TATA CAPITAL LTD, MUMBAI V. DCIT 2(3)(1), MUMBAI

ITA 7058/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1639 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 12-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Keywords: Capital asset; Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 143(3); 14A; 72; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) E BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI M. BALAGANESH , HON'BLE ACCOUNTANT MEMBER ITA NO S . 7058 & 7059/MUM/2017 (A.Y: 20 1 2 - 13 & A.Y. 2013 - 14) M/S. TATA CAPITAL LIMITED 11 TH FLOOR, TOWER A PENINSUAL BUSINESS PARK GANPATRAO KADAM MARG LOWER PAREL, MUMBAI - 400013 PAN: AADCP9147P V. DCIT 2(3)(1) ROOM NO. 552, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO S . 59 & 60/MUM/2018 (A.Y: 2012 - 13 & A.Y. 2013 - 14) ACIT 2(3)(1) ROOM NO. 552, 5 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI - 400020 V. M/S. TATA CAPITAL LIMITED ONE FORBES, DR. V.B. GANDHI MARG FORT, MUMBAI - 400001 PAN: AADCP9147P (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NIRAJ SHETH DEPARTMENT BY : SHRI MANJUNATHA SWAMY DATE OF HEARING : 2 3.03. 2021 DATE OF PRONOUNCEMENT : 18 .06.2021 2 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED O R D E R PER C.N. PRASAD (JM) 1. THESE CROSS APPEALS ARE FILED BY THE ASSESSEE AND REVENUE FOR THE ASSESSMENT YEAR S A.Y. 2012 - 13 AND A.Y. 2013 - 14 AGAINST DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) - 6, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 05.10.2017. 2. BRIEFLY STATED THE FACT S ARE THAT, THE ASSESSING OFFICER COMPLETE D THE ASSESSMENT U/S. 143(3) OF THE ACT ON 08.02.2016 AND 11.03.2016 DETERMINING THE INCOME OF .60 , 89 , 72 , 020/ - AND .55 , 08 , 34 , 480/ - UNDER NORMAL PROVISIONS OF THE ACT FOR ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 RESPE CTIVELY. WHILE COMPUTING THE INCOME THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 14A R.W. RULE 8D AT .19,67,82,338/ - AND .50,68,63,128/ - RESPECTIVELY FOR THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14. ON APPEAL LD.CIT(A) DELETED THE INTEREST DISALLOWANCE MA DE UNDER RULE 8D(2)(II) OF I. T. RULES . IN SO FAR AS THE DISALLOWANCE UNDER RULE 8D(2)(III) OF I. T. RULES IS CONCERNED THE LD.CIT(A) HELD THAT FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER RULE 8D INVESTMENT S WHICH ARE CAPABLE OF EARNING TAX FREE INC OME HAVE TO BE CONSIDERED IRRESPECTIVE OF WHETHER THE DIVIDEND INCOME HAS BEEN EARNED OR NOT. 3 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED 3. AGAINST THIS ORDER OF THE LD.CIT(A) THE ASSESSEE IS IN APPEAL AGAINST THE SUSTENANCE OF DISALLOWANCE UNDER RULE 8D(2)(III) OF I. T. RULES . WHEREAS THE REVENUE IS IN APPEAL AGAINST DELETION OF DISALLOWANCE UNDER RULE 8D(2)(II) OF I. T. RULES AND IN DIRECTING THE ASSESSING OFFICER TO CONSIDER ONLY INVESTMENTS WHICH ARE CAPABLE OF EARING TAX FREE INCOME IN COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) OF I. T. RULES . 