ACIT 2(3), MUMBAI V. THE SIRDAR CARBONIC & GAS CO . LTD, MUMBAI

ITA 7746/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71884 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 19-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 7746/M/10 ASSESSMENT YEAR: 2006 - 07 A CIT 2(3) R.NO.555, AAYAKAR BHAVAN, MUMBAI VS. M/S. SI RDAR CARBONIC & GAS CO. LTD., SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI 400 001 PAN: AAACT0173A (APPELLANT) (RESPONDENT) ITA NO. 8001 / M/ 10 ASSESSMENT YEAR: 2006 - 07 M/S. SIRDAR CAR BONIC & GAS CO. LTD., SIR VITHALDAS CHAMBERS, 16, MUMBAI SAMACHAR MARG, FORT, MUMBAI 400 001 PAN: AAACT0173A VS. A SST. COMMISSIONER OF INCOME TAX 2(3) , R OOM NO.5 21 , 5 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. GOPAL REVENUE BY : SHRI R.K. SAHU DATE OF HEARING : 19.11.13 DATE OF PRONOUNCEMENT : 29.11.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: WITH TH IS COMMON ORDER WE WILL DISPOSE O FF TWO CROSS APPEALS - ONE FILED BY THE REVENUE AND THE OTHER FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) DATED 20.08.10 RELEVANT TO ASSESSMENT YEAR 2006 - 07. ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 2 ITA NO. 7746/M/10 (ASSESSMENT YEAR 2006 - 07) 2. THE REVENUE THROUGH ITS GROUNDS OF APPEAL HAS AGITATED THE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE OF RS.18,56,816/ - MADE BY THE AO UNDER SECTION 41(1) OF THE INCOME TAX ACT ON ACCOUNT OF CESSATION OF LIABILITY. DURING THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT ASSES SEE HAD SHOWN AN AMOUNT OF RS.1,05,63,666/ - UNDER THE HEAD SUNDRY CREDITORS AS ON 31.03.2006. THE AO CALLED FOR THE DETAILS AND AFTER GOING THROUGH THE DETAILS HE FOUND THAT SUNDRY CREDITORS AMOUNTING TO RS.41,42,074/ - WERE MORE THAN THREE YEARS OLD AND O N ITS FAILURE TO FURNISH FURTHER DETAILS CALLED FROM THE ASSESSEE, THE AO DISALLOWED THE SAID SUM OF RS.41,42,074/ - ON ACCOUNT OF CESSATION OF LIABILITY AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. 3 . BEFORE THE LD. CIT(A) , THE ASSESSEE SUBMI TTED THAT OUT OF THE TOTAL DISALLOWANCE OF RS.41,42,074/ - , OUTSTANDING EXPENSES TO THE EXTENT OF RS.22,85,258/ - HAD ALREADY BEEN PAID OR WRITTEN OFF IN THE SUBSEQUENT ASSESSMENT YEAR AND IT WAS FURTHER SUBMITTED THAT THE REMAINING AMOUNT OF RS.18 , 56 , 81 6 / - COULD NOT BE DISALLOWED BECAUSE THE ASSESSEE HAD NOT WRITTEN OFF THE LIABILITY IN HIS BOOKS OF ACCOUNTS. THE LD. CIT(A) BEING CONVINCED WITH THE SUBMISSIONS OF THE AR, DELETED THE DISALLOWANCE MADE BY THE AO UNDER SECTION 41(1) OF THE INCOME TAX ACT. AG GRIEVED FROM THE ORDER OF THE LD. CIT(A) , THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL ON THIS ISSUE. 4. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. D.R. BEFORE US HAS RELI ED UPON A RECENT AUTHORITY OF THE HONBLE DELHI HIGH COURT STYLED AS CIT VS. CHIPSOFT ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 3 TECHNOLOGY (P) LTD. 210 TAXMAN 173 (DEL) , WHEREIN IT HAS BEEN HELD AS UNDER: 9. TWO ASPECTS ARE TO BE NOTICED IN THIS CONTEXT. THE FIRST IS THAT THE VIEW THAT LIABIL ITY DOES NOT CEASE AS LONG AS IT IS REFLECTED IN THE BOOKS, AND THAT MERE LAPSE OF TIME GIVEN TO THE CREDITOR OR THE WORKMAN, TO RECOVER THE AMOUNTS DUE, DOES