WAS PROSPECTIVE IN NATURE AND APPLICABLE FROM A.Y. 2008-09. ACCORD INGLY, BOTH THE LD. MEMBERS DID NOT APPROVE THE ORDER OF THE LD. C.I.T.(A) DIRECTING TH E A.O. TO MAKE DISALLOWANCE U/S 14A OF THE ACT IN ACCORDANCE WITH RULE 8D OF THE RULES. HAVING FOUND THAT THE BASIS ADOPTED BY THE LD. C.I.T.(A) FOR MAKING THE DISALLOWANCE U /S. 14A OF THE ACT WAS NOT CORRECT, BOTH THE LD. MEMBERS, HOWEVER, WAS OF THE OPINION T HAT IT CANNOT BE DENIED THAT SOME EXPENDITURE WAS ATTRIBUTABLE TO EARNING OF EXEMPT I NCOME BY THE ASSESSEE AND THE SAME WAS LIABLE TO BE DISALLOWED U/S. 14A OF THE ACT. 5. HOWEVER, THE DIFFERENCE OF OPINION AROSE BETWEE N THE LD. MEMBERS WITH REGARD TO ESTIMATION OF EXPENSES INCURRED IN RELATION TO E ARNING OF EXEMPT INCOME. THE LD. J.M. HELD THAT KEEPING IN VIEW THE TOTALITY OF FACTS AND CIRCUMSTANCES AND TO MEET THE ENDS OF ITA N O. 566/KOL./2010 & CO-39/KOL./2009 7 JUSTICE, AN ESTIMATED EXPENDITURE OF RS. 2 LACS SHO ULD BE DISALLOWED U/S. 14A OF THE ACT. ON THE OTHER HAND, THE LD. A.M., REFERRING TO SEVER AL DECISIONS MENTIONED IN HIS PROPOSED ORDER AND KEEPING IN VIEW THE FACT THAT THE CO-ORDI NATE BENCH OF THE TRIBUNAL WAS CONSISTENTLY TAKING THE VIEW OF ESTIMATION OF EXPEN SES @ 1% OF THE TOTAL EXEMPT INCOME WAS APPROPRIATE, FOUND NO JUSTIFICATION TO ACCEPT T HE AD HOC DISALLOWANCE OF RS.2 LAKHS INSTEAD OF 1% AS ADOPTED BY THE A.O. HE THUS ALLOWE D THE CROSS OBJECTION FILED BY THE ASSESSEE. 6. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE PROPOSED ORDER OF LD. A.M. HE POINTED OUT THAT THE LD. C.I.T.(A) ENHANCED THE DISALLOWANCE ONLY BY APPLYING RULE 8D OF THE RULES WHICH HAS DISAPPROVED BY BOTH THE LD. MEMBERS. HE, THEREFORE, SUBMITTED THAT ONCE RULE 8 D IS NOT APPLICABLE AND THE ORDER OF LD. C.I.T.(A) ENHANCING THE DISALLOWANCE IS QUASHED , THEREAFTER WHAT REMAINS IS THE DISALLOWANCE BY THE A.O. AT 1% WHICH WAS IN THE SUM OF RS.42,130/-. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE I.T.A.T. COULD HAVE EITH ER UPHELD OR REDUCED IT, BUT COULD NOT ESTIMATE THE DISALLOWANCE AT HIGHER AMOUNT THAT WHA T IS DISALLOWED BY THE A.O. HIMSELF. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESE NTATIVE, RELIED ON THE ORDER PROPOSED BY LD. J.M. 7. I HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE ORDERS PROPOSED BY LD. MEMBERS. THE DISPUTE IN THE PRESENT REFERENCE IS IN NARROW COMPASS. IN THE ASSESSMENT ORDER THE A.O. DISALLOWED ADMINISTRA TIVE EXPENSES OF RS.42,130/- U/S. 14A OF THE ACT CALCULATED @ 1% OF THE TAX-FREE INCO ME. THE LD. C.I.T.(A) BY APPLYING RULE 8D OF THE RULES DIRECTED THE A.O. TO DISALLOW RS.10 ,28,900/-, THEREBY ENHANCED THE TOTAL INCOME BY RS.9,86,770/-. IN THE GROUNDS OF CROSS O BJECTION THE ASSESSEE OBJECTED TO THE ORDER OF THE LD. C.I.T.