RAVI MOHAN GEHI, MUMBAI V. ASST CIT CIR 20(2), MUMBAI

ITA 7369/MUM/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0359 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 14-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 10-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VINITA J MENON
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

P AGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI R.C SHARMA , AM AND SHRI RAVISH SOOD, JM ./ I.T.A. NO. 7369/ MUM/201 4 ( / ASSESSMENT YEAR: 20 10 - 11) RAVI MOHAN GEHI NAVKAR CHAMBER, ANDHERI KURLA RD., ANDHERI (E), MUMBAI 400 059 / VS. A CIT , CIRCLE 20(2) , MUMBAI . ./ ./ PAN/GIR NO. AEPPG1674M ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI. VIMAL PUNMIYA / RESPONDENT BY : SHRI. VINITA J. MENON (SR. D.R) / DATE OF HEARING : 0 6 .04.2017 / DATE OF PRONOUNCEMENT : 16 .0 6 .2017 / O R D E R PER RAVISH SOOD, J UDICIAL MEMBER : THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) - 31, MUMBAI , FOR A.Y. 20 10 - 11 , DATED 30.10.2014 , WHICH IN ITSELF ARISES FROM THE ASSESSMENT FRAMED BY THE A.O UNDER SEC. 143(3) OF THE INCOME - TAX ACT, 1961 (FOR SHORT ACT), DATED. 17.12.2012 . T HE ASSESSEE ASSAILIN G THE ORDER OF THE CIT(A) HAD RAISED THE FOLLOWING GROUNDS OF APPEAL: - P AGE | 2 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW IN CONFIRMING THE ADDITION OF RS. 4,01,370/ - U/S 14A OF THE IT ACT, 1961. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, OR MODIFY THE GROUNDS OF APPEAL, AS STATED ABOVE, AT ANY TIME ON OR BEFORE THE HEARING OF APPEAL. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE WHO WAS DERIVING INCOME FROM BROKERAGE, COMMISSION & REAL ESTATE CONSULTANCY, AS WELL AS INCOME FROM OTHER SOURCES , HAD FILED HIS RETURN OF INCOME FOR A.Y. 2010 - 11 ON 01.10.2010, DECLARING T O TAL INCOME OF RS. 12,54,79,048/ - , WHICH WAS PROCESSED AS SUCH U/S 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS T HEREAFTER TAKEN UP FOR SCRUTINY ASSESSMENT U/S 143(2). 3. THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A.O THAT THE ASSESSEE WHO HAD EARNED DIVIDEND INCOME OF RS. 29,90,358/ - DURING THE YEAR, HOWEVER , HAD NOT ALLOCATED AND THUS DISALLOWED ANY PART OF THE EXPENDITURE INCURRED IN RELATION TO EARNING OF SUCH EXEMPT INCOME. THE A.O NOT BEING SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE AFORESAID EXEMPT INCOME, TH EREIN HOLDING A STRONG CONVICTION THAT A PLAUSIBLE NEXUS OF CERTAIN EXPENSES WITH THE EARNING OF THE EXEMPT INCOME COULD NOT B E RULED OUT, THEREFORE RESORTED TO SEC. 14 A (2) R.W RULE 8D(III), AND CARRIED OUT A DISALLOWANCE OF RS. 4,01,370/ - IN THE HANDS OF THE ASSESSEE . 4. THE ASSESSEE BEING AGGRIEVED WITH THE DISALLOWANCE CARRIED OUT BY THE A.O UNDER SEC. 14A R.W RULE 8D(III), THEREIN CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT (I). T HE INVESTMENTS TOWARDS LIQUID MUTUAL FUNDS WAS MADE OUT OF SPARE SELF OWNED FUNDS; (II). EXEMPT INCOME OF RS. 29,90,358/ - WAS P AGE | 3 HARDLY 2% OF TOTAL INCOME EARNED BY THE ASSESSEE; (III). THAT OUT OF THE TOTAL DIVIDEND INCOME OF RS. 29,90,358/ - , AN AMOUNT OF RS. 29,88,910/ - WAS AUTOM ATICALLY REINVESTED IN NEW UNITS OF MUTUAL FUNDS, WHILE FOR ONLY IN TWO INSTANCES THE DIVIDEND WAS RECEIVED IN THE BANK ACCOUNT, WHICH TOO ON ONE OCCASION WAS BY WAY OF DIRECT CREDIT THROUGH ECS ; (IV). T HAT FOR MAKING OF INVESTMENTS AND MATURING OF THE INV ESTMENTS THE ASSESSEE