4. BEFORE US , THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND S IN BOTH THESE A SSESSMENT Y EARS : - 1. RE: DISALLOWANCE UNDER SECTION 14A OF THE INCOME - TAX ACT, 1961 1.1 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW. THE COMMISSIONER OF INCOME - TAX (APPEALS) - 6 ( 4 CIT(A)') HAS ERRED IN UPHOLDING THE INVOCATION OF RULE 8D OF THE INCOME - TAX RULES, 1962. 1.2 ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS ERRED IN NOT UPHOLDING THE VOLUNTARY DISALLOWANCE OF RS.2,44,17,662 MADE BY THE APPELLANT IN ITS RETURN OF INCOME. 2. RE: DEDUCTION IN RESPECT OF 'EDUCATION CESS ON INCOME - TAX AND 'SECONDARY AND HIGHER EDUCATION CESS ON INC OME - TAX (COLLECTIVELY REFERRED TO A S 'EDUCATION CESS ON INCOME - TAX ) PAYABLE FOR THE Y EAR UNDER CONSIDERATION, WHILE COMPUTING THE TOTAL INCOME OF THE APPELLANT: 2.1 THE ASSESSING OFFICER HAS ERRED IN NOT ALLOWING A DEDUCTION FOR THE 'EDUCATION CESS ON INCOME - TAX' PAYABLE FOR THE YEAR UNDER CONSIDERATION. 2.2 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, 'EDUCATION CESS ON INCOME - TAX' FOR THE YEAR UNDER CONSIDERATION, 4 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED OUGHT TO BE ALLOWED AS A DEDUCTION WHILE ASSESSING ITS INCOME FOR THE YEAR UNDER CONSIDERATION. 2.3 THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON AFTER ALLOWING DEDUCTION FOR 'EDUCATION CESS ON INCOME - TAX'. 3. RE: DEDUCTION IN RESPECT OF EXPENDITURE INCURRED ON EMPLOYEE STOCK OPTION PLAN (ESOP ) 3.1 THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT, EXPENDITURE INCURRED BY THE APPELLANT ON ESOP, BEING THE PERQUISITE VALUE IN THE HANDS OF ITS EMPLOYEES (I.E. DIFFERENCE BETWEEN THE MARKET PRICE OF THE SHARES ON THE DATE OF EXERCISE OF OPTION REDUCED BY THE EXERCISE PRICE), OUGHT TO BE ALLOWED AS A DEDUCTION WHILE ASSESSING ITS INCOME FOR THE YEAR UNDER CONSIDERATION. 3.2. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO RE - COMPUTE ITS TOTAL INCOME AND TAX THEREON AFTER ALLOWING DEDUCTION FOR ESOP EXPENDITURE. 5. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ADDITIONAL GROUND S RAISE D BY THE ASSESSEE ARE PURELY LEGAL ISSUES, THE FACTS THERE OFF WERE ALREADY ON RECORD. FAILURE TO RAISE THESE GROUNDS ORIGINALLY WAS NEITHER DELIBERATE OR CONT UMACIOUS . IT IS SUBMITTED THAT SINCE THESE ADDITIONAL GROUNDS WERE PURELY LEGAL ISSUES , PLACING RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD V. CIT [229 ITR 383] THE SAME MAY BE ADMITTED FOR ADJUDICATION. 6. ON HEARING BOTH SIDES WE ARE OF THE VIEW THAT THE ISSUES ARE ONLY LEGAL ISSUES AND FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN 5 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED THE CASE OF NATIONAL THERMAL POWER CO. LTD V. CIT (SUPRA) WE ADMIT THE ADDITIONAL GROUNDS FOR ADJUDICATION. 7. COMING TO THE ADDITIONAL GROUND NO.1 I.E. , IN RESPECT OF DISALLOWANCE U/S. 14A OF THE ACT, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY OBJECTIVE SATISFACTION IN REJECTING THE ASSESSEES SUOMOTO DISALLOWANCE MADE U/S. 14A BEFORE INVOKING THE PROVISIONS OF RULE 8D R.W.S. 14A OF THE ACT BY THE ASSESSING OFFICE R . LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER DID NOT SPECIFICALLY RECORD THAT HE HAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INC OME. LD. COUNSEL FOR THE ASSESSEE SUBMITS THAT O N A PERUSAL OF THE ASSESSMENT ORDER IT IS EVIDENT