Eastern India Educational Institution, Kolkata V. ITO, (Exemption)-II, Kolkata, Kolkata

ITA 654/KOL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4178 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 01-09-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 12-04-2016
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: D S DAMLE
• Keywords: Earning of tax free income; Corroborative evidences
• Section: 143(3); 14A; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN & DR. A.L.SAINI, AM ./ ITA NO.654/KOL/2016 ( / ASSESSMENT YEAR :2011-2012) EASTERN INDIA EDUCATIONAL INSTITUTION, BIRLA BUILDING, 4 TH FLOOR, 9/1, R.N.MUKHERJEE ROAD, KOLKATA-700071 VS. THE INCOME TAX OFFICER (EXEMPTION)-II, 10B, MIDDLETON ROW, 5 TH FLOOR, KOLKATA-700071 ./ ./PAN/GIR NO. : AAATE 0448 G ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI D.S.DAMLE, AR /REVENUE BY : SHRI G.MALLIKARJUNA, CIT DR / DATE OF HEARING : 29/11/2016 /DATE OF PRONOUNCEMENT 07/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO THE ASSESSMENT YEAR 2011-2012, IS DIRECTED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (EXEMPTIONS), KOLKATA, D ATED 29.3.2016, U/S.263 OF THE I.T.ACT. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 FOR THE AY. 2011-12 WAS COMPLETED AN 18.03.2014 DETERMINING THE TOTAL INCOM E AT RS. 20,35,850/- . ON FURTHER VERIFICATION OF RECORDS, IT HAS BEEN F OUND THAT DIVIDEND INCOME AT RS.3,21,19,822/- WAS EARNED BY THE ASSESSEE AND CLAIMED EXEMPT U/S. 10(34) OF THE I.T. ACT, 1961. AS PER PROVISIONS OF SECTION 14A OF THE I.T.ACT, 1961, EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO NOT FORM PART OF TOTAL INCOME REQUIRES TO BE DISALLOWED IN A CCORDANCE WITH THE ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 2 PROVISIONS OF RULE 8D OF THE I. T. RULES, 1962. THE COMPUTATION OF SUCH DISALLOWANCE WAS MADE IN THE ASSESSMENT ORDER, WHIC H WAS DETERMINED AS RS.18,83,837/-. HOWEVER, THE DISALLOWANCE WAS RE STRICTED TO RS.6,07,359/-, BEING THE EXPENDITURE INCURRED AT TH E HEAD OFFICE. HOWEVER, THE EXPENDITURE DEBITED TO L/E ACCOUNTS WAS RS.15,9 7,444/-. IT APPEARS FROM RECORD THAT DURING THE ASSESSMENT PROCEEDINGS, AN EXPLANATION WAS SUBMITTED BY THE ASSESSEE REGARDING DISALLOWANCE U/ S.14A, IN WHICH THE ENTIRE EXPENDITURE WAS DIVIDED INTO TWO SEGMENTS BA SED AN NATURE OF EXPENSES, VIZ. EXPENSE INCURRED AT HEAD OFFICE AND AT SCHOOL, WHICH HAVE BEEN SHOWN TO BE RS.6,07,369/- AND 9,90,075/- RESPE CTIVELY. BUT THERE IS NO SUPPORTING EVIDENCE FOUND ON RECORD SUBSTANTIATI NG SUCH SEGREGATION OF EXPENSE OR APPLICATION OF INCOME. HENCE, SUCH RE STRICTION OF DISALLOWANCE IN ACCORDANCE WITH THE PROVISIONS OF R ULE 8D(2)(III) TO THE HEAD OFFICE EXPENSE CANNOT FIND ITS JUSTIFICATION W ITHOUT ANY FACTUAL EVIDENCE AND BASED ON SIMPLE PRECLUDED AND ASSUMED CONCEPT. IN THIS ASPECT, THE ORDER PASSED BY THE AO FOUND TO BE ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. LD. COMMISSIONER OF INCOME TAX (EXEMPTIONS), WHI LE PASSING ORDER U/S 263, OBSERVED THE