DOES NOT HAVE TO MAKE MUCH EFFORTS, AS THE MAJOR WORK IS DONE ON HIS BEHALF BY THE BROKER OR AGENT OF THE RESPECTIVE MUTUAL FUND COMPANY; (V). THE ASSESSEE WAS NOT REVIEWING HIS INVESTMENTS ON A DAILY BASIS; (VI). THE NUMBER OF TRANSA CTIONS FOR PURCHASE AND MATURITY OF MUTUAL FUNDS ENTERED BY THE ASSESSEE DURING THE YEAR WAS LESS THAN 30; (VII). THE A.O HAD WRONGLY APPLIED THE PROVISIONS OF RULE 8D(III) IN A MECHANICAL MANNER, ON A PRESUMPTION THAT THERE MIGHT BE A PLAUSIBLE NEXUS BETW EEN OTHER THAN CERTAIN EXPENSES WITH EXEMPT INCOME ; (VIII) . T HE A.O HAD FAILED TO ESTABLISH A PROXIMATE RELATIONSHIP BETWEEN THE EXPENDITURE AND THE TAX FREE INCOME; (IX). T HE A.O WHILE DISLODGING THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED ON EARNING OF THE EXEMPT INCOME, HAD ERRED TO ESTABLISH A PROXIMATE RELATIONSHIP BETWEEN TH E EXPENDITURE AND THE TAX FREE INCOME; (X) THE A.O HAD FAILED TO ESTABLISH THE NEXUS OF THE EXPENDITURE INCURRED WITH THE EARNING OF EXEMPT INCOME; (XI). T HE CONTENT ION OF THE A.O THAT SOME EXPENDITURE, DIRECTLY OR INDIRECTLY, IS ALWAYS INCURRED FOR EARNING TAX - FREE INCOME COULD NOT BE ACCEPTED ; (XII). ALTERNATIVELY, THE DISALLOWANCE U/S 14A WAS LIABLE TO BE RESTRICTED TO 1% OF DIVIDEND INCOME ; AND (XIII). THAT IN THE BACKDROP OF THE FACT THAT A VERY SMALL AND NEGLIGIBLE AMOUNT OF TIME, EFFORT AND EXPENDITURE WAS REQUIRED TO EARN DIVIDEND INCOME, THEREFORE DISALLOWANCE OF ONLY A NOMINAL AMOUNT WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. THE CIT(A) AFTER DELIBERATING O N THE CONTENTIONS OF THE ASSESSEE , THEREIN OBSERVED THAT A SIMILAR DISALLOWANCE U/S 14A ON P AGE | 4 IDENTICAL FACTS WAS MADE IN THE CASE OF THE ASSESSEE FOR THE IMMEDIATELY PRECEDING YEAR, VIZ. A.Y. 2009 - 10, WHICH THEREAFTER WAS UPHELD IN APPEAL BY HIS PREDECESSOR . THE CIT(A) BEING OF THE VIEW THAT THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WERE IDENTICAL TO THOSE INVOLVED IN THE AFORESAID PRECEDING YEAR, VIZ. A.Y. 2009 - 10, THUS FINDING NO REASON TO TAKE A DIVERGENT VIEW, THER EFORE FOLLOWED THE ORDER OF HIS PREDECESSOR AND DISMISSED THE APPEAL. 5. THE ASSESSEE BEING AGGRIEVED WITH THE UPHOLDING OF THE DISALLOWANCE U/S 14A BY THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THAT DURING THE COURSE OF HEARING OF THE APPEAL IT WAS SUBMITTED BY T H E LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE THAT OUT OF THE TOTAL DIVIDEND INCOME OF RS. 29,90,358/ - , AN AMOUNT OF RS. 29,88,910/ - WAS AUTOMATICALLY REINVESTED IN NEW UNITS OF MUTUAL FUNDS, WHILE FOR ONLY IN TW O INSTANCES THE DIVIDEND WAS RECEIVED IN THE BANK ACCOUNT, WHICH TOO ON ONE OCCASION WAS BY WAY OF DIRECT CREDIT THROUGH ECS. THE LD. A.R IN THE BACKDROP OF THE AFORESAID FACTS THEREIN SUBMITTED THAT HE HAD INVESTED HIS SPARE SELF OWNED FUNDS IN MUTUAL FUN DS, AND HAD OPTED FOR DIVIDEND REINVESTMENT SCHEME, AS PER WHICH THE DIVIDEND WAS AUTOMATICALLY REINVESTED IN NEW UNITS OF MUTUAL FUNDS . THE LD. A.R THEREIN AVERRED THAT AS NO PART OF THE EXPENDITURE WAS RELATABLE TO THE EARNING OF THE DIVIDEND INCOME, THE REFORE THE ASSESSEE HAD RIGHTLY NOT ALLOCATED AND DISALLOWED ANY PART OF THE EXPENDITURE U/S 14A IN HIS RETURN OF INCOME. THE LD. A.R FURTHER SUBMITTED THAT THE A.O HAD ERRED IN CARRYING OUT DISALLOWANCE U/S 14A R.W RULE 8D(III) IN A MECHANICAL WAY, ON THE ASSUMPTION THAT THERE MIGHT BE A PLAUSIBLE NEXUS BETWEEN OTHER CERTAIN EXPENSES