THAT THE ASSESSING OFFICER HAS RECORDED ONLY GENERAL SATISFACTION AND NOT OBJECTIVE SATISFACTION HAVING REGARD TO THE BOOKS OF ACCOU NTS MAINTAINED BY THE ASS ESSEE. LD. COUNSEL FOR THE ASSESSEE FU RTHER SUBMITS THAT IN THE PRECEDING ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 THE A SSESSING OFFICER IN THE ASSESSMENT ORDERS HAD RECORDED SIMILAR GENERAL SATISFACTION WHILE COMPUTING DISALLOWANCE U/S. 14A R.W. RULE 8D OF I . T. RULES . LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ON THESE FACTS THE TRIBUNAL FOR 6 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 IN ITA.NO. 2223/MUM/201 4 AND 5615/MUM/2015 BY ORDER DATED 30.01.2020 HELD THAT THE ASSESSING OFFICER HAS RECORDED GENERAL SATISFACTION AND HE HAS FAILED TO RECORD ANY OBJECTIVE SATISFACTION AS TO HOW THE SUOMOTO DISALLOWANCE MADE BY THE ASSESSEE IS WRO NG. LD. COUNSEL FOR THE ASSESSEE FURTHER IN SUPPORT TO HIS SUBMISSIONS ALSO PLACED RELIANCE ON THE FOLLOWING DECISIONS: - I. MAX OPP INVESTMENT LTD. V. CIT [402 ITR 640 (SC)] II. GODREJ AND BOYCE MANUFACTURING COMPANY LTD. V. DCIT [394 ITR 449 (SC)] III. PCIT V. RELIANCE CAPITAL ASSET MANAGEMENT LTD., [400 ITR 217 (BOM)] IV. H.T. MEDIA LTD., V. PCIT [399 ITR 576 (DEL.)] 8. WITH REGARD TO THE ADDITIONAL GROUND NO.2 OF GROUNDS OF APPEAL I.E. , IN RESPECT OF DEDUCTION OF EDUCATION CESS ON INCOME TAX AND SECONDARY AND HIGHER EDUCATION CESS ON INCOME - TAX, LEARNED COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF SESA GOA LTD., V. JCIT [423 ITR 426] SUBMITTED THAT THE HON'BLE HIGH COURT HELD THAT EDUCATION CESS AND HIGHER AND SECONDARY EDUCATION CESS ARE ELIGIBLE FOR DEDUCTION IN COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS AN D GAINS OF BUSINESS OR PROFESSION. 9. LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE FOLLOWING DECISION S: - 7 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED I. VOLTAS LIMITED V. ACIT [183 ITD 857 ( MUM. ITAT)] II. RECKITT BENCKISER (I) PVT. LTD., V. DCIT [117 TAXMANN.COM 519 (KOL. ITAT)] III. MUFG BANK LTD., V. ACIT [ITA.NO. 7895/DEL/2019) (DEL. ITAT)] 10. THEREFORE, IT IS PRAYED THAT ADDITIONAL GROUND S MAY BE ADMITTED AND THE ASSESSING OFFICER BE DIRECTED TO ALLOW DEDUCTION IN RESPECT OF EDUCATION CESS ON INCOME - TAX AND SECONDARY AND HIGHER EDUCATION CESS ON INCO ME - TAX FOLLOWING T HE DECISION OF THE HON'BLE JURISDICTIO NAL HIGH COURT IN THE CASE OF SESA GOA LTD., V. JCIT (SUPRA). 11. WITH REGARD TO ADDITIONAL GROUND NO.3 I.E. , IN RESPECT OF EXPENDITURE INCURRED ON EMPLOYEE STOCK OPTION PLAN (ESOP), LEARNED COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE SPECIAL BENCH OF BANGALORE IN THE CASE OF BI O CON LIMITED V . DCIT [144 ITD 21] SUBMITTED THAT , THE SPECIAL BENCH OF TRIBUNAL HELD THAT D ISCOUNT ON ESOP IS AN ALLOWABLE DEDUCTION U/S.3 7 (1) OF THE ACT. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITS THAT THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL HAS SUBSEQUENTLY BEEN AFFIRMED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. BIOCON LIMITED [430 ITR 151 (KAR)] . LD. COUNSEL F OR THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF MAHINDRA & MAHINDRA LTD., V . DCIT IN ITA.NO. 1449/MUM/2016 AND 8 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED 7 382/MUM/2017 DATED 19.06.2020 WHEREIN SIMILAR ISSUE HAS BEEN DECIDED IN FAVOUR OF THE AS SESSEE . 