NOT EFFACE THE LIABILITY, THOUGH IT BARS THE REMEDY. THIS VIEW, WITH RESPECT IS AN ABSTRACT AND T HEORETICAL ONE, AND DOES NOT GROUND ITSELF IN REALITY. INTERPRETATION OF LAWS, PARTICULARLY FISCAL AND COMMERCIAL LEGISLATION IS INCREASINGLY BASED ON PRAGMATIC REALITIES, WHICH MEANS THAT EVEN THOUGH THE LAW, PERMITS THE DEBTOR TO TAKE ALL DEFENCES, AND S UCCESSFULLY AVOID LIABILITY, FOR ABSTRACT JURISTIC PURPOSES, HE WOULD BE SHOWN AS A DEBTOR. IN OTHER WORDS, WOULD BE ILLOGICAL TO SAY THAT A DEBTOR OR AN EMPLOYER, HOLDING ON TO UNPAID DUES, SHOULD BE GIVEN THE BENEFIT OF HIS SHOWING THE AMOUNT AS A LIABIL ITY, EVEN THOUGH HE WOULD BE ENTITLED IN LAW TO SAY THAT A CLAIM FOR ITS RECOVERY IS TIME BARRED, AND CONTINUE TO ENJOY THE AMOUNT. THE SECOND REASON WHY THE ASSESSEES CONTENTION IS UNACCEPTABLE IS BECAUSE WITH EFFECT FROM 1 - 4 - 1997 BY VIRTUE OF FINANCE AC T, 1996 (NO.2), AN EXPLANATION WAS ADDED TO SECTION 41 WHICH SPELLS OUT THAT LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF ANY SUCH TRADING LIABILITY BY WAY OF REMISSION OR CESSATION THEREOF SHALL INCLUDE THE REMISSION OR CESSATION OF ANY LIABILITY B Y AN UNILATERAL ACT BY THE FIRST MENTIONED PERSON UNDER CLAUSE. THE EXPRESSION INCLUDE IS SIGNIFICANT; PARLIAMENT DID NOT USE THE EXPRESSION MEANS. NECESSARILY, EVEN OMISSION TO PAY, OVER A PERIOD OF TIME, AND THE RESULTANT BENEFIT DERIVED BY THE EMPL OYER/ASSESSEE WOULD THEREFORE QUALIFY AS A CESSATION OF LIABILITY, ALBEIT BY OPERATION OF LAW. 5. ON THE OTHER HAND THE LD. A.R. OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE ASSESSEE HAD NOT WRITTEN OFF T HE ACCOUNTS OF THE SUNDRY CREDITORS INTO PRO FIT AND LOSS ACCOUNT. THE LIABILITY HA D REGULARLY BEEN SHOWN IN THE BALANCE SHEET. THE ASSESSEES LIABILITY TO THE CREDITORS THUS SUBSIST ED AND HA D NOT CEASED. HE HAS PRESSED THAT THE AMOUNT IS NOT THUS ASSESSABLE U/S. 41(1) OF THE INCOME TAX ACT. HE HAS S TRONGLY RELIED UPON THE AUTHORITY OF THE HONBLE DELHI HIGH COURT STYLED AS CIT VS. SHRI VARDHAMAN OVERSEAS LTD. (2012) 343 ITR 408 (DEL). 6. THE LD. A.R. HAS FURTHER CONTENDED THAT EVEN OUT OF THE OUTSTANDING LIABILITY OF RS.18,56,816/ - AS ON 08.03.10 WHICH HAS BEEN DISCUSSED BY THE LD. ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 4 CIT(A) IN HIS ORDER , THE ASSESSEE HAS FURTHER PAID/ WRITTEN OFF CERTAIN OTHER AMOUNTS AND THE OUTSTANDING LIABILITY AS ON 15.11.13 OF THE ASSESSEE HAS BEEN ONLY RS.3,94,983/ - . HE HAS FURTHER CONTENDED THAT THIS CONDUCT O F THE ASSESSEE FURTHER SHOWS THAT THE LIABILITY IS STILL IN EXISTENCE AND THE SAME HAS NOT CEASED TO EXIST AND THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE ON THIS ISSUE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY THE LD. REPRESENTATIVES OF THE PARTIES. 8. FROM THE PERUSAL OF THE CHART SUBMITTED BY THE ASSESSEE RELATING TO SUNDRY CREDITORS , IT IS REVEALED THAT EVEN AFTER 08.03.10 THE ASSESSEE HAS PAID/ WRITTEN OFF MOST OF THE AMOUNTS AND THE LIABILITY OUTSTANDING AS ON 15.11.13 HAS REDUCED TO RS.3,94,983/ - . THE CONDUCT OF THE ASSESSEE SHOWS THAT IT WAS NOT ONLY ADMITTING THE LIABILITY IN HIS BOOKS OF ACCOUNT RATHER HAS PAID/ WRITTEN OFF THE SAME IN SUBSEQUENT YEARS AND THE LIABILITY T HUS HAS REDUCED TO JUST RS.3,94,983/ - OUT OF RS.41,42,074/ - AS WAS ON 31.03.06. 