(A) ONLY ON THE ISSUE OF APPLICATION OF RULE 8D FOR THE PURPOSES OF MAKING DISALLOWANCE U/S 14A OF THE ACT. PERUSAL OF THE GROUNDS OF CROSS OBJECTION SHOWED THAT THE ASSESSEE DID NOT CHALLENGE THE DISA LLOWANCE MADE BY THE A.O. AT RS.42,130/-, BUT OBJECTED ONLY TO THE APPLICATION OF RULE 8D WHICH IN ITS OPINION WAS NOT APPLICABLE FOR ASSESSMENT YEAR UNDER CONSIDERATION, I.E. A.Y. 2004-05. I FIND MERIT IN THE ITA N O. 566/KOL./2010 & CO-39/KOL./2009 8 SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE NEVER CHALLENGED THE A.O..S ORDER DISALLOWING RS.42,130/- U/S 14A OF THE ACT BUT IT OBJECTED ONLY TO THE ENHANCEMENT MADE BY THE LD. C.I.T.(A) BY RESORTING TO RULE 8D OF THE RULES. IT APPEARED FROM THE ORDERS PROPOSED BY BOTH THE LD. MEMBERS TH AT BOTH OF THEM AGREED THAT RULE 8D WAS NOT APPLICABLE TO THE ASSESSEES CASE SINCE THE YEAR UNDER APPEAL WAS A.Y. 2004- 05, WHEREAS RULE 8D WAS APPLICABLE PROSPECTIVELY F ROM A.Y. 2008-09. IN SUPPORT OF THIS FINDING BOTH THE LD. MEMBERS RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD (SUPRA ) . THEREFORE, ONCE BOTH THE LD. MEMBERS AGREED WITH THE SUBMISSIONS OF THE LEARNED FOR THE ASSESSEE THAT RULE 8D OF THE RULES WAS NOT APPLICABLE AND DISALLOWANCE U/S. 14A OF THE ACT COULD NOT BE MADE WITH REFERENCE TO SAID RULE 8D IN ASSESSMENT YEAR 2005-0 6, THEN THE QUESTION REMAINS WHETHER IT WAS OPEN FOR THE TRIBUNAL TO ESTIMATE AM OUNT DISALLOWABLE ON ANY BASIS OTHER THAN THE BASIS ADOPTED BY THE A.O. THE ASSESSEE IN ITS CROSS OBJECTION DID NOT PER SE CHALLENGE THE DISALLOWANCE MADE BY THE A.O. U/S. 14 A OF THE ACT IN THE ASSESSMENT ORDER BUT ONLY OBJECTED TO THE ENHANCEMENT OF DISALLOWA NCE BY THE LD. C.I.T.(A) BY REFERENCE TO RULE 8D OF THE RULES. ONCE BOTH THE LD. MEMBERS AGREED THAT RULE 8D WAS NOT APPLICABLE TO THE ASSESSEES CASE FOR ASSESSMENT YE AR 2004-05, THEN THE DIRECTION OF THE LD. C.I.T.(A) FOR MAKING DISALLOWANCE AS PER RULE 8 D WAS REQUIRED TO BE VACATED. SINCE THE ASSESSEE DID NOT CHALLENGE THE ORDER OF THE A.O. MA KING THE DISALLOWANCE U/S. 14A CALCULATING THE AMOUNT DISALLOWABLE @ 1% OF THE TOT AL EXEMPT INCOME, THEN IT WAS NOT OPEN FOR THE TRIBUNAL TO GO INTO THE QUESTION OF QU ANTIFICATION OF AMOUNT DISALLOWABLE, BECAUSE NEITHER THE ASSESSEE NOR THE REVENUE HAD CH ALLENGED THE ESTIMATION OF AMOUNT DISALLOWABLE, AS MADE BY THE A.O. IN THE ASSESSMENT ORDER. IN THESE CIRCUMSTANCES, THE TRIBUNAL CANNOT GO INTO THE QUESTION OF REASONABLEN ESS OF THE ESTIMATE OF THE AMOUNT DISALLOWABLE MADE BY THE A.O. BECAUSE NEITHER THE A SSESSEE NOR THE REVENUE HAD CHALLENGED THE FINDINGS OF THE A.O. MAKING THE DIS ALLOWANCE U/S. 14A OF THE ACT AT RS.42,130/-. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AGREE WITH THE FINDINGS OF THE LD. A.M. THAT THE AMOUNT D ISALLOWABLE U/S. 14A OF THE ACT SHOULD HAVE BEEN 1% OF THE TOTAL EXEMPT INCOME. ITA N O. 566/KOL./2010 & CO-39/KOL./2009 9 8. THE MATTER WILL NOW GO TO THE REGULAR BENCH FOR PASSING THE ORDER AS PER THE MAJORITY VIEW. SD/- [G.D.AGRAWAL] VICE-PRESIDENT (AZ/KZ) AS 3 RD MEMBER. (DKP) DATED : 27-05-2011 .