NIRVED TRADERS P.LTD, MUMBAI V. DCIT 1(2), MUMBAI

ITA 5931/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3591 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 22-09-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 24-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAINDR
• Assessee Lawyers: CHOKSI
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO.5931/MUM/2011 ASSESSMENT YEAR:2008-09 M/S NIRVED TRADERS PVT. LTD. INDUSTRY HOUSE, 159, CHURCHGATE RECLAMATION, MUMBAI-400020 DCIT, CIRCLE-1(2), AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( ! ' /ASSESSEE) ( # / REVENUE) PAN. NO. AAACN3387L % #& ' ' ( / DATE OF HEARING : 02/03/2016 ' ' ( / DATE OF ORDER: 09/03/2016 ! ' / ASSESSEE BY SHRI CHOKSI # / REVENUE BY SHRI SANJEEV JAIN-DR ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 30/06/2011, OF THE LD. FIRST APPELLATE AUTHORITY, M UMBAI, AFFIRMING THE DISALLOWANCE OF RS.4,22,72,425/- AS E XPENDITURE INCURRED IN RELATION TO EARNING EXEMPT INCOME U/S 1 4A OF THE ACT BY APPLYING RULE 8D (2) OF THE RULES. 2. DURING HEARING OF THIS APPEAL, THE LD. COUNSEL FOR THE ASSESSEE, SHRI CHOKSI, EXPLAINED THAT ASSESSEE IS A NON- BANKING FINANCE COMPANY AND ALSO INVESTOR IN SHARES & SECURITIES AND THE ASSESSEE HAS NOT CLAIMED ANY EXP ENDITURE IN RELATION TO EARNING OF ANY EXEMPT INCOME. OUR AT TENTION WAS INVITED TO THE FINDING CONTAINED IN THE ASSESSMENT ORDER BY CLAIMING THAT NO BORROWED FUNDS WERE UTILIZED BY TH E ASSESSEE FOR MAKING THE INVESTMENT IN SHARES, THUS, THERE IS NO QUESTION OF DISALLOWANCE U/S 14A OF THE ACT. IT WAS CONTENDED THAT IN SPITE OF SPECIFIC FINDING BY THE ASSESSING OFFICER HIMSELF, DISALLOWANCE OF RS.4,22,72,425/- WAS COMPU TED U/S 14A OF THE ACT AND THAT TO WITHOUT RECORDING ANY SA TISFACTION. IN THE IMPUGNED ORDER, IT WAS CONTENDED THAT THOUGH THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSIDERED THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE STILL A CONTRARY DECISION HAS BEEN PASSED. TH E CRUX OF THE ARGUMENT IS THAT DISALLOWANCE U/S 14A R.W.R 8D OF THE RULES CANNOT EXCEED THE EXEMPT INCOME, MORE SPECIFI CALLY, NO DEFICIENCY WAS FOUND IN THE BOOKS OF ACCOUNTS. REL IANCE WAS PLACED UPON THE DECISION IN DAGA GLOBAL CHEMICALS P VT. LTD. ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 3 VS ACIT (ITA NO.5592/MUM/2012), DCIT VS DBH INTERNA TIONAL (P.) LTD. AND CIT VS OM PRAKASH KHETAN (2015) 62 TAXMAN.COM 324 (DEL). 2.1. ON THE OTHER HAND, THE LD. DR, SHRI SANJEEV J AIN, STRONGLY DEFENDED THE IMPUGNED ORDER BY CONTENDING THAT CORRECT FACTS HAVE BEEN RECORDED IN THE ASSESSMENT ORDER AS WELL AS IN THE IMPUGNED ORDER AND SINCE THE ASSESSM ENT ORDER HAS MERGED IN THE APPELLATE ORDER AND THE LD. COMMI SSIONER OF INCOME TAX (APPEALS) HAS DECIDED THE ISSUE IN THE L IGHT OF THE DECISION FROM HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE VS DCIT (328 ITR 81) (BOM.). 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS AS NON- BANKING FINANCE COMPANY (NBFC) AND ALSO A DEALER AN D INVESTOR IN SHARES & SECURITIES. AS PER THE LD. ASS ESSING OFFICER, THE ASSESSEE RECEIVED AN AMOUNT OF RS.1,13 ,72,545/- AS DIVIDEND FROM SHARES AND CLAIMED THE SAME AS EXE MPT. HOWEVER, THE LD. ASSESSING OFFICER WAS OF THE VIEW THAT INDIRECT EXPENSES LIKE ADMINISTRATIVE AND ESTABLISHMENT EXPE NSES ARE BOUND TO INCUR WHILE EARNING SUCH HUGE INCOME WHICH CANNOT BE IGNORED. THE LD. ASSESSING OFFICER COMPUTED INDI RECT EXPENSES AS PER RULE -8D (2)(III) AT THE RATE OF 0. 5% OF THE AVERAGE VALUE OF INVESTMENT. BEFORE COMING TO ANY CONCLUSION, WE ARE REPRODUCING HEREUNDER THE WORKING/THE MANNER OF DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER:- ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 4 A) INTEREST EXPENSES RS. 6,87,57,951/- B) AVERAGE VALUE OF INVESTMENT RS. 85,77,77,270/- C) AVERAGE VALUE OF ASSETS RS. 155,27,51,776 I. INTEREST EXPENSES RELATABLE TO DIVIDEND IS (A X B/C)=68757951 X 857777270 = RS. 3,79,83,539 1552751776 II. 0.5% OF AVERAGE INVESTMENT OF RS.85,77,77,270/- = RS. 42,88,886 TOTAL = RS. 4,22,72,425 2.3. NOW, WE SHALL ANALYZE THE PROVISION OF THE AC T INTEREST HE LIGHT OF CERTAIN JUDICIAL PRONOUNCEMENT S. SO FAR AS PROVISION OF SECTION 14A(2) IS CONCERNED, THE HONB LE JURISDICTIONAL HIGH COURT, WHILE UPHOLDING THE CONS TITUTION VALIDITY OF SECTION 14A AND RULE 8D HAS OBSERVED, W ITH REFERENCE TO SUB-SECTION 2 & 3 OF SECTION 14A AS UN DER:- SUB-SECTIONS (2) AND (3) OF SECTION 14A WERE INSE RTED BY AN AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT OF 2006 WITH EFFECT FROM APRIL 1, 2007. UNDER SUB-SECTION (2), THE ASSE SSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE INC URRED 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. SUB-SECTION (2) WAS INSERTED SO AS T O PROVIDE A UNIFORM METHOD APPLICABLE WHERE THE ASSESSING OFFIC ER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. PARLIAMENT HAS PROVIDED AN ADEQUATE SAFEGUARD TO TH E INVOCATION OF THE POWER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO THE EARNING OF NON-TAXABLE INCOME BY ADOPTION OF TH E PRESCRIBED METHOD. THE INVOCATION OF THE POWER IS MADE CONDITI ONAL ON THE ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 5 OBJECTIVE SATISFACTION OF THE ASSESSING OFFICER IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING RE GARD TO THE ACCOUNTS OF THE ASSESSEE. THESE SAFEGUARDS WHICH AR E IMPLICIT IN THE REQUIREMENTS OF FAIRNESS AND FAIR PROCEDURE UNDER A RTICLE 14 MUST BE OBSERVED BY THE ASSESSING OFFICER WHEN HE ARRIVE S AT HIS SATISFACTION UNDER SUB-SECTION (2) OF SECTION 14A. SUB-RULE (1) OF RULE 8D OF THE INCOME-TAX RULES, 1962, HAS ALSO INC ORPORATED THE ESSENTIAL REQUIREMENTS OF SUB-SECTION (2) OF SECTIO N 14A BEFORE THE ASSESSING OFFICER PROCEEDS TO APPLY THE METHOD PRES CRIBED UNDER SUB-RULE (2) .. (EMPHASIS SUPPLIED) 2.4. THE SAME OPINION WAS EXPRESSED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD AND OTHERS V. CIT 247 CTR 162 WHEREIN RELIANCE WAS PLACED ON T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD 326 ITR 1 (S C) AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ AND BOYCE COMPANY LTD VS. DCIT (328 ITR 81). THE RELEVANT PORTIONS OF THE JUDGMENT OF HON'BLE DELHI HIGH COURT ARE AS UNDER: 29. SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMI NE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE TH E PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 6 OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WO RDS, THE REQUIREMENT OF THE ASSESSING OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASSESS ING OFFICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. THEREFORE, THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER ENTER ING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCU RRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-SECTION (3) IS NOT HING BUT AN OFFSHOOT OF SUB-SECTION (2) OF SECTION 14A. SUBSECT ION (3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, SUB-SECT ION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB-SECTION (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO EXEMPT INCOME. IN BOTH CASES, THE ASSES SING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE IN ACCORDANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB- SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS O NLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GETS JURISDICTION ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 7 TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE P RESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF TH E SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. RULE 8D. 30. AS WE HAVE ALREADY NOTICED, SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT REFERS TO THE METHOD OF DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. THE EXPRESSION USED IS - 'SUCH METHOD AS MAY BE PRESCRIBED'. WE HA VE ALREADY MENTIONED ABOVE THAT BY VIRTUE OF NOTIFICATION NO.4 5/2008 DATED 24/03/2008, THE CENTRAL BOARD OF DIRECT TAXES INTRO DUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES IT C LEAR THAT WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNT S OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE C ORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) T HE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR, THE ASSESSING OFFICER S HALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH I NCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF R ULE 8D. WE MAY OBSERVE THAT RULE 8D(1) PLACES THE PROVISIONS OF SE CTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHILE DISCUSSING THE PROVISIONS OF SUB-SECTIONS (2) AND ( 3) OF SECTION 14A, ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 8 THE CONDITION PRECEDENT FOR THE ASSESSING OFFICER T O HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM O F EXPENDITURE MADE BY THE ASSESSEE OR WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSE SSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICATED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 31.IT IS , THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PL AY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. IF ONE EXAMINES SUB-RULE (2) OF RULE 8D, WE FIND THAT THE METHOD FOR DETERMINING THE EXPENDITURE IN RELATION TO EXEMPT I NCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME. THE SECOND COMPONENT BEING COMPUTED ON THE BASIS OF THE FORMULA GIVEN THEREIN IN A CASE WHERE THE ASSESSEE INCURS EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTL Y ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THE FORMULA ESSEN TIALLY APPORTIONS THE AMOUNT OF EXPENDITURE BY WAY OF INTE REST [OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I)] INCU RRED DURING THE PREVIOUS YEAR IN THE RATIO OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, TO THE AVERAGE OF THE TOTAL ASSETS OF THE A SSESSEE. THE THIRD COMPONENT IS AN ARTIFICIAL FIGURE - ONE HALF PERCEN T OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEETS OF ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 9 ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, IT IS THE AGGREGATE OF THESE THREE COMPONENTS WHICH WOULD CONSTITUTE THE EXPENDITURE IN RELATION TO EXEMPT INCOME AND IT IS THIS AMOUNT OF EXPENDITURE WHICH WOULD BE DISALLOWED UNDER SECTION 14A OF THE SAID ACT. IT IS, THEREFORE, CLEAR THAT IN TERMS OF THE SAID RULE, THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME HAS TWO ASPECTS (A) DIRECT AND (B) INDIRECT. THE DIRECT EXPENDITU RE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY VIRTUE OF CLAUSE (I) OF SUB-R ULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INT EREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATE D ABOVE, AND, IN CASES WHERE THE INDIRECT EXPENDITURE IS NOT BY WAY OF INTEREST, A RULE OF THUMB FIGURE OF ONE HALF PERCENT OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, IS TAKEN. 41. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEEN , STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PR ESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN I F THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A COND ITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS INITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESC RIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, S ECTION 14A, EVEN ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 10 PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) AND ( 3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH R EJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE Q UESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHO D OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF S UB-SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 2.5. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD 323 ITR 518 (P&H) HAS ALSO HELD THAT DISALLOWANCE UNDER SECTION 14A COULD NOT STAND WHER E IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAS BEEN INCURRED: HELD - DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE IN VESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, WAS A QUESTION OF FACT. THE C ONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E WAS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLO WED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 14A, COULD NOT BE ACCEPTED. DISALLOWANCE UN DER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AN D WHERE IT WAS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITU RE HAD BEEN ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 11 INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. 2.6. SIMILAR VIEWS WERE ALSO EXPRESSED BY THE COORD INATE BENCHES IN THE CASE OF RELAXO FOOTWEARS LTD, VS. AD DL. CIT (2012) 50 SOT 102 AND PRIYA EXHIBITORS (P) LTD VS. ACIT (2012) 54 SOT 356. IN THE CASE OF RELAXO FOOTWEARS LTD, IT WAS HELD AS UNDER: THE ASSESSING OFFICER SHOULD HAVE CONSIDERED THE C LAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO EARNING THE EXEMPT INCOME. IF THE CLAIM WAS NOT FOU ND TO BE IN CONSONANCE WITH THE FACTS ON RECORD, IT COULD HAVE BEEN REJECTED AND DISALLOWANCE COULD HAVE BEEN MADE AS PER RULE 8 D. HOWEVER, IT IS FOUND THAT THE ASSESSING OFFICER HAS NOT CONS IDERED THE CLAIM OF THE ASSESSEE AT ALL AND HE HAS STRAIGHTWAY EMBAR KED UPON COMPUTING DISALLOWANCE UNDER RULE 8D. THE COMMISSIO NER (APPEALS) MADE AN ASSUMPTION THAT WHENEVER EXEMPT I NCOME IS EARNED THERE WILL BE SOME EXPENDITURE INCURRED IN R ELATION THERETO. SUCH PRESUMPTION CANNOT FORM THE BASIS FOR MAKING D ISALLOWANCE UNDER RULE 8D. 2.7. IN THE CASE OF PRIYA EXHIBITORS (P) LTD VS. AC IT (2012) 54 SOT 356 IT WAS HELD AS UNDER: FROM THE CAREFUL STUDY OF THE OBSERVATIONS MADE BY THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD. (SUPRA), IT IS APPARENT THAT FIRST THE ASSESSING OFFICER HAS TO DETERMINE THE CLAIM OF THE ASSESSEE REGARDING EXPENSES WHICH NEIT HER THE ASSESSING OFFICER NOR THE COMMISSIONER (APPEALS) HA S DONE IN THE ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 12 INSTANT CASE. IN FACT, THE SAID DECISION GOES AGAIN ST THE DEPARTMENT ITSELF IN SO FAR AS THEIR LORDSHIPS HAS HELD THAT T HE ASSESSING OFFICER MUST IN THE FIRST INSTANCE DETERMINE WHETHE R THE CLAIM OF THE ASSESSEE IS CORRECT AND DETERMINATION MUST BE M ADE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE LEGISLA TURE DIRECTS HIM TO FOLLOW RULE 8D ONLY WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF ASSESSEE. 2.8. IF THE TOTALITY OF FACTS ARE ANALYZED, THE AS SESSEE FURNISHED ITS WORKING OF EXPENDITURE, IN RELATION T O EARNING EXEMPT INCOME AND DETERMINED THE TOTAL EXPENSES AT RS.4,12,367/- AS PER ITS LETTER DATED 08/11/2010. HOWEVER, AS PER SECTION 14A OF THE ACT R.W.R. 8D(2), HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IT IS THE BOUNDED DUTY OF THE LD. ASSESSING OFFICER TO EXAMINE THE CORRECTNESS OF CLA IM OF EXPENDITURE FOR EARNING EXEMPT INCOME IN ACCORDANCE WITH THE AFORESAID PROVISION, IF THE ASSESSING OFFICER IS NO T SATISFIED WITH THE CLAIM OF THE ASSESSEE. WE ARE NOT AGREEIN G WITH THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT EXPRESS DISSATISFACTION WITH RESPECT TO CORRECTNESS OF CLAI M OF EXPENDITURE HAS NOT BEEN RECORDED BY THE ASSESSING OFFICER BECAUSE, WHILE DEALING WITH THE DISALLOWANCE U/S 14 A, THE ASSESSEE WAS SPECIFICALLY REQUESTED TO EXPLAIN AS T O WHY THE EXPENSES RELATABLE TO SUCH EXEMPT INCOME SHOULD NOT BE DISALLOWED. IT HAS BEEN SPECIFICALLY RECORDED THAT THE ASSESSEE FAILED TO APPRECIATE THAT INDIRECT EXPENSES LIKE AD MINISTRATIVE AND ESTABLISHMENT EXPENSES RELATING TO EARNING SUCH INCOME HAS NOT BEEN CONSIDERED. THERE IS A POSSIBILITY THA T THE ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 13 WORDINGS USED BY THE ASSESSING OFFICER MAY NOT BE A S PER WISH OF THE ASSESSEE BUT HE MADE THE DISALLOWANCE AS PER THE PROVISIONS OF THE ACT AFTER RECORDING HIS DISSATISF ACTION WITH RESPECT TO THE CLAIM. AT THE SAME TIME, THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) HAS DULY CONSIDERED THE FAC TUAL MATRIX AND APPLIED THE DECISION FROM HONBLE JURISD ICTIONAL HIGH COURT IN M/S GODREJ & BOYCE. SO FAR AS, APPLI CATION OF RULE 8D IS CONCERNED, SINCE ASSESSMENT YEAR INVOLVE D IS 2008- 09, RULE 8D OF THE RULES IS APPLICABLE. EVEN, THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFORESAID CASE, HE LD THAT RULE IS FAIR AND REASONABLE. IT IS ALSO NOTED THAT THE LD. ASSESSING OFFICER HAS CORRECTLY WORKED OUT THE DISALLOWANCE AS PER SECTION 14A OF THE ACT R.W.R. 8D, BECAUSE HE WAS NO T SATISFIED WITH THE DISALLOWANCE OF RS.4,12,367/-. WE HAVE ALS O PERUSED THE BALANCE SHEET OF THE ASSESSEE AS ON 31/03/2008 (PAGE-6 OF THE PAPER BOOK) WHEREIN, EVEN AS PER THE ASSESSEE, THE TOTAL FUNDS (RESERVES, SURPLUS AND SHARE CAPITAL) AVAILAB LE WITH THE ASSESSEE IS ONLY TO THE TUNE OF RS.60,57,43,199/-, WHEREAS, UNSECURED LOANS WERE TO THE TUNE OF RS.95,94,48,478 /-, AND THE TOTAL INVESTMENT IS RS.86,25,60,813/-, MEANING THEREBY, LOAN AMOUNT WAS USED FOR MAKING THE INVESTMENT IN S HARES. FROM THE PROFIT & LOSS ACCOUNT AS ON 31/03/2008 (PA GE-7 OF THE PAPER BOOK) THE INTEREST EXPENDITURE IS RS.6,87 ,57,951/-. THE ASSESSEE MADE THE PAYMENT AND THE PROVISION FOR EMPLOYEES TO THE TUNE OF RS.70,14,073/-, OTHER EXPE NSES RS.1,41,28,114/-. TOTALITY OF FACTS, CLEARLY INDIC ATES THAT DISALLOWANCE OF THE IMPUGNED AMOUNT WAS CORRECTLY M ADE U/S 14A R.W.R. 8D, WHICH IS BASED ON REASONABLE METHOD FOR ITA NO.5931/MUM/2011 M/S NIRVED TRADERS P. LTD. 14 COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT, WHI CH IS INCONSONANCE WITH THE FINDING CONTAINED IN THE DECI SION FROM HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. LTD. (SUPRA). WE FIND NO INFIRMITY IN THE CONCLUSION CONTAINED IN THE IMPUGNED ORDER. THE SAME IS AFFIRMED. FINALLY, THE APPEAL OF THE ASSESSEE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVE FROM BOTH SIDES AT T HE CONCLUSION OF THE HEARING ON 02/03/2016. SD/- SD/- ( SANJAY ARORA ) (JOGINDER SINGH) ! ' / ACCOUNTANT MEMBER # ' /JUDICIAL MEMBER % & MUMBAI; ) DATED : 09/03/2016 F{X~{T? P.S/. . . $#%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. +,- / THE APPELLANT 2. ./,- / THE RESPONDENT. 3. 0 0 % 1' ( + ) / THE CIT, MUMBAI. 4. 0 0 % 1' / CIT(A)- , MUMBAI 5. 3#4 .' , 0 +( 5 , % & / DR, ITAT, MUMBAI 6. 7& / GUARD FILE. / BY ORDER, /3+' .' //TRUE COPY// / (DY./ASSTT. REGISTRAR) , % & / ITAT, MUMBAI