9. AS OBSERVED BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF YUSUF R. TANWAR, VS. ITO (ITA NO.8408/MUM/2010) DECIDED ON 28.02.13 THAT THE PROPOSITION OF LAW LAID D OWN BY THE HONBLE DELHI HIGH COURT IN CHIPSOFT TECHNOLOGY (P) LTD. (SUPRA) IS NOT CONTRARY TO THAT OF LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF SHRI VARDHAMAN OVERSEAS LTD. (SUPRA) . THE PROPOSITION OF LAW LAID DOWN IN CHIPSOFT TECHNOLOGY ( P) LTD. (SUPRA) SUPPLEMENTS BUT NOT SUPPLANTS THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN SHRI VARDHAMAN OVERSEAS LTD. (SUPRA). WHEN WE READ BOTH THE AUTHORITIES IN HARMONY WITH EACH OTHER , THEN IT CAN BE OBSERVED THAT THE ASSESSEE CANNOT BE ALLOWED TO SHOW AN AMOUNT AS A LIABILITY EVEN THOUGH HE HAS NO INTENTION TO PAY IT BACK BUT TO ENJOY THE SAME FOR UNLIMITED PERIOD ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 5 WITHOUT BEING ADDED TO HIS INCOME ONLY ON THE EXCUSE THAT HE HAS NOT WRITTEN OFF THE SAME IN HIS BOOKS OF ACCOUNTS . HOWEVER, IF THE FACTS OF THE CASE ESTABLISH THAT THE LIABILITY HAS BEEN GENUINELY SHOWN BY THE ASSESSEE AND HIS SUBSEQUENT CONDUCT SHOWS THAT HE HAS PAID BACK THE SAID CREDITS AND HIS INTENTION WAS NOT TO ENJOY THE AMOUNT FOR UNLIMITED PERIOD WITHOUT AN Y INTENTION TO PAY BACK THE SAME, T HEN IT CANNOT BE SAID TO BE A CASE OF CESSATION OF LIABILITY. THE CONDUCT OF THE ASSESSEE IN THIS CASE SHOWS THAT THERE WAS NO INTENTION ON THE PART OF THE ASSESSEE TO ENJOY THE AMOUNT FOR AN UNLIMITED PERIOD RATHER THE ASSESSEE HAS PAID/ WRITTEN OFF THE AMOUNT IN SUBSEQUENT YEARS. UNDER SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE UNDER THIS HEAD . THIS ISSUE IS ACCORDINGLY DECIDED AGAINST THE REVENUE AND IN FAV OUR OF THE ASSESSEE. 10. IN THE RESULT THE APPEAL OF THE REVENUE IS THUS DISMISSED. ITA NO.8001/M/10 (ASSESSMENT YEAR 2006 - 07) THE ASSESSEE IN ITS APPEAL HAS TAKEN THE FOLLOWING GROUNDS: 1) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.1,81,700/ - U /S . 40(A)(IA) OF THE INCOME TAX ACT, 1961 AND UPHOLDING THE ACTION OF THE ASSESSING OFFICER. YOUR APPELLANTS SUBMIT THAT THE AMOUNT OF RS.1,81,700/ - OUGHT NOT TO HAVE BEEN ADDED AND THE SAID ADDITION BE DELETE D. 2) THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.2,17,101/ - OUT OF EXPENSES U/S. 14A OF THE INCOME - T AX ACT 1961 CONSIDERING THE DISALLOWANCE IS REASONABLE. YOUR APPELLANTS SUBMIT THAT THE DISALLOWANCE IS E XCESSIVE AND THE SAME OUGHT TO BE REDUCED SUBSTANTIALLY. 3) YOUR APPELLANTS FURTHER RESERVE THE RIGHTS TO ADD, AMEND OR ALTER THE AFORESAID GROUNDS OF APPEAL AS THEY MAY THINK FIT BY THEMSELVES OR BY THEIR REPRESENTATIVES. ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 6 GROUND NO.1 11. THR OUGH GROUND NO.1 , THE ASSESSEE HAS AGITATED THE CONFIRMATION OF DISALLOWANCE OF RS.1,81,700/ - UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT, 1961. DURING THE ASSESSMENT PROCEEDINGS , THE AO OBSERVED THAT THE ASSESSEE COMPANY HAD DEBITED AN AMOUNT OF RS.1,8 1,700/ - TOWARDS COTTON YARN WASTE CLEANING EXPENSES. AFTER GOING THROUGH THE DETAILS SUBMITTED BY THE ASSESSEE , THE AO HELD THAT THE WORK FOR WHICH THE SAID EXPENDITURE WAS INCURRED , WAS IN THE NATURE