WITH THE EARNING OF THE EXEMPT INCOME. THE LD. A.R SUBMITTED THAT THE DISALLOWANCE OF EXPENDITURE U/S 14A PRESUPPOSES THE EXISTENCE OF A PROXIMATE RELATIONSHIP P AGE | 5 BETWEEN THE EXP ENDITURE AND THE TAX FREE INCOME. THE LD. A.R FURTHER SUBMITTED THAT NOW WHEN IT WAS CLAIMED BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY HIM FOR EARNING THE EXEMPT INCOME, THEREFORE IT WAS OBLIGATORY ON THE PART OF THE A.O TO DISLODGE THE SAID CLAIM AND THEREIN ESTABLISH THE EXISTENCE OF A LIVE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE EXEMPT INCOME BEFORE RESORTING TO SEC. 14A R.W RULE 8D . IT WAS AVERRED BY THE LD. A.R THAT NO NOTIONAL EXPENDITURE COULD BE APPORTIONED BY THE A.O TOWARDS EARNING OF THE EXEMPT INCOME, UNLESS THERE WAS AN ACTUAL EXPENDITURE IN RELATION TO EARNING OF THE TAX FREE INCOME. THE LD. A.R FURTHER SUBMITTED THAT THE DISALLOWANCE CARRIED OUT BY THE A.O U/S 14A WITHOUT RECORDING A SPECIFIC FINDING AS TO HOW AN D WHICH ALL EXPENSES CLAIMED BY THE ASSESSEE WERE RELATED TO EARNING OF THE EXEMPT INCOME WAS CLEARLY N OT IN CONFORMITY WITH THE MANDATE OF LAW CONTEMPLATED U/S 14A R.W RULE 8D. THE LD. A.R IN ORDER TO DRIVE HOME HIS AFORESAID CONTENTION S , THEREIN RELIED O N THE JUDGMENT OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF : MAXOPP INVESTMENT LTD. VS. CIT (2012) 247 CTR 162 (DEL) . PER CONTRA, THE LD. D.R RELIED ON THE ORDERS OF T HE LOWER AUTHORITIES. 6. WE HAVE HEARD THE AUTHORI Z ED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL PRODUCED BEFORE US. WE FIND THAT WHILE FOR IT WAS THE CLAIM OF THE ASSESSEE THAT NO PART OF THE EXPENSES WERE RELATABLE TO EARNING OF THE DIVIDE N D INCOME, THEREFORE NO PART OF THE SA ID EXPENDITURE WAS ALLOCATED AND D ISALLOWED BY HIM ON SUO MOTTO BASIS IN THE RETURN OF INCOME, BUT ON THE CONTRARY, TH E A.O HOLDING A CONVICTION THAT A PLAUSIBLE NEXUS OF CERTAIN EXPENSES WITH THE EARNING OF THE EXEMPT INCOME COULD NOT BE RULED OUT, HAD TH US WORKED OUT A DISALLOWANCE OF RS. 4,01,370/ - UNDER SEC. 14 A (2) R.W RULE 8D(III) IN THE HANDS OF THE ASSESSEE. WE FIND THAT THE ASSESSEE ASSAILING THE DISALLOWANCE MADE P AGE | 6 BY THE A.O UNDER SEC. 14A R.W RULE 8D(III) HAD THEREIN RAISED EXHAUSTIVE SUBMISSIONS BE FORE THE CIT(A), WHICH CAN SAFELY BE CATEGORIZED INTO TWO PARTS, VIZ. (I). T HAT NO PART OF THE EXPENSES CLAIMED BY THE ASSESSEE WERE RELATABLE TO EARNING OF THE DIVIDEND INCOME; AND (II). T HAT THE A.O WITHOUT ARRIVING AT A SATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACE D BEFORE HIM, HAD IN A MECHANICAL MANNER RESORTED TO DETERMINING THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D IN THE H ANDS OF THE ASSESSEE. WE FIND THAT THE CIT(A) INSTEAD OF ADDRESSING AND ADJUDICATING THE AFORESAID CONTENTIONS SO RAISED BY THE ASSESSEE BEFORE HIM IN THE BACKDROP OF THE FACTS OF THE CASE, HAD HOWEVER ABSOLUTELY GONE BY THE ORDER OF HIS PREDECESSOR, AND B EING OF THE VIEW THAT ON THE BASIS OF IDENTICAL FACTS THE DISALLOWANCE MADE BY THE A.O U/S 14A WAS UPHELD BY HIS PREDECESSOR, HAD DISMISSED THE APPEAL . 7. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE FACTS OF THE CASE AND ARE UNABLE TO PERSUADE OURSEL VES TO SUBSCRIBE TO THE VIEW OF THE LOWER AUTHORITIES . WE WOULD LOOK INT O THE PROPOSITION CANVASSED BEFORE US BY THE LD. A.R AS REGARDS THE REQUIREMENT OF A SATISFACTION ON THE PART OF THE A.O , IN CONTEXT OF THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THA T NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME. WE FIND THAT THE HONBLE HIGH COURT OF DELHI IN THE CASE OF : MAXOPP INVESTMENT LTD. & ORS. VS. CIT (2012) 247 CTR 162 (DEL) AFTER DELIBERATING ON THE SCOPE OF SEC. 14A, HAD THEREIN EMPHASIZ ED THAT WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE A.O SHALL FIRST VERIFY THE CORRECTNESS OF THE SAID CLAIM O F THE ASSESSEE , AND ONLY IF ON THE BASIS OF AN OBJECTIVE CRITERIA AND AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE , IS HOWEVER NOT SATISFIED WITH THE CORRECTNESS OF THE SAID CLAIM, SHALL THEN P AGE | 7 REJECT THE SAME, AND AFTER STAT ING THE REASONS FOR DOING SO, SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE OBSERVATIONS OF THE HONBLE HIGH COURT ARE AS UNDER: - - EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE AO IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE AO IS TO ACCEPT THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER S. 14A IS CONCERNED. IN SUCH EVENTUALITY, THE AO CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF S. 14A(1). IN CASE, THE AO IS NOT, O N THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. WE FURTHER FIND THAT RECENTL Y THE HONBLE SUPREME COURT IN THE CASE OF : GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VS. DY. COMMISSIONER OF INCOME - TAX & ANR (CIVIL APPEAL NO. 7020 OF 2011; DATED. 08.05.2017)(S.C), THEREIN DEALING WITH THE STATUTORY REQUIREMENT OF A SATISFACTION ON THE PART OF THE A.O AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENSES INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE, HAD THEREIN HELD AS UNDER: - SUB - SECTIONS (2) AND (3) OF SE CTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATI SFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS T O BE MADE ON APPLICATION O F THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSE SSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECT ION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A P AGE | 8 BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. FURTHER HELD: NEITHER ANY BASIS HAS BEEN DISCLOSED ESTABLISHING A REASONABLE NEXUS BETWEEN THE EXPENDITURE DISALL OWED AND THE DIVIDEND INCOME RECEIVED. THAT ANY PART OF THE BORROWINGS OF THE ASSESSEE HAD BEEN DIVERTED TO EARN TAX FREE INCOME DESPITE THE AVAILABILITY OF SURPLUS OR INTEREST FREE INCOME AVAILABLE (RS. 270.51 CRORES AS ON 1.4.2001 AMD RS. 280.64 CRORES A S ON 31.3.2002) REMAINS UNPROVED BY ANY MATERIAL WHATSOEVER. WE ARE OF THE CONSIDERED VIEW THAT IN THE BACKDROP OF THE AFORESAID JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LIMITED (SUPRA) , THE ISSUE AS REGARDS REQUIREMENT OF A SATISFACTION OF THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE , THUS STANDS SETTLED AND IS NO MORE RES INTEGRA . WE THUS IN T H E BACKDROP OF THE AFORESAID JUDGMENT OF THE HONBLE APEX COURT ARE OF THE CONSIDERED VIEW THAT WHERE AN ASSESSEE CLAIMS THAT NO EXPENSE HAD BEEN INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF HIS TOTAL INCOME, THEN THE A.O ONLY AFTER BEING SATISFIED THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE FOR HIM TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE , CAN ONLY AFTER REJECT ING SUCH CLAIM, THEREIN P ROCEED WITH AND DETERMINE THE AMOUNT OF SUCH EXPENDITURE AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D . 