FOLLOWINGS :- FROM THE BALANCE SHEET AND INCOME & EXPENDITURE ACC OUNT OF THE ASSESSEE, IT APPEARS THAT THE ASSESSEE TRUST WAS MA INLY ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND MUTUAL FUN DS (OUT OF TOTAL FUND OF RS. 40,49,08,468/-, INVESTMENT IN SHARES AN D MUTUAL FUND WAS RS. 39,62,43,481/- AND OUT OF TOTAL INCOME OF R S. 4,32,85,926/-, RS.3,21,19,822/- WAS EARNED FROM DIVIDEND) FROM WHI CH EXEMPT INCOME HAS BEEN DERIVED. IN SUMMARY, THE ASSESSEE TRUST HAS EARNED INCOME UN DER NORMAL BUSINESS PROCEDURE, A MAJORITY OF WHICH IS COVERED BY THE PROVISION ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 3 OF SECTION 10(34) TO BE CLAIMED AS EXEMPT. IT CAN B E FURTHER SEGREGATED INTO TWO TYPES OF INCOME, VIZ. TAXABLE I NCOME OF RS.14,33,311/- AND EXEMPT INCOME OF RS. 3,21,19,822 /-. THE INCOME GENERATING OPTIONS ARE DIVIDED BETWEEN TAXAB LE AND NON- TAXABLE INCOME IN THE RATIO OF 1:22. FROM THE ABOVE DISCUSSION, IT IS CLEAR THAT THE MAJOR PART OF THE INCOME IS EXEMPT I NCOME. THE ADMINISTRATIVE AND OTHER EXPENSES SHOULD ALSO BE AC COUNTED FOR IN THE SAME PROPORTION. TOTAL EXPENDITURE DEBITED IN T HE I/E ACCOUNT OF RS.15,97,444/-. THEREFORE, THE EXPENDITURE SHOULD A LSO BE ALLOCATED IN THE RATION OF 1:22 FOR TAXABLE AND EXEMPT INCOME . HOWEVER, THE SAME ESTIMATION FOR ALLOCATION OF EXPENSES CANNOT B E FOLLOWED IN STRAIGHT LINE METHOD SINCE FOR EARNING CERTAIN INCO ME MORE EXPENSES ARE INCURRED AND VICE VERSA. SINCE THERE IS NO SPECIFIC STRAIGHT LINE METHOD FOR DETERMINING EXPENDITURE RELATED TO EARNING OF EXEMPT INCOME, RU LE 8D IS FORMULATED FOR THE PURPOSE OF DETERMINING DISALLOWA NCE OF EXPENDITURE U/S. 14A. MERE OFFER OF DISALLOWANCE OF ON APPROXIMATION BASIS DOES NOT QUALIFY FOR DETERMINAT ION OF AMOUNT OF DISALLOWANCE U/S. 14A, THOUGH THERE IS SPECIFIC PRO VISION FOR DETERMINATION OF THE SAME IN THE INCOME TAX RULES. THE INHERENT PROPOSITION BEHIND THE CONTENTS OF SEC TION 14A IS DISALLOWANCE OF EXPENDITURE IN RELATION TO INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME IS THAT EXPENDITURE I NCURRED IS NOT ALLOWABLE FOR THE PURPOSE WHETHER THE ASSESSEE CLAI MS THAT NO EXPENDITURE HAS BEEN INCURRED DURING THE PREVIOUS Y EAR. SECTION 14A(2) OF THE INCOME TAX ACT STATES THAT: 'THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED .... '. IN VIEW OF THE ABOVE, DISALLOWANCE U/S. 14A OFFERED BY THE ASSESSEE IS NOT SATISFIED AND REQUIRED TO BE RECOMPUTED. THE DISALLOWANCE U/S 14A IS DETERMINED IN ACCORDANCE WITH THE PROVIS IONS OF RULE 8D(2) SPECIFICALLY DESIGNED FOR THE PURPOSE. REFERE NCE IS ALSO MADE TO THE ADJUDICATIONS OF HON'BLE HIGH COURT OF CALCU TTA IN THE CASE OF DHANUKA AND SONS VS. CIT(CENTRAL)-I, KOLKATA [(2011 ) 244 CTR 511 (CAL)] AND HON'BLE ITAT MUMBAI BENCH (SMC) IN T HE CASE OF RHYTHM EXPORTS P. LTD VS. ITA [(2005) 2 SOT 429 MUM (SMC)]. REFERENCE IS MADE TO THE DECISION OF HON'BLE COURT IN I.T.O -VS- DAGA CAPITAL MANAGEMENT [P] LTD 117 ITD 169 (SB), W HERE IT HAS BEEN HELD THAT - 1. IT WAS UNANIMOUSLY HELD THAT PROVISIONS OF SECTI ON 14A WOULD OVERRIDE THE PROVISIONS FOR COMPUTING THE TOTAL INC OME OF AN ASSESSEE. THUS, DISALLOWANCE WOULD BE JUSTIFIED U/S 14A EVEN IF THE ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 4 EXPENDITURE INCURRED IN RELATION TO INCOME FORMING PART OF TOTAL INCOME IS OTHERWISE ALLOWABLE U/S 36(1)(III)/57(III ). 