DCIT 7(2), MUMBAI V. RELIANCE LAND P.LTD, MUMBAI

ITA 60/MUM/2013

• Counselvise Citation: 6019914 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMIT KHATIWAL
• Keywords: Earning of tax free income
• Section: 14A; 154

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE S/SHRI B.R.BASKARAN (AM) AND SANJAY GARG, (JM) . . , , ./I.T.A. NO.60/MUM/2013 ( / ASSESSMENT YEAR : 2009-10) THE DY. COMMISSIONER OF INCOME TAX, 7(2), ROOM NO.624, M.K.ROAD, MUMBAI-400020 / VS. M/S RELIANCE LAND PVT.LTD. 6 TH FLOOR, NAGIN MAHAL, 82, VEER NARIMAN ROAD, CHURCHGATE, MUMBAI-400020 ( !' / APPELLANT) .. ( #$!' / RESPONDENT) ! ./ % ./PAN/GIR NO. : AAACR2367J !' & / APPELLANT BY : SHRI S ANTOSH KUMAR #$!' ' & /RESPONDENT BY : S/SHRI JITENDRA SANGHVI AND AMIT KHATIWAL ( ) ' *+ / DATE OF HEARING : 16.6.2014 ,- ' *+ /DATE OF PRONOUNCEMENT : 9.7.2014 . / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 16.10.2012 PASSED BY LD. CIT(A)-13, MUMBAI AND IT RELATES TO THE ASSESSMENT YEAR 2009-10. 2. THE SOLITARY ISSUE URGED BEFORE US FOR ADJUDICA TION IN THIS APPEAL IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISAL LOWANCE MADE U/S 14A OF THE INCOME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOM E TAX RULES, 1962 (THE RULES) TO RS.5.00 LAKHS. 3. THE FACTS RELATING TO THE ISSUE UNDER CONSIDERAT ION ARE STATED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF FINA NCING, REAL ESTATE DEVELOPMENT AND REAL ESTATE CONSULTANCY AND ALSO ENGAGED IN THE ACT IVITY OF INVESTING IN SHARES/SECURITIES. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE R ECEIVED DIVIDEND INCOME OF RS.5.15 CRORES AND CLAIMED THE SAME AS EXEMPT. THE ASSESSI NG OFFICER NOTICED THAT THE I.T.A. NO.60/MUM/2013 2 ASSESSEE DID NOT DISALLOW PART OF ANY EXPENSE AS PE R THE PROVISIONS OF SEC. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 196 2 (THE RULES), APPARENTLY UNDER THE PLEA THAT IT DID NOT INCUR ANY EXPENSE IN EARNING T HE DIVIDEND INCOME. HENCE, THE AO SOUGHT CLARIFICATION IN THIS REGARD AND THE ASSESSE E SUBMITTED THAT INTEREST BEARING FUNDS WERE NOT UTILIZED FOR MAKING INVESTMENTS, BUT WERE UTILISED FOR SOME OTHER BUSINESS PURPOSES. IT WAS FURTHER SUBMITTED THAT THE LOAN T AKEN BY IT AT ZERO PER CENT INTEREST WAS USED FOR MAKING INVESTMENTS, WHICH EARNED THE D IVIDEND INCOME. ACCORDINGLY, IT WAS SUBMITTED THAT THERE WAS NO REQUIREMENT OF MAKI NG DISALLOWANCE OF ANY PART OF INTEREST EXPENDITURE. WITH REGARD TO THE ADMINISTR ATIVE EXPENSES, THE ASSESSEE SUBMITTED THAT, DURING THE INSTANT YEAR, INVESTMENT WAS MADE IN PURCHASING SHARES OF TWO COMPANIES AND FURTHER DIVIDEND INCOME OF RS.5.1 5 CRORES WAS RECEIVED FROM A SINGLE COMPANY NAMED M/S ADLABS FILMS LTD. ACCORDI NGLY, IT WAS SUBMITTED THAT THE ASSESSEE DID NOT INCUR ANY APPARENT EXPENDITURE IN MAKING INVESTMENTS AND ALSO IN REALIZING DIVIDEND INCOME. HOWEVER, IT WAS SUBMIT TED BEFORE THE AO THAT A SUM OF RS.25000/- MAY BE DISALLOWED