8. WE HOWEVER FIND THAT IN THE CASE OF THE PRESENT ASSESSEE, THE A.O ONLY ON THE BASIS OF A GENERAL OBSERVATION THAT A PLAUSIBLE NEXUS OF CERTAIN EXPENSES INCURRED BY THE ASSESSEE WITH THE EARNING OF THE EXEMPT INCOME COULD NOT BE RULED OUT , HAD THUS MERELY O N THE BASIS OF SUCH ASSUMPTION REJECTED THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS RELATABLE TO HIS EXEMPT INCOME. WE ARE OF THE CONSIDERED VIEW THAT THE P AGE | 9 AFORESAID GENERAL OBSERVATION OF THE A.O CAN BY NO MEANS PARTAKE THE COLOR AND CHARACTER AS THA T OF A SATISFACTION , WHICH AS PER THE MANDATE OF LAW IS REQUIRED TO BE ARRIVED AT BY THE A.O WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE , HAVING REGARD TO THE ACCOUNTS OF TH E ASSESSEE, AS PLACED BEFORE HIM . WE ARE OF THE CONSIDERED VIEW THAT AN A.O CANNOT PROCEED TO INVOKE RULE 8D AND MAKE A DISALLOWANCE THEREUNDER ON THE PREMISE THAT THE SAME WOULD BE AUTOMATIC, IRRESPECTIVE OF THE GENUINENESS OF THE ASSESSES CLAIM THAT NO EXPENSES HAD BEEN INCURRED IN RELATION TO THE EXEMPT INCOME. FOR MAKING ANY DISALLOWANCE UNDER SECTION 14A, THE A.O FIRSTLY WOULD HAVE TO EXAMINE THE CORRECTNESS OR OTHERWISE OF THE ASSESSES CLAIM OF HAVING INCURRED NO EXPENDITURE IN RELATION TO THE EXEMPT INCOME , AFTER HAVING EXAMINED THE ASS ESSES ACCOUNTS IN THIS REGARD. IT IS ONLY THEREAFTER, IF THE A.O RECORDS THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSES CLAIM THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME, THAT THE MANDATE OF RULE 8D WOULD FOLLOW AS PER THE METHOD PRESCRIBED FOR MAKING DISALLOWANCE UNDER SECTION 14A. WE FIND THAT IN THE CASE IN HAND, THE A.O MERELY ON THE BASIS OF A GENERAL OBSERVATION THAT A PLAUSIBLE NEXUS BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME CANNOT BE RULED OUT, HAD GONE DIRECTLY TO THE SECOND STAGE OF INVOKING RULE 8D TO MAKE THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D. WE FIND THAT THE A.O WHILE CARRYING OUT THE AFORESAID EXERCISE HAD ABSOLUTELY LOST SIGHT OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS IN CURRED IN RELATION TO THE EXEMPT INCOME. WE FURTHER FIND THAT THE CIT(A) TOO HAD HUSHED THROUGH THE MATTER, AND EXCEPT FOR REFERRING TO THE OBSERVATIONS OF HIS PREDECESSOR, HAD HOWEVER ABSOLUTELY FAILED TO ADDRESS THE EXHAUSTIVE SUBMISSIONS MADE BY THE ASS ESSEE BEFORE HIM TO FORTIFY THE CONTENTION THAT NO EXPENDITURE WAS RELATABLE TO THE EARNING OF THE EXEMPT INCOME. WE ARE OF THE CONSIDERED VIEW THAT AS NEITHER THE A.O HAD ON THE BASIS OF AN OBJECTIVE CRITERIA RECORDED A FINDING THAT HE WAS NOT SATISFIED W ITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EXEMPT INCOME, NOR EITHER OF THE LOWER AUTHORIT IES HAD APPRECIATE D THE CONTENTIONS ADVANCED BEFORE THEM BY THE ASSESSEE TO DRIVE HOME HIS CONTENTION THAT NO EXPENDITURE WAS I NCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME, THEREFORE NOT BEING INSPIRED BY P AGE | 10 THE ORDERS OF THE LOWER AUTHORITIES , WE THEREFORE IN ALL FAIRNESS RESTORE THE MATTER TO THE FILE OF THE A.O FOR FRESH EXAMINATION AND ADJUDICATION. NEEDLESS TO SAY, THE A .O SHALL DURING THE COURSE OF THE FRESH ASSESSMENT PROCEEDINGS AFFORD OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 16 .06.2017 SD/ - SD/ - (R.C SHARMA) (RAVISH SOOD) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 16 .06 .2017 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / D.R, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT.R EGISTRAR) , / ITAT, MUMBAI