2. IT WAS ALSO UNANIMOUSLY HELD THAT PROVISIONS OF SUB SECTIONS (2) & (3) OF SECTION 14A ARE PROCEDURAL PROVISIONS FOR CO MPUTING THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE I NCOME FORMING PART OF TOTAL INCOME AND, THEREFORE, WOULD HAVE RET ROSPECTIVE EFFECT. RULE 8D WAS ALSO HELD TO BE RETROSPECTIVE IN NATURE ON THE SAME REASONING. 3. IT WAS ALSO THE UNANIMOUS VIEW THAT IN CASE WHER E EXPENDITURE IS INCURRED BY THE ASSESSEE AS AN INVESTOR IN SHARES, THE DISALLOWANCE UNDER SECTION WOULD BE JUSTIFIED SINCE THE INCOME A RISING IN FORM OF DIVIDEND WOULD NOT FORM OF TOTAL INCOME. FURTHERMORE, THE HON'BLE HIGH COURT HAS FOUND THE F OLLOWING OBSERVATION IN THE CASE OF GODREJ & BOYCE MFG CO LT D -VS-DCIT (ITA 626 & WP 758 OF 2010) THAT- 1. THE PROVISIONS OF SECTION 14A AND RULE 8D ARE CO NSTITUTIONALLY VALID. 2. THE PROVISIONS OF SUB SECTIONS (2) & (3) OF SEC 14A AND RULE 8 ARE PROSPECTIVE, AND NOT RETROSPECTIVE, IN NATURE A ND THEREFORE, WOULD APPLY FROM ASSESSMENT YEAR 2007-08. 3. THE BASIC OBJECT OF SECTION 14A IS TO DISALLOW T HE DIRECT AND INDIRECT EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 4. THE INSERTION OF SECTION 14A WAS CURATIVE AND DE CLARATORY OF THE INTENT OF THE PARLIAMENT. THE BASIC PRINCIPLE OF TA XATION IS THAT ONLY NET INCOME, NAMELY, GROSS INCOME MINUS EXPENDITURE THAT IS TAXABLE. EXPENSES INCURRED CAN BE ALLOWED ONLY TO T HE EXTENT THAT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME . THE TEST WHICH HAS BEEN ENUNCIATED IN WALFORT FOR ATTRACTING THE P ROVISIONS OF SECTION 14A IS THAT 'THERE HAS TO BE A PROXIMATE CA USE FOR DISALLOWANCE WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME'. ONCE THE TEST OF PROXIMATE CAUSE, BASED ON THE RELA TIONSHIP OF THE EXPENDITURE WITH TAX EXEMPT INCOME IS ESTABLISHED, A DISALLOWANCE WOULD HAVE TO BE EFFECTED UNDER SECTION 14A. IN THE RECENT CIRCULAR ISSUED BY THE CBDT CIRCULAR NO. 5/2014 DATED 11.02.2014, IT HAS BEEN CLARIFIED THAT DISALLOWANCE OF 14A IS APPLICABLE FOR EXEMPT EARNING INVESTMENTS ALSO EVEN IF THERE IS NO REAL INCOME DERIVED IN THE CURRENT YEAR. THE AO HAS DETERMINED DISALLOWANCE U/S. 14A IN ACCO RDANCE TO THE PROVISIONS OF RULE 8D(2)(III) AS RS.18,83,837/-, BU T THE DISALLOWANCE WAS RESTRICTED TO RS.6,07,359/- WITHOUT ANY SUPPORT ING EVIDENCE. HENCE, IT IS CONCLUDED THAT THE BASIS OF ASCERTAINI NG DISALLOWANCE ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 5 U/S. 14A ADOPTED BY THE METHOD IS WRONG AND TO BE R EVISED STRICTLY ABIDING BY THE RULES IN THIS REGARD WITHOUT ANY SCO PE OF ASCERTAINING THE DISALLOWANCE ON ASSUMPTION BASIS, WHERE ANY CONCRETE DOCUMENT SUPPORTING ESTIMATION/ ASSUMPTION IS NOT AVAILABLE, THE