12. LD. DR VEHEMENTLY SUPPORTED THE ORD ERS OF THE ASSESSING OFFICER. IN SO FAR AS ADDITIONAL GROUNDS ARE CONCERNED THE LD. DR STRONGLY OPPOSED FOR ADMISSION AND ADJUDICATION OF THE ADDITIONAL GROUNDS . 13. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED ON. WITH RESPECT TO THE DI SALLOWANCE U/S. 14A OF THE ACT, O N A PERUSAL OF THE ASSESSMENT ORDER FOR BOTH THESE ASSESSMENT Y EARS WE OBSERVED THAT THE ASSESSING OFFICER HAS RECORDED ONLY A GENERAL SATIS FACTION WITH REGARD TO THE INVESTMENTS MADE BY THE ASSESSEE AND THE POSSIBLE INCURRING OF EXPENSES FOR EARNING DIVIDEND INCOME. THE ASSESSING OFFICER HAVING EXTRACTED IN THE ASSESSMENT ORDER THE ELABORATE SUBMISSIONS MADE BY THE ASSESSEE INCLUDING THE ALL OCATION OF EXPENSES BETWEEN THE TAXABLE INCOME AND TAX FREE INCOME DID NOT RECORD ANY OBJECTIVE SATISFACTION AS TO WHY THE ALLOCATION OF EXPENSES MADE BY THE ASSESSEE IS INSUFFICIENT TO MEET THE REQUIREMENT OF RULE 8D OF THE I. T. RULES R.W.S. U/S. 14A OF THE ACT. 9 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED 14. THE ASSESSEE DURING THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 EARNED DIVIDEND INCOME OF .7,66,76,800/ - AND .53,43,65,399/ - AND MAD E SUOMOTO DISALLOWANCE OF .2,44,17,662/ - AND .23 , 50,36,875/ - RESPECTIVELY AS EXPENSES ATTRIBUTABLE FOR EARNING DIVIDEND INCOME. THE ASSESSING OFFICER BEFORE INVOKING RULE 8D OF I.T. RULES DID NOT SPECIFICALLY RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. ON A PERUSAL OF THE A SSESSM ENT O RDERS IT IS ABUNDANTLY CLEAR THA T THE ASSESSING OFFICER HAS RECORDED ONLY A GENERAL SATISFACTION BUT DID NOT RECORD ANY OBJECTIVE SATISFACTION HAVING REGARD TO THE SUOMOTO DISALLOWANCE MADE BY THE AS SESSEE. 15. IN THE CASE OF GODREJ & BOYCE MFG., CO. LTD., V. CIT (SUPRA) THE HON'BLE BOMBAY HIGH COURT HELD AS UNDER: - ..WHAT MERITS EMPHASIS IS THAT THE JURISDICTION OF THE ASSESSING OFFICER TO DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INC OME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IN ACCORDANCE WITH THE PRESCRIBED METHOD, ARISES IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE WHICH THE ASSESSEE CLAIMS TO HAVE I NCURRED IN RELATION TO INCOME WHICH DOES NOT PART OF THE TOTAL INCOME. MOREOVER, THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. HENCE, SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS CORRECT. THE ASSESSING OFFICER MUST, IN THE FIRST INSTANCE, DETERMINE 10 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED WHETHER THE CLAIM OF THE ASSESSEE IN THAT REGARD IS CORRECT AND THE DETERMINATION MUST BE MADE HAVING REGARD TO THE VBC 32 ITXA626.10 ACCOUNTS OF THE ASSESSEE. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IT IS ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE, THAT THE LEGISLATURE DIRECTS HIM TO FOLLOW THE METHOD THAT MAY BE PRESCRIBED. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FURNIS H AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. FOR, IT IS ONLY IN THE EVENT OF THE ASSESSING OFFICER NOT BEING SO SATISFIED THAT RECOURSE TO THE PRESCRIBED METHOD IS MANDATED BY LAW. 16. FURTHER, IDENTICAL ISSUE CAME UP BEFORE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT V. BOMBAY STOCK EXCHANGE LTD., (2020) 185 DTR 390 (BOM), AND THE HON'BLE BOMBAY HIGH COURT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP I NVESTMENT LTD., V. CIT [402 ITR 640] HELD AS UNDER: - 11. NON - SATISFACTION WITH THE DISALLOWANCE OFFERED BY THE ASSESSEE HAS TO BE ARRIVED AT ON THE BASIS OF THE ACCOUNTS SUBMITTED BY THE ASSESSEE. IN THIS CASE, THE ASSESSING OFFICER HAD NOT CARRIED OUT T HE AFORESAID EXERCISE BUT REJECTED THE DISALLOWANCE CLAIMED BY THE ASSESSEE ONLY ON THE GROUND THAT IT WAS NOT IN ACCORDANCE WITH RULE 8D OF THE RULES. THE APPLICATION OF RULE 8D OF THE RULES WOULD ONLY ARISE ONCE THE ASSESSING OFFICER IS NOT SATISFIED ON AN OBJECTIVE CRITERIA IN THE CONTEXT OF ITS ACCOUNTS, THAT SUO MOTU DISALLOWANCE CLAIMED BY THE ASSESSEE IS NOT PROPER. 12. IN FACT, THE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. COMMISSIONER OF INCOME TAX 2 WHILE UPHOLDING THE VIEW OF THE DE LHI HIGH COURT HAS HELD THAT THE ASSESSING OFFICER NEEDS TO RECORD HIS NON - SATISFACTION HAVING REGARD TO THE SOU MOTU DISALLOWANCES CLAIMED BY THE ASSESSEE IN THE CONTEXT OF ITS ACCOUNTS. IT IS ONLY THEREAFTER, THE OCCASION TO APPLY RULE 8D OF THE RULES FO R APPORTIONMENT OF EXPENSES CAN ARISE. 11 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED 13. IN THE PRESENT FACTS, THE TRIBUNAL HAS CORRECTLY COME TO THE CONCLUSION THAT NON - SATISFACTION AS RECORDED BY THE ASSESSING OFFICER FOR REJECTING THE SOU MOTU DISALLOWANCES CLAIMED BY THE ASSESSEE IS NOT DONE AS R EQUIRED UNDER SECTION 14A(2) OF THE ACT. ON FACTS, THE VIEW TAKEN BY THE TRIBUNAL IS A POSSIBLE VIEW AND CALLS FOR NO INTERFERENCE. 14. IN THE ABOVE VIEW, THE QUESTION AS PROPOSED DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. THUS, NOT ENTERTAINE D. 15. ACCORDINGLY, APPEAL IS DISMISSED . 17. WE FURTHER OBSERVE THAT IN ASSESSEES OWN CASE THE COORDINATE BENCH OF THE TRIBUNAL FOR THE ASSESSMENT YEAR S 2010 - 11 AND 2011 - 12 IN ITA.NO S.2223/MUM/2014 AND 5615/MUM/2015 BY ORDER DATED 30.01.2020 HELD AS UNDER: - 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIALS AVAILABLE ON RECORD, WE OBSERVE THAT IN THIS CASE UNDISPUTEDLY THE AO HAS RECORDED GENERAL SATISFACTION AS IS APPARENT FROM THE PERUSAL OF THE ASSESSM ENT ORDER PARTICULARLY PARA 3.3 AND THUS AO HAS FAILED TO RECORD ANY OBJECTIVE SATISFACTION AFTER HAVING CONSIDERED THE BOOKS OF ACCOUNTS AND ALSO POINT OUT AS TO HOW THE SUO MOTTO DISALLOWANCE MADE BY THE ASSESSEE IS WRONG BY REFERRING TO THE BOOKS OF ACC OUNTS OF THE ASSESSEE. THEREFORE, IN OUR OPINION, THE AO HAS FAILED TO MEET THE CONDITIONS PRECEDENT FOR INVOCATION OF PROVISIONS U/S 14A R.W. RULE 8D. THE CASE IS SQUARELY COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF H.T. MEDIA LTD. (SUPRA) WHEREIN THE RELEVANT PARAGRAPHS ARE REPRODUCED BELOW: 30. RULE 8 D (1) STATES MORE OR LESS WHAT SECTION 14 A (2) OF THE ACT STATES. IT REQUIRES THE AO TO FIRST EXAMINE THE ACCOUNTS OF THE ASSESSEE AND THEN RECORD THAT HE IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE ASSESSEE'S CLAIM OF EXPENDITURE OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED. UNLESS THIS STAGE IS CROSSED I.E. THE STAGE OF THE AO RECORDING THAT HE IS NOT SATISFIED WITH THE CLAM OF THE ASSESSEE IN THE MANNER INDICATED I.E. AFTER EXAMINING THE ASSESSEE'S ACCOUNT S, THE QUESTION OF APPLYING THE FORMULA UNDER RULE 8D (2) DOES NOT ARISE. 