OF WORK CONTRACT AND HENCE WAS LIABLE TO TDS. SINCE THE ASSESSEE HAD NOT DEDUCTED THE TDS , HENCE THE AO DISALLOWED THE SAID EXPENDITURE UNDER SECTION 40(A)(IA) OF THE INCOME TAX ACT. THE LD. CIT(A) ALSO CONFIRMED THE SAID DISALLOWANCE. BEFORE US THE LD. A.R. HAS SUBMITTED THAT THE SAID EXPENDITURE WAS NOT RELATING TO ANY WORK CONTRACT RATHER THE PAYMENTS WERE MADE TO DIFFERENT WORKERS THROUGH ONE REPRESENTATIVE. THOUGH ALL THE PAYMENTS WERE MADE TO ONE MR. AMAN ULLAH , BUT IN FACT HE WAS NOT THE LABOUR CONTRACTOR BUT JUST THE REPRESENTATIVE OF THE WORKE RS/LABOURERS. HE JUST COLLECTED THE PAYMENTS FOR THE SAKE OF CONVENIENCE ON BEHALF OF OTHERS AND DISTRIBUTED THE SAME TO THEM THEREAFTER. ON THE OTHER HAND THE LD. D.R. HAS CONTENDED THAT THE NATURE OF PAYMENTS TO ONE PERSON FOR THE ENTIRE WORK CARRIED O UT THROUGH LABOUR DURING THE YEAR AT DIFFERENT INTERVALS REVEALS BEYOND DOUBT THAT THE SAID PAYMENTS WERE MADE TO THE LABOUR CONTRACTOR ON WHOSE BEHALF THE LABOUR WORK WAS GOT DONE THROUGH LABOURERS. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH THE PARTIES ON THIS ISSUE. THE LD. A.R. AT THE TIME OF ARGUMENTS HAS PRODUCED BEFORE US COPIES OF CERTAIN VOUCHERS THROUGH WHICH THE PAYMENTS FOR THE LABOUR WORK WERE SHOWN TO BE MADE . A PERUSAL OF VO UCHER N O.371 DATED 20.03.06 ALONG WITH CALCULATION SHEE TS, VOUCHER NO.329 DATED 21.01.06, VOUCHER NO.112 DATED 02.07.05, ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 7 VOUCHER NO.131 DATED 25.07.05, VOUCHER NO.178 DATED 24.08.05 ALONG WITH CALCULATION SHEETS ATTACHED TO THE SAID VOUCHERS REVEAL BEYOND DOUBT THAT ALL THE PAYMENTS WERE MADE TO ONE PERSON NAM ELY MR. AMAN ULLAH INAM ULLAH QUERESHI. A PERUSAL OF THE CALCULATION SHEETS ATTACHED TO THE VOUCHERS ALSO REVEAL S THAT ALL THE LABOUR WORK WAS DONE THROUGH THE SAID MR. AMAN ULLAH. THOUGH THE LD. A.R. HAS STRONGLY RELIED UPON THE ATTENDANCE SHEET TO SHOW THAT THE ATTENDANCE OF DIFFERENT WORKERS WERE NOTICED, BUT IN OUR VIEW THE SAID SHEET IS FOR THE PURPOSE OF MAINTAINING RECORD AS TO HOW MANY WORKERS AND ON WHICH DAYS THEY WORKED SO AS TO CALCULATE THE PAYMENT DUES PAYABLE TO MR. AMAN ULLAH FOR THE LABOU R WORK GOT DONE THROUGH HIM. AFTER PERUSAL OF THE VOUCHERS AND OTHER DOCUMENTS RELIED UPON BY THE LD. A.R. , THERE REMAINS NO DOUBT IN OUR MIND THAT THE SAID PAYMENTS WERE MADE TO A CONTRACTOR FROM WHOM THE LABOUR WORK WAS GOT DONE AND AS SUCH THE TDS WAS LIABLE TO BE DEDUCTED. SO IN OUR VIEW THE DISALLOWANCE ON THIS ISSUE HAS BEEN RIGHTLY MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A). THIS ISSUE IS ACCORDINGLY DECIDED AGAINST THE ASSESSEE. GROUND NO. 2 13. IN THE SECOND GROUND OF THE APPEAL THE ASSESS EE HAS AGITATED THE DISALLOWANCE OF RS. 2 ,1 7,101/ - UNDER SECTION 14A OF THE INCOME TAX ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS EARNED EXEMPT INCOME. HE THEREFORE MADE THE ABOVE SAID DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT APPLYING R ULE 8D OF THE INCOME TAX RULES. IN FIRST APPEAL THE CIT(A) OBSERVED THAT R ULE 8D WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYC E MANUFACTURING CO. LTD. VS. DCIT [(2010) 328 ITR 81 (BOM)] AND THAT FOR THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2008 - 09 DISALLOWANCE WAS REQUIRED TO BE MADE ON ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 8 REASONABLE BASIS. HOWEVER, AFTER MAKING THE ABOVE OBSERVATION S, HE HELD THAT THE MECHANI SM PROVIDED UNDER R ULE 8D FOR CALCULATING OF DISALLOWANCE WAS QUITE REASONABLE. HE THEREFORE CONFIRMED SAID DISALLOWANCE. THE ASSESSEE IS THUS IN APPEAL BEFORE US ON THIS ISSUE. 14. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH THE PARTIES AND HAVE AL SO GONE THROUGH THE RECORDS ON THIS ISSUE. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) THE HONBLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED ONLY IF T HE ASSESSEES METHOD IS NOT SATISFACTORY. IT HAS BEEN FURTHER HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008 - 09. FOR THE YEARS FOR WHICH RULE 8D IS NOT APPLICABLE AND IN THE EVENT OF THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WO RKING GIVEN BY THE ASSESSEE, DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS VS. CIT ( 247 ITR 162 ) . 15. WE ARE NOT IN CLINED TO ACCEPT THE REASONING OF THE CIT(A) THAT BECAUSE OF IN HIS VIEW , THE MECHANISM PROVIDED UNDER RULE 8D WAS REASONABLE HENCE THE ACTION OF THE AO IN APPLYING RULE 8D CAN BE SAID TO BE JUSTIFIED. IN FACT, IN VIEW OF THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT , THE AO WAS REQUIRED TO MAKE THE DISALLOWANCE ON SOME REASONABLE BASIS AND NOT BY APPLYING RULE 8D. FIRST TO HOLD THAT THE RULE 8D WAS NOT APPLICABLE FOR THE ASSESSMENT YEAR THEN TO CONFIRM THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D , IS IN FACT AN ACT WHICH IS NOT IN CONFORMITY WITH THE PROPOSITION OF LAW LAID BY THE HONBLE HIGH COURT. IT MAY BE OBSERVED THAT IT IS NOT A CASE WHERE NO EXEMPT INCOME WAS RECEIVED BY THE ASSESSEE DESPITE MAKING INVESTMENTS FOR EA RNING EXEMPT INCOME. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE EXEMPT INCOME EARNED BY THE ASSESSEE WAS VERY LESS OR NOT IN ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 9 PROPORTION TO THE INVESTMENTS MADE BY THE ASSESSEE FOR THIS PURPOSE. UNDER SUCH CIRCUMSTANCES THE DIFFERENT CO - ORDINATE BENC HES OF THIS TRIBUNAL HAVE OBSERVED THAT IN SUCH CASES CERTAIN PERCENTAGE OF EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE FOR THE YEARS EARLIER TO ASSESSMENT YEAR 2008 - 09. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ AGGRAVATE LTD. (ITA NO.934/2011 ) DECIDED ON 08.01.13 HAS UPHELD THE ORDER OF THE TRIBUNAL DIRECTING THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE. 16. SINCE IN THE CASE IN HAND ALSO, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS EARNED NO INCOME OR VERY LESS INCOME IN COMPARISON TO INVESTMENTS MADE FOR EARNING EXEMPT INCOME , HENCE IN OUR VIEW IT WOULD BE REASONABLE TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 2% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THIS ISSUE IS ACCORDINGLY ALLOWED IN FAVOUR OF THE ASSESSEE. 17. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED AND APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN CO URT ON 29.11. 2013. SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 29.11. 2013. * KISHORE ITA NO .7746/M/10 & 8001/M/10 M/S. THE SIRDAR CARBONIC & GAS CO. LTD . 10 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.