METHOD OF DETERMINATION OF DISALLOWA NCE U/S. 14A IN ACCORDANCE TO RULE 8D(2) SUPERSEDES OVER OTHERS. ON THE BASIS OF ABOVE OBSERVATION, IT IS FOUND THE ORDER PASSED U/S. 143 (3) OF THE INCOME TAX ACT, 1961 IS ERRONEOUS AN D PREJUDICIAL TO THE INTEREST OF REVENUE. HENCE, KEEPING IN VIEW OF THE ABOVE, THE ORDER PASSED BY AO U/S. 143(3) IS SET-ASIDE TO THE FILE OF AO. THE ASSESSING OFFICER IS DIRECTED TO MODIFY THE EAR LIER ORDER AND DO FRESH ASSESSMENT AFTER CONSIDERATION AND VERIFICATI ON OF THE ISSUE AND GIVING DUE OPPORTUNITY TO THE ASSESSEE. 4. NOT BEING SATISFIED WITH THE ORDER OF CIT(E), TH E ASSESSEE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE ASSESSMENT MADE BY THE LEARNED ITO NEITHER ERRONEOU S NOR PREJUDICIAL TO THE INTEREST OF REVENUE AND THEREFOR E THE LEARNED CIT (EXEMPTION) WAS NOT JUSTIFIED IN INVOKING THE PROVI SIONS OF SECTION 263. 2. THAT THE ORDER U/S.263 IS BAD IN LAW AND, THEREF ORE, THE SAME IS LIABLE TO BE QUASHED. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LD.CIT(EXEMPTION) WAS NOT JUSTIFIED IN HOLDING THAT THE DISALLOWANCE COMPUTED BY THE LEARNED ITO TO THE EXTENT OF RS.607 359 WAS WITHOUT ANY SUPPORTING EVIDENCE AND IS WRONG AND FU RTHER DIRECTED THE AO TO REVISE THE DISALLOWANCE STRICTLY IN ACCOR DANCE WITH RULE 8D. 4. THAT THE LD. CIT (EXEMPTION) FAILED TO APPRECIAT E THAT THE BASIS OF ASCERTAINING DISALLOWANCE U/S.14A ADOPTED BY THE AO WAS A CORRECT AND JUSTIFIED METHOD ON FACTS AND CIRCUMSTANCES OF THE CASE. THAT THE APPELLANT SOCIETY CRAVES LEAVE TO, ADD TO, ALTER, AMEND AND/ OR WITHDRAW ALL OR ANY OF THE ABOVE GROUNDS AT OR B EFORE THE HEARING OF THE APPEAL. 5.ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISED MULTIPLE GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING THE MAIN GRIEVAN CE OF THE ASSESSEE HAS ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 6 BEEN CONFINED TO THE ISSUE THAT THE ORDER PASSED BY THE LD. CIT(E) U/S.263 IS BADE IN LAW AND, THEREFORE, THE SAME IS LIABLE TO BE QUASHED. 6. THE ASSESSEE DID NOT PRESS THE GROUND NO.3 AND G ROUND NO.4, THEREFORE, THE SAME ARE DISMISSED IN LIMINE. 7. LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE E XPENSES TO THE EXTENT OF RS. 6,07,369/- PERTAINS TO SCHOOL AT AMRA PUR TO BEAR COST OF EDUCATIONAL MATERIAL PROVIDED TO THE STUDENT, SALAR Y OF TEACHING AND OTHER STUFFS, RUNNING & MAINTAINING HOSTEL FACILITIES ETC . DETAILS/ DOCUMENTS RELATING THESE EXPENSES WERE ALSO PRODUCED TO THE L EARNED ITO AS IS APPARENT FROM THE ASSESSMENT ORDER. THE VOUCHERS/ S UPPORTING ARE BEING PRODUCED AGAIN FOR YOUR PERUSAL. SINCE FREE EDUCATI ON IS BEING PROVIDED BY OUR SCHOOL AND EXPENSES ARE BORNE TO MEET THE DA Y TO DAY AFFAIRS, NO SURPLUS FUND PERTAINING TO SCHOOL WAS EVER AVAILABL E WITH THE SOCIETY WHICH COULD HAVE BEEN INVESTED FOR EARNING EXEMPT I NCOME AND THEREFORE THE LD. ITO HAS RIGHTLY COMPUTED THE DISALLOWANCE U /S. 14A READ WITH RULE 8D(2)(III) AT RS.6,07,369/- I.E. AFTER EXCLUDING TH E EXPENSES PERTAINING TO THE SCHOOL. AS PER PROVISIONS OF SECTION 14A, DISAL LOWANCE OF EXPENDITURE INCURRED IN RELATION TO INCOME, WHICH DO NOT FORM P ART OF TOTAL INCOME WAS NOT QUANTIFIED, LEAVING SUCH ESTIMATION BASED ON ME RIT. AN ASSESSEE HAVING INCOME FROM DIFFERENT SOURCES, HAS TO MAKE E XPENDITURE FOR EARNING THE SAME. THE QUANTUM OF EXPENDITURE FOR EA RNING INCOME FROM A SOURCE DEPENDS ON VARIOUS CONSTRAINTS LIKE NATURE O F BUSINESS AND OTHERS. THERE IS NO ABSOLUTE METHOD FOR QUANTIFICATION OF E XPENDITURE FOR EARNING INCOME IN THE FIELD OF EARNING OF DIVIDEND INCOME F ROM INVESTMENT MADE, ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 7 SINCE SEVERAL FACTORS MAY INFLUENCE THE PATTERN. CO NSIDERING THE DIFFICULTIES IN ESTIMATION OF THE DISALLOWANCE, PRO VISIONS OF RULE 8D(2) IS APPLIED, WHICH PROVIDES A METHOD FOR ESTIMATION OF SUCH DISALLOWANCE. LD. AR FOR THE ASSESSEE HAS ALSO RELIED ON THE JUDG MENT OF TRIBUNAL IN THE CASE OF BRITANIA INDUSTRIES LTD., ITA NO.390/KOL/20 13, DATED 02.03.2016, WHEREIN THE TRIBUNAL OBSERVED THE FOLLOWINGS :- 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIV AL SUBMISSIONS. THE PROVISIONS OF SECTION 14A OF THE ACT AS ORIGINA LLY INTRODUCED AND AS AMENDED FROM TIME TO TIME AS WELL AS THE INSERTI ON OF RULE 8D WAS SUBJECT-MATTER OF SEVERAL DECISIONS RENDERED BY VARIOUS BENCHES OF THE ITAT AS WELL AS THE HON'BLE HIGH COU RTS. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVE STMENTS LTD. V. CIT (2011 )203 TAXMAN 364(DEL) AND THE HON'BLE BOMB AY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 3 28 ITR 81 (BOM.) HAVE TAKEN A VIEW THAT RULE 8D OF THE IT. RU LES WILL APPLY ONLY FOR A.YS. 2008-09 AND SUBSEQUENT ASSESSMENT YE ARS. IT HAS ALSO BEEN LAID DOWN THAT THE ASSESSEE HAS TO MAKE A CLAIM (INCLUDING A CLAIM THAT NO EXPENDITURE WAS INCURRED ) WITH REGARD TO EXPENDITURE INCURRED FOR EARNING INCOME WHICH IS NO T CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND ONLY IF ON AN OBJECTIVE SATISFACTION ARRIVED AT BY THE AO THAT TH E CLAIM MADE BY THE ASSESSEE IS NOT CORRECT, CAN THE AO PROCEED TO APPLY THE COMPUTATION MODE AS SPECIFIED IN RULE 8D(2) OF THE RULES. IF THE AO COMES TO THE CONCLUSION THAT CLAIM MADE BY THE ASSE SSEE IS NOT CORRECT, IT IS ONLY THEREAFTER THAT THE AO CAN PROC EED TO MAKE THE DISALLOWANCE IN TERMS OF RULE 8D OF THE RULES. EVEN IN A CASE WHERE THE AO REJECTS THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED TO EARN THE EXEMPT INCOME, IT IS NOT MANDATORY FOR HIM TO INVOKE THE METHOD OF CALCULATION PRESCRIBED BY RULE 8D(2) OF THE RULES AND IS FREE TO MAKE THE DISALLOWANCE ON A NY REASONABLE BASIS. BY APPLYING THE RULE 8D OF THE RULES BLINDLY SOMETIMES ABSURD DISALLOWANCES WOULD RESULT. IN OUR VIEW, THE REFORE WHILE EXAMINING THE CLAIM OF THE ASSESSEE REGARDING EXPEN DITURE INCURRED IN EARNING THE EXEMPT INCOME INCLUDING A CLAIM THAT NO EXPENSES WERE INCURRED, THE AO IS BOUND TO TAKE NOTE OF SUCH ABSURDITIES AND REFRAIN FROM INVOKING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBED BY RULE 8D(2) OF