12 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED THAT THIS IS A MANDATORY PREREQUISITE FOR APPLYING RULE 8D (2) IS FAIRLY WELL - SETTLED. 31 32. THE QUESTION REGARDING THE FAILURE OF THE AO TO RECORD HIS DISSATISFACTION WITH T HE CORRECTNESS OF THE ASSESSEE'S CLAIM REGARDING ADMINISTRATIVE EXPENSES OF RS. 3 LAKHS ARISES IN ITA 349 OF 2015. MR RAGHVENDRA SINGH IS NOT ENTIRELY RIGHT IN HIS SUBMISSION THAT THERE IS NO QUESTION FRAMED ABOUT THE FAILURE BY THE AO TO RECORD HIS SATISF ACTION. IN ITA 349 OF 2015, THE QUESTION FRAMED BY THIS COURT BY THE ORDER DATED 15TH OCTOBER 2015 IS IN FACT IN TWO PARTS: VIZ., (I) WHETHER THE AO RECORDED A PROPER SATISFACTION IN TERMS OF SECTION 14A (2) AND RULE 8 (D) OF THE RULES AND (II) IN CALCULAT ING THE DISALLOWANCE AT 0.5% OF AVERAGE VALUE OF INVESTMENTS AS PER CLAUSE (III) OF RULE 8 D (2) OF THE RULES? 33. THE CONTENTION OF MR. SINGH IS THAT IF THERE WAS A VALID RECORDING OF SATISFACTION BY THE AO AS REQUIRED BY RULE 8D (1), THEN THERE WAS NO O PTION AVAILABLE TO THE AO OTHER THAN TO APPLY RULE 8D (2) OF THE RULES. THEREFORE, EVEN ACCORDING TO THE REVENUE, THE APPLICABILITY OF RULE 8D (2) HINGES ON THE RECORDING OF THE AO IN TERMS OF RULE 8D (1) THAT HE WAS NOT SATISFIED WITH THE ASSESSEE'S CLAIM REGARDING EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME. 34. THE ASSESSEE HAD EXPLAINED THAT RS. 3 LAKHS WAS BEING DISALLOWED VOLUNTARILY AS AN 'EXPENDITURE WHICH COULD BE ATTRIBUTABLE FOR EARNING THE SAID INCOME.' THE ASSESSEE EXPLAINED THAT THE DISALL OWANCE HAD BEEN DETERMINED ON THE BASIS OF COST OF FINANCE DEPARTMENT IN THE RATIO OF EXEMPT INCOME TO TOTAL TURNOVER. ON THAT BASIS THE DISALLOWANCE IN AY 2005 - 06 WAS UPHELD BY CIT (A) AT RS. 1 LAKH. THE DISALLOWANCE FOR THIS AY WAS WORKED OUT AS RS. 1,42 ,404/ - AND SINCE THE ASSESSEE HAD ALREADY MADE A DISALLOWANCE OF RS. 3 LACS, NO FURTHER DISALLOWANCE WAS CALLED FOR. 35. IN ORDER TO DISALLOW THIS EXPENSE THE AO HAD TO FIRST RECORD, ON EXAMINING THE ACCOUNTS, THAT HE WAS NOT SATISFIED WITH THE CORRECTNES S OF THE ASSESSEE'S CLAIM OF RS. 3 LAKHS BEING THE ADMINISTRATIVE EXPENSES. 13 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED THIS WAS MANDATORILY NECESSITATED BY SECTION 14 A (2) OF THE ACT READ WITH RULE 8D (1) (A) OF THE RULES. 7. IT IS THUS CLEAR BY THE DECISION OF HON'BLE DELHI HIGH COURT THAT AO I S REQUIRED TO EXAMINE THE BOOKS OF ACCOUNTS FIRST AND RECORD HIS SATISFACTION AS TO HOW THE DISALLOWANCE MADE BY THE ASSESSEE, IS WRONG AS PER THE MANDATE OF SECTION OF 14A(2) OF THE ACT R.W. RULE 8D(1)(A) OF THE RULES. ACCORDINGLY, WE ARE NOT IN AGREEMENT THAT THE CONCLUSION MADE BY THE LD. CIT(A) AND THE ORDER OF LD. CIT(A) ON THIS ISSUE CANNOT BE SUSTAINED. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE UNDER RULE 8D(2)(III). 