ON AD-HOC BASIS IN ORD ER TO TAKE CARE OF EXPENSES, IF ANY, INCURRED IN RELATION TO TWO INVESTMENT TRANSACTIONS CARRIED OUT DURING THE YEAR. THE AO WAS NOT CONVINCED WITH THE EXPLANATIONS OF THE ASS ESSEE AND ACCORDINGLY HE DISALLOWED THE SUM OF RS.27,17,05,461/- OUT OF INTEREST EXPE NDITURE AND FURTHER DISALLOWED A SUM OF RS. 1,92,36,342/- OUT OF THE EXPENSES. SUBSEQU ENTLY, BY AN ORDER DATED 17.1.2012 PASSED U/S 154 OF THE ACT, THE AO WITHDREW THE DISA LLOWANCE OF INTEREST MADE IN THE ASSESSMENT ORDER. 4. THE ASSESSEE CHALLENGED THE DISALLOWANCE OF ADMI NISTRATIVE EXPENSES OF RS.1,92,36,342/-, REFERRED ABOVE, BY FILING THE APP EAL BEFORE THE LD. CIT(A). THE FIRST APPELLATE AUTHORITY NOTICED THAT THE ASSESSEE HAS MADE INVESTMENTS ONLY IN ITS SUBSIDIARY COMPANIES/GROUP OF COMPANIES AND HENCE A CTIVITY OF INVESTMENT DOES NOT INVOLVE COMPLEX SET OF ACTIVITIES, VIZ., UNDERTAKI NG MARKET RESEARCH, DAY-TO-DAY ANALYSIS OF MARKET TRENDS ETC, WHICH NORMALLY REQUIRE TECHNI CAL EXPERTISE INVOLVING HUGE EXPENSES. ACCORDINGLY, THE LD. CIT(A) CONCLUDED TH AT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, MANAGERIAL AND ADMINISTRATIVE EXPENSE S WERE NOT PRACTICALLY REQUIRED OR EVEN IF IT IS CONSIDERED AS REQUIRED FOR A MOMENT, IT MAY NOT BE TO THE EXTENT WORKED OUT AS PER FORMULA GIVEN IN RULE 8D(2) OF THE RULES. H AVING OBSERVED THE SO, THE LD CIT(A) TOOK NOTE OF THE FACTS THAT THE ASSESSEE HAS MADE I NVESTMENT IN TWO COMPANIES DURING THE YEAR UNDER CONSIDERATION AND ACCORDINGLY THOUGH T IT FIT TO ESTIMATE THE EXPENSES WHICH ARE REQUIRED TO BE DISALLOWED U/S 14A OF THE ACT OF RS.5.00 LAKHS AND ACCORDINGLY DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS. 5.00 LAKHS. ACCORDINGLY, THE AO I.T.A. NO.60/MUM/2013 3 GRANTED RELIEF IN RESPECT OF BALANCE AMOUNT OF THE IMPUGNED ADDITION. AGGRIEVED THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. BEFORE US, THE LD D.R PLACED STRONG RELIANCE ON THE DECISION RENDERED BY THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CAS E OF GODREJ AND BOYCE MFG. CO. LTD (2010)(328 ITR 81) AND SUBMITTED THAT THE APPLICATI ON OF PROVISIONS OF SEC. 14A IS MANDATORY. ON THE CONTRARY, THE LD A.R PLACED STRO NG RELIANCE ON THE DECISION RENDERED BY THE CO-ORDINATE BENCH IN THE CASE OF RAJ SHIPPIN G AGENCIES LTD VS. ADDL. CIT (2013)(38 TAXMANN.COM 345)(MUM), WHEREIN THE TRIBUN AL AFTER CONSIDERING HOSTS OF DECISIONS INCLUDING THE DECISION RENDERED IN THE CA SE OF GODREJ AND BOYCE MFG. CO. LTD (SUPRA) HAS HELD THAT THE AO IS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE FIRST AND THEN IF HE IS NOT SATISFIED WITH THE CORRECTNES S OF THE CLAIM, THEN ONLY HE CAN INVOKE RULE 8D. THE LD A.R ALSO SUBMITTED THAT THE SIMILA R VIEW TAKEN BY THE KOLKATTA BENCH OF TRIBUNAL IN THE CASE OF REI AGRO LTD IN ITA NO.1811 /KOL/2012 DATED 14.5.2013 HAS SINCE BEEN UPHELD BY THE HONBLE CALCUTTA HIGH COURT, VID E ITS ORDER DATED 23.12.2013 IN CIT VS. R.E.I AGRO LTD IN GA 3022 OF 2013 /ITAT 161 OF 2013. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CAR EFULLY PERUSED THE RECORD. THE FACTS PREVAILING IN THE INSTANT CASE SHOW THAT THE ASSESS EE HAS INVESTED FUNDS MAINLY IN ITS SUBSIDIARY /GROUP COMPANIES. THE INVESTMENTS MADE BY THE ASSESSEE HAVE BEEN TABULATED AS UNDER BY THE TAX AUTHORITIES:- FACE VALUE/ISSUE PRICE VALUE AS AT MARCH 31,2009 VALUE AS AT MARCH 31,2008 SCHEDULE E INVESTMENT LONG TERM INVESTMENT IN EQUITY SHARES QUOTED, FULLY PAID UP ADLAB FILMS LTD KOTHARI SUGARS AND CHEMICALS LTD 5 10 3573160000 100000 3573160000 100000 3573260000 3573260000 SUBSIDIARY COMPANIES- IN EQUITY SHARES UNQUOTED, FULLY PAID UP ADHAR PROJECT MANAGEMENT AND CONSULTANCY PVT. LTD. 10 100000 100000 OTHER INVESTMENTS IN EQUITY SHARES UNQUOTED, FULLY PAID UP AMMOLITE HOLDINGS LTD (COMPANY UNDER SAME MANAGEMENT) ASHADEEP PROPERTIES PVT.LTD OBSERVER NETWORK LTD PHI MANAGEMENT SOLUTIONS P.LTD. (COMPANY $1.00 10 100 10 45,331 40000 45000 16000000 45,331 40000 45000 I.T.A. NO.60/MUM/2013 4 UNDER SAME MANAGEMENT) RELIANCE E-COM PVT.LTD RELIANCE NET LTD RELIANCE NET LTD (COMPANY UNDER SAME MANAGEMENT) RELIANCE SHARE & STOCK BROKERS PVT LTD (COMPANY UNDER SAME MANAGEMENT) VISCOUNT MANAGEMENT SERVICES (ALPHA) LTD VISCOUNT MANAGEMENT SERVICES LTD 10 10 10 10 10 14000 8150000 50000000 180000 108000 74582831 14000 8150000 50000000 180000 108000 58582831 IN PREFERENCE SHARES UNQUOTED, FULLY PAID UP 8% CUMULATIVE REDEEMABLE PREFERENCE SHARES OF BIO ANIMATION (INDIA ) PVT. LTD 1 200000000 200000000 200000000 200000000 CURRENT INVESTMENT IN UNITS- QUOTED// RELIANCE LIQUID FUND-GROWTH PLAN 10 6107732 6107732 6107732 6107732 SHARE IN PARTNERSHIP FIRM RELIANCE CAPITAL PARTNERS TIP TOP TYPOGRAPHY 999476 1751226 2750702 (214876) (214876) 3856801265 3837735687 A CAREFUL PERUSAL OF THE ABOVE SAID TABLE WOULD SHO W THAT THE ASSESSEE HAS MADE FRESH INVESTMENTS IN THIS YEAR IN TWO COMPANIES VIZ., M/S ADHAR PROJECT MANAGEMENT AND CONSULTANCY PVT. LTD. (RS. ONE LAKH) AND IN M/S PHI MANAGEMENT SOLUTIONS P.LTD (RS.160 LAKHS). FURTHER, IT HAS BEEN STATED THAT T HE ASSESSEE HAS RECEIVED THE DIVIDEND AMOUNT OF RS.515 LAKHS FROM A SINGLE COMPANY. ACCO RDINGLY, THE ASSESSEE HAS CONTENDED THAT IT DID NOT INCUR ANY EXPENSE IN RELA TION TO THE DIVIDEND INCOME, WHICH WAS CLAIMED AS EXEMPT FROM TAXATION. HOWEVER, DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE AGREED TO AN ESTIMATED DI SALLOWANCE OF RS.25,000/- TOWARDS THE EXPENSES RELATING TO THE ACTIVITIES CARRIED OUT DURING THE YEAR, WHICH HAVE NOTICED EARLIER. 7. THE SCOPE OF PROVISIONS OF SEC. 14A HAS BEEN EXPLAINED BY HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (347 ITR 272). THE CO-ORDINATE BENCH IN THE CASE OF RAJ SHIPPING AGENCIES LTD (SUP RA) HAS EXTRACTED THE FOLLOWING OBSERVATIONS MADE BY HONBLE DELHI HIGH COURT IN TH E CASE OF MAXOPP INVESTMENT LTD (SUPRA):- 30. SUB-SECTION (2) OF SECTION 14 A OF THE SAID ACT PROVIDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER, IF WE EXAMINE THE PROVISION CAREFULLY, WE WOULD FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITUR E ONLY IF THE ASSESSING I.T.A. NO.60/MUM/2013 5 OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSES SEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE ASSESSI NG OFFICER EMBARKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE ASSESSING OFF ICER RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDEN T FOR THE ASSESSING OFFICER ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IS THAT THE ASSESSING OFF ICER 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 NOTHING BUT AN OFFS HOOT OF SUB-SECTION (2) OF SECTION 14A. SUB- SECTION (3) APPLIES TO CASES WHER E 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-SECTION (2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUN T OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME 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 ASSESSING OFFICER, IF SATISFIED WITH THE CORRECTNESS OF THE C LAIM 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 EXPENDITURE IN ACCOR DANCE WITH ANY PRESCRIBED METHOD, AS MENTIONED IN SUB-SECTION (2) OF SECTION 14A OF THE SAID ACT. IT IS ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES, THAT THE ASSESSING OFFICER GETS JURISDICTION TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIBED METHOD BEING THE METHOD STIPULATED IN RULE 8D OF THE SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICAT E COGENT REASONS FOR THE SAME. RULE 8D 31. 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 HAVE ALREADY MENTIONED ABOVE THAT B Y VIRTUE OF NOTIFICATION NO.45/2008 DATED 24/03/2008, THE CENTRAL BOARD OF D IRECT TAXES INTRODUCED RULE 8D IN THE SAID RULES. THE SAID RULE 8D ALSO MAKES I T CLEAR THAT WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSES SEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT FOR SUCH PREVIOUS YEAR, THE ASSE SSING OFFICER SHALL DETERMINE THE AMOUNT OF THE EXPENDITURE IN RELATION TO SUCH I NCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2) OF RULE 8D. WE MAY OBSER VE THAT RULE 8D(1) PLACES THE PROVISIONS OF SECTION 14A(2) AND (3) IN THE CORRECT PERSPECTIVE. AS WE HAVE ALREADY SEEN, WHILE DISCUSSING THE PROVISIONS OF SU B-SECTIONS (2) AND (3) OF SECTION 14A, THE CONDITION PRECEDENT FOR THE ASSESS ING OFFICER TO HIMSELF DETERMINE THE AMOUNT OF EXPENDITURE IS THAT HE MUST RECORD HIS DISSATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MA DE BY THE ASSESSEE OR WITH I.T.A. NO.60/MUM/2013 6 THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE T HAT NO EXPENDITURE HAS BEEN INCURRED. IT IS ONLY WHEN THIS CONDITION PRECEDENT IS SATISFIED THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOUNT OF EXPE NDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IN THE MANNER INDICA TED IN SUB-RULE (2) OF RULE 8D OF THE SAID RULES. 32. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF T HE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY 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 INCOME HAS THREE COMPONENTS. THE FIRST COMPONENT BEING THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART 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 ESSENTIALLY APPORTIO NS THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST [OTHER THAN THE AMOUNT OF INTERE ST INCLUDED IN CLAUSE (I)] INCURRED DURING THE PREVIOUS YEAR IN THE RATIO OF T HE 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 ASSESSEE. THE TH IRD COMPONENT IS AN ARTIFICIAL FIGURE - ONE HALF PERCENT OF THE AVERAGE VALUE OF T HE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEETS OF ASSESSEE, ON THE FIRST DAY AND TH E 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 EXPENDITURE IS STRAIGHTAWAY TAKEN INTO ACCOUNT BY V IRTUE OF CLAUSE (I) OF SUB-RULE (2) OF RULE 8D. THE INDIRECT EXPENDITURE, WHERE IT IS BY WAY OF INTEREST, IS COMPUTED THROUGH THE PRINCIPLE OF APPORTIONMENT, AS INDICATED 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. ............... 42. SUB-SECTION (2) OF SECTION 14A, AS WE HAVE SEEN , 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 INC OME 'IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETER MINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSING OFFICER IS NOT SATISFIE D WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. 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 IN ITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN 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 REJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINAT ION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF A DOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF I.T.A. NO.60/MUM/2013 7 SECTION 14A. PRIOR TO THAT, THE ASSESSING WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. 8. WE FURTHER NOTICE THAT THE CO-ORDINATE BENCH OF TRIBUNAL HAS ALSO CONSIDERED THEE DECISIONS RENDERED IN THE FOLLOWING CASES, WHEREIN SIMILAR VIEW HAS BEEN EXPRESSED:- (A) CIT VS. HERO CYCLES LTD (2010)(323 ITR 518) (B) JUSTICE SAM P BHARUCHA VS. ADDL. CIT (53 SOT 192) (C) RELAXO FOOTWEARS LTD VS. ADDL CIT (50 SOT 10 2) (D) PRIYA EXHIBITORS (P) LTD VS. ASST. CIT (54 SO T 356) WE HAVE ALREADY NOTICED THAT AN IDENTICAL VIEW EXPR ESSED BY THE KOLKATTA BENCH OF TRIBUNAL HAS SINCE BEEN APPROVED BY THE HONBLE CAL CUTTA HIGH COURT. 9. IN THE INSTANT CASE, WE NOTICE THAT THE ASSE SSING OFFICER HAS NOT EXAMINED THE CLAIM MADE BY THE ASSESSEE IN PROPER PERSPECTIVE, W HICH IS CLEAR FROM THE FOLLOWING OBSERVATIONS MADE BY HIM:- THE ABOVE REPLY OF THE ASSESSEE HAS BEEN PERUSED C AREFULLY BUT IS NOT ACCEPTABLE. THE PROVISIONS OF SEC. 14A R.W.R. 8D A RE VERY CLEAR IN THIS MATTER. THE PROVISIONS SAY THAT IF THE ASSESSEE IS HAVING E XEMPT INCOME AND THE EXPENSES INCURRED FOR EARNING CANNOT BE CORRECTLY A RRIVED AT, THEN RESORT TO RULE 8D. IN THE INSTANT CASE, THERE IS NO METHOD BY WHI CH THE AMOUNT OF EXPENSE INCURRED BY THE ASSESSEE FOR EARNING OF EXEMPT INCO ME COULD BE CORRECTLY ARRIVED AT, THEREFORE SECTION 14A R.W. RULE 8D OF THE I.T A CT IS INVOKED AND THE DISALLOWANCE IS WORKED OUT AS UNDER IT CAN BE NOTICED THAT THE ASSESSING OFFICER DID NO T EXAMINE THE CLAIM OF THE ASSESSEE WITH REFERENCE TO THE ACCOUNTS MAINTAINED BY THE AS SESSEE. HENCE, IN OUR VIEW, THE ASSESSING OFFICER HAS NOT FOLLOWED THE MANDATE OF T HE PROVISIONS OF SEC. 14A, WHICH HAVE BEEN EXPLAINED IN VARIOUS DECISIONS REFERRED SUPRA. 10. ON THE CONTRARY, WE NOTICE THAT THE LD CIT( A) HAS EXAMINED THE CLAIM MADE BY THE ASSESSEE IN PROPER PERSPECTIVE. THE OPERATIVE PORTION OF THE ORDER PASSED BY LD CIT(A) READS AS UNDER:- IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, I AM OF THE VIEW THAT THERE WAS SOME FORCE IN APPELLANTS ARGUMENTS THAT NO EXPENDI TURE WAS REQUIRED ON ACCOUNT OF ADMINISTRATIVE AND MANAGERIAL EXPENSES. IN THE FACTS AND CIRCUMSTANCES A.OS FINDING OF INCURRING OF ADMINIS TRATIVE & MANAGERIAL EXPENSES AT RS.1,92,36,342/- AS PER FORMULA PROVIDED IN SUB CLAUSE (III) OF RULE 8D(2) APPEARS TO BE UNJUST AND FAR IN EXCESS. CONSIDERI NG THE ENTIRE FACTS AND CIRCUMSTANCES I ESTIMATE THE EXPENSES AT RS.5,00,00 0/- ON ADHOC BASIS WHICH WERE REQUIRED TO BE INCURRED AS ADMINISTRATIVE & MA NAGERIAL EXPENSES ON MANAGEMENT OF INVESTMENT AS WELL AS ON EARNING OF E XEMPT DIVIDEND INCOME. I.T.A. NO.60/MUM/2013 8 THE DISALLOWANCE MADE BY A.O AT RS.1,92,36,342/- IS THEREFORE REDUCED TO RS.5,00,000/-. 11. THUS, WE NOTICE THAT THE JUDICIAL VIEW THAT I S CONSISTENTLY TAKEN BY VARIOUS FORUM IS THAT THE ASSESSING OFFICER CAN INVOKE THE PROVISION S OF SEC. 14A ONLY IF HE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CLAIM PUT FORTH BY THE ASSESSEE. IN THE INSTANT CASE, THE AO HAS NOT SHO WN THAT HE WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE BY HAVING REGARD TO THE ACCOU NTS MAINTAINED BY THE ASSESSEE. HENCE, CONSIDERING THE FACTS AND CIRCUMSTANCES PREV AILING IN THE INSTANT CASE, WE ARE OF THE VIEW THAT THE VIEW TAKEN BY LD CIT(A) ON THE IM PUGNED ISSUE IS A REASONABLE ONE AND DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGL Y, WE UPHOLD THE ORDER OF LD CIT(A) ON THIS ISSUE. 12. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 9TH JULY, 2014 . ,- ( /0 1 2 9TH JULY, 2014 - ' ) 3 SD SD ( /SANJAY GARG) ( . . / B.R. BASKARAN ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / ( ) MUMBAI: 9TH JULY,2014. . . ./ SRL , SR. PS ! '#$%& '&($ / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT 2. #$!' / THE RESPONDENT. 3. ( 5* ( ) / THE CIT(A)- CONCERNED 4. ( 5* / CIT CONCERNED 5. 6 #* 7 , + 7 , / ( ) / DR, ITAT, MUMBAI CONCERNED 6. 8) / GUARD FILE. . ( / BY ORDER, TRUE COPY 9 (ASSTT. REGISTRAR) + 7 , / ( ) /ITAT, MUMBAI