THE RULES. IT IS FOR TH IS REASON THAT THE SATISFACTION OF THE AO REGARDING EXPENSES INCURRED FOR EARNING EXEMPT INCOME IS TO BE OBJECTIVE SATISFACTION. IN O THER WORDS, IT IS ONLY WHEN NO REASONABLE AND PROPER PARAMETERS FOR M AKING DISALLOWANCE CAN BE ARRIVED AT, THAT RESORT TO RULE 8D(2) CAN BE HAD BY THE AO. RULE 8D(2) WILL THUS BE A LAST RESORT WH EN IT BECOMES IMPOSSIBLE TO ARRIVE AT A JUST CONCLUSION ON THE AM OUNT OF EXPENSES ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 8 THAT HAS TO BE DISALLOWED AS ATTRIBUTABLE OR INCURR ED IN EARNING EXEMPT INCOME. IT CANNOT THEREFORE BE SAID THAT ONC E THE AO REJECTS THE MODE OF COMPUTATION OF DISALLOWANCE U/S.14 OF T HE ACT AS MADE BY THE ASSESSEE, HE HAS NO OTHER OPTION BUT TO RESO RT TO RULE 8D OF THE RULES. 8. BESIDES THE ABOVE, WE ARE ALSO OF THE VIEW THAT THE AO HAS ADOPTED ONE OF THE POSSIBLE COURSE OPEN TO HIM IN L AW. THE CIT CANNOT INVOKE JURISDICTION U/S.263 OF THE ACT JUST BECAUSE HE DOES NOT AGREE WITH THE VIEW OF THE AO. IN OTHER WORDS U /S.263 OF THE ACT, THE CIT CANNOT SUBSTITUTE HIS VIEW WITH THAT OF THE AO. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS THE STAND TAKEN BY THE ASSESSEE IN THIS RE GARD. 9. WE THEREFORE HOLD THAT THE ORDER OF THE AO WAS N EITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE JURISDICTION U/S.263 OF THE ACT OUGHT NOT TO HAVE B EEN INVOKED BY THE CIT. WE THEREFORE QUASH THE ORDER U/S.263 OF THE AC T AND ALLOW THE APPEAL BY THE ASSESSEE. 8. ON THE OTHER HAND, LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHICH WE HAVE ALREADY NO TED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAK E OF BREVITY. 9. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE DECISION OF THE TRIBUNAL IN CA SE OF BRITANNIA INDUSTRIES LTD. (SUPRA) AND THE FACTS NARRATED BY H IM ABOVE. LD. AR HAS POINTED OUT THAT THE AO HAS ADOPTED ONE OF THE POSS IBLE COURSE OPEN TO HIM IN LAW. THE CIT CANNOT INVOKE JURISDICTION U/S. 263 OF THE ACT JUST BECAUSE HE DOES NOT AGREE WITH THE VIEW OF THE AO. IN OTHER WORDS U/S.263 OF THE ACT, THE CIT CANNOT SUBSTITUTE HIS V IEW WITH THAT OF THE AO. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARLY SUPPORTS THE STAND TAKEN BY THE ASSESSEE IN THIS RE GARD. WE, THEREFORE, ITA NO.654/K/16 EASTERN INDIA EDUCATIONAL INSTITUTION 9 HELD THAT THE ORDER OF THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE, JURISDICTION U/S.263 OF THE ACT OUGHT NOT TO HAVE BEEN INVOKED BY THE CIT. WE, THEREFORE, QUASH THE ORDER PASSED U/S.263 AND ALLOW THE APPEAL OF THE ASSESSEE . 10. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 07/12 /2016. SD/ - (N.V.VASUDEVAN) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 07/12/2016 & ()* /PRAKASH MISHRA , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, KOLKATA 1. / THE APPELLANT-EASTERN INDIA EDUCATIONAL INSTITUTION 2. / THE RESPONDENT.-ITO(EXEMPTION)-11, KOLKATA 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 56 7 8 , 8 , / DR, ITAT, KOLKATA 6. 7 9 / GUARD FILE. 5 //TRUE COPY//