18. WE OBSERVE THAT THE FACTS FOR TH E ASSESSMENT YEARS UNDER CONSIDERATION I.E. , ASSESSMENT Y EARS 2012 - 13 AND 2013 - 14 ARE IDENTICAL TO THE FACTS FOR THE ASSESSMENT YEARS 2010 - 11 AND 2011 - 12 WHERE IN SIMILAR AND GENERAL SATISFACTION IDENTICALLY WORDED WAS RECORDED BY THE ASSESSING OFFICER AND THE TRIBUNAL DELETED THE DISALLOWANCE MADE U/S. 14A OF THE ACT. 19. IN THE CIRCUMSTANCES R ESPECTFULLY FOLLOWING THE DECISION OF THE HON'BL E SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD., V. CIT (SUPRA) AND THE DECISION S OF THE HON'BLE JURISDICTIONAL HIGH COURT REFERRED TO ABOVE , WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF I.T.RULES FOR THE ASSESSMENT YEARS 2012 - 13 AND 2013 - 14 BY ACCEPTING THE SUOMOTO DISALLOWANCE OF EXPENDITURE CO NSIDERED BY THE ASSESSEE FOR EARNING EXEMPT INCOME FOR THE PURPOSE OF 14 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED COMPUTING THE DISALLOWANCE U/S. 14A R.W. RULE 8D OF I.T.RULES . ADDITIONAL GROUND NO.1 FI LED BY THE ASSESSEE IS ALLOWED. 20. AS WE HAVE ALLOWED ADDITIONAL GROUND NO.1 OF THE GROUNDS OF APPEA L OF THE ASSESSEE THE REGULAR GROUNDS RAISED BY THE ASSESSEE FOR ADJU DI CATION WOULD BECOME ACADEMIC AT THIS STAGE. 21. COMING TO ADDITIONAL GROUND NO .2 I.E. DEDUCTION IN RESPECT OF EDUCATION CESS , SECONDARY AND HIGHER EDUCATION ON INCOME - TAX, WE OBSERVE THAT T HIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SESA GOA LTD., V. JCIT (SUPRA) WHERE IN THE HON'BLE BOMBAY HIGH COURT HELD THAT EDUCATION CESS AND HIGHER AND SECONDARY EDUCATION CESS ARE LIABLE FOR DEDUCTION I N COMPUTING INCOME CHARGEABLE UNDER HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. 22. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT ALLOWING THE ADDITIONAL GROUND NO .2 OF GROUNDS OF APPEAL , WE DIRECT THE ASSESSING O FFICER TO COMPUTE THE INCOME OF THE ASSESSEE AFTER ALLOWING DEDUCTION IN RESPECT OF EDUCATION CESS , SECONDARY AND HIGHER EDUCATION CESS ON INCOME - TAX. 15 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED 23. COMING TO ADDITIONAL GROUND NO.3 OF GROUNDS OF APPEAL I.E. , IN RESPECT OF EXPENDITURE INCURRED ON EMPLOYE E STOCK OPTION PLAN (ESOP) WE OBSERVE THAT THE ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE SPECIAL BENCH OF THE TRIBUNA L, BANGALORE BENCH IN THE CASE OF BIOCON LTD., V. DCIT (SUPRA) AND THIS SPECIAL BENCH DECISION HAS BEEN AFFIRMED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. BIOCON LIMTED (SUPRA). THUS , RESPECTFULLY FOLLOWING THE SAID DECISION WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE ON EMPLOYEE STOCK OPTION PLAN . ADDITIONAL GROUND NO.3 OF T HE ASSESSEE IS ALLOWED. 24. IN THE RESULT, APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDICATED ABOVE AND REVENUES APPEALS ARE DISMISSED. ORDER PRONOUNCED ON 18. 06.2021 AS PER RULE 34(4) OF ITAT RULES BY PLACING THE PRONOUNCEMENT LIST IN THE NOTICE BOARD . SD/ - SD/ - ( M. BALAGANESH ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 18 .06 .2021 GIRIDHAR, SR.PS 16 ITA NOS. 7058 & 7059/MUM/2017 ITA NOS. 59 & 60/MUM/2018 M/S. TATA CAPITAL LIMITED COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM