DCIT, CHENNAI V. M/s. Manali Petrochemical Limited, CHENNAI

ITA 981/CHNY/2012

• Counselvise Citation: 98121714 RSA 2012
• Duration Of Justice: 3 year(s) 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Department
• Bench Allotted: D
• Next Hearing Date: 11-05-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-05-2012
• Court: TRIBUNAL
• Department Lawyers: MDS MS MANAL; N MADHAVANJCIT D R ITA NO
• Assessee Lawyers: VIJAYARAGHAVAN
• Keywords: Earning of tax free income; Bad and doubtful debts; Revised return
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI ... , . , , BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1165 /MDS./2012 ( !' #' / ASSESSMENT YEAR :2007-08) M/S.MANALI PETROCHEMICALS LTD ., SPIC HOUSE, 88,MOUNT ROAD, GUINDY, CHENNAI. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI. PAN AAACM 3404 D ( / APPELLANT ) ( / RESPONDENT ) ./ I.T.A.NO.981 /MDS./201 2 ( !' #' / ASSESSMENT YEAR :2007-08) THE DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI. VS. M/S.MANALI PETROCHEMICALS LTD., SPIC HOUSE, 88,MOUNT ROAD, GUINDY, CHENNAI. PAN AAACM 3404 D ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY : MR.VIJAYARAGHAVAN,ADVOCATE REVENUE BY : MR.N.MADHAVAN,JCIT, D.R ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 2 - . / 01 / DATE OF HEARING : 11.05.2015 2# / 01 /DATE OF PRONOUNCEMENT : 10.07.2015 / O R D E R PER A.MOHAN ALANKAMONY , ACCOUNTANT MEMBER: THIS APPEAL IN ITA NO.1165/MDS./2012 IS FILED BY THE ASSESSEE, AND THE OTHER APPEAL IN ITA NO.981/MSDS./2012 BY TH E REVENUE FOR THE ASSESSMENT YEAR 2007-08, AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A), LARGE TAXPAYER UNIT, CHENNAI, DATED 24.02.2012 IN ITA NO.48/09-10/LTU(A) PASSED UNDER SECTION 143(3) READ WITH SECTION 250 OF THE ACT. 2.1 THE ASSESSEE HAS RAISED FIVE GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUES IS CONCISED AS FOLLOWS:- 1. THE LD. CIT (A) ERRED IN CONFIRMING THE ORDER OF LD. ASSESSING OFFICER WHO HAD MADE AN ADDITION OF ` 81 LAKHS TOWARDS WAGE REVISION FOR THE PURPOSE OF COMPUTING BOOKS PROFITS U/S.115JB OF THE ACT AND ALSO FOR COMPUTING THE TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT. ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 3 2. THE LD. CIT (A) ERRED IN CONFIRMING THE ORDER O F THE LD. ASSESSING OFFICER WHO HAD DISALLOWED THE PROVISION FOR DOUBTFUL DEBTS AMOUNTING TO ` 1,42,321/-. 3. THE LD. CIT (A) ERRED IN DISALLOWING 5% OF THE D IVIDEND INCOME U/S.14A OF THE ACT AS EXPENSES INCURRED FOR EARNING THE EXEMPT DIVIDEND INCOME. 2.2 THE REVENUE HAS RAISED THREE GROUNDS IN ITS APP EAL, HOWEVER, THE CRUX OF THE ISSUES IS CONCISED AS FOLLOWS:- 1) THE LD. CIT (A) HAD ERRED IN DELETING THE DISALL OWANCE U/S.14A OF THE ACT BY HOLDING THAT INVOKING THE PROVISIONS OF RULE 8D IS NOT IN ORDER. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A PUBLIC LIMITED COMPANY, ENGAGED IN THE BUSINESS OF MANUFA CTURING AND TRADING IN PETROCHEMICALS, FILED ITS RETURN OF INCO ME FOR THE ASSESSMENT YEAR 2007-08 ON 25.10.2007, ADMITTING BO OK PROFIT U/S.115JB OF THE ACT OF ` 22,53,69,497/-. SUBSEQUENTLY, REVISED RETURN ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 4 WAS FILED ON 16.05.2008 & 29.07.2008 ADMITTING THE SAME BOOK PROFIT. THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT W AS MADE U/S.143(3) OF THE ACT WHEREIN THE LD. ASSESSING OFF ICER MADE CERTAIN ADDITIONS. 4.1 GROUND NO.1 PROVISIONS FOR WAGE ARREARS DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 81 LAKHS BEING PROVISIONS FOR WAGE ARREARS IN THE PROFIT & LOSS AC COUNT. ON QUERY, THE ASSESSEE HAD EXPLAINED THAT THE ABOVE PROVISION S WAS MADE ON ESTIMATE BASIS SINCE NEGOTIATIONS WITH LABOUR UNION WAS IN PROGRESS. IT WAS FURTHER SUBMITTED THAT THE ACTUAL LIABILITY MAY BE MUCH MORE THAN WHAT IS PROVIDED BY THE ASSESSEE. HOWEVER THE LD. ASSESSING OFFICER DID NOT ACCEPT THE ARGUMENTS ADVANCED BY TH E ASSESSEE. CITING SECTION 115JB(1)(C) OF THE ACT, THE LD. ASSE SSING OFFICER DISALLOWED THE PROVISIONS MADE FOR ` 81/- LAKHS WHILE COMPUTING THE BOOK PROFIT U/S.115JB OF THE ACT AS WELL AS COMPUTI NG THE TOTAL INCOME AS PER THE NORMAL PROVISIONS OF THE ACT. ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 5 4.2 ON APPEAL THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER BY OBSERVING ASUNDER:- 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSION OF THE LD. A.R. I HAVE ALSO GONE THROUGH THE DECIS ION RELIED ON BY THE A.O AND THE A.R I HAVE ALREADY DISCUSSED THE ISSUE IN PARA 4.2. AND HELD THAT THE ABOVE LIABILITY WAS AN UNASCERTAINED LIABILITY AND DID NOT CRYSTALLIZED DURING THE YEAR. THE LD. A.R. HAS REL IED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF HCL COMET SYSTEM & SERVICES (SUPRA). BUT THE LAW HAS SINCE BEEN NEUTR ALIZED BY AN AMENDMENT TO SECTION 115JB(2) WITH RETROSPECTIVE EF FECT FROM 01.04.2009. IN VIEW OF THE ABOVE AND FOR THE REASO NS GIVEN IN PARA 4.2 THE GROUND IS DISMISSED. PARA 4.2 IS ALSO REPRODUCED HEREIN BELOW FOR REF ERENCE:- 4.2. I HAVE CAREFULLY CONSIDERED THE FACT S OF THE CASE AND THE SUBMISSION OF THE LD. A.R. I HAVE ALSO GONE THROUGH THE DECISION RELIED ON BY THE A.O AND THE A.R. THE DECISION RELIED ON BY THE LD. A.R. ARE ON DIFFERENT FACTS I.E. ON ALLOWABILITY OF PROVISION FOR MEETING THE LIABILITY FOR ENCASHMENT OF EARNED LEAVE BY THE EMPLOYEE AND PROVISION FOR WARRANTY. ON THE OTHER HAND, IT IS SEEN THAT THE DECISION RELIED ON BY THE A.O IN THE CASE OF IN DIAN OVERSEAS BANK(SUPRA) IS DIRECTLY ON THE SUBJECT ISSUE. THE CIT(A) HAD CONF IRMED THE ADDITION OF RS.48 CRORE TOWARDS THE PROVISIONS MADE FOR WAGE ARREARS OF THE STAFF. ON FURTHER APPEAL, THE HONBLE JURISDICTIONAL TRIBUNAL IN ITA NO.1690/MDS./2006 FOR A.Y 1999-00 DATED 02.06.2006 HAS CONFIRMED THE ORDER OF THE CIT(A) BY HOLDING AS UNDER: IN THE PRESENT CASE WE FIND THAT THE LIABILITY IN QUESTION CANNOT BE CONSTRUED TO BE A STATUTORY LIABILITY. I CAN ONLY BE TERMED AS A CONTRACTUAL L LIABILITY, AS IT EMANATES OUT OF A CO NTACT. THE MEMORANDUM ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 6 OF UNDERSTANDING IS ONLY A PRELUDE TO THE CONTRACT. ACTUALLY THE CONTRACT WAS ENTERED INTO IN THE SUBSEQUENT YEAR ON THE BASI S OF THE MEMORANDUM OF UNDERSTANDING. THEREFORE, IN OUR OPIN ION THE LIABILITY DID NOT CRYSTALLIZE IN THE YEAR UNDER CONSIDERATION . IT CAN BE ALLOWED ONLY CONSEQUENT UPON THE CRYSTALLIZATION WITHIN THE FRAMEWORK OF LAW. SUBJECT TO THIS REMARK WE UPHOLD THE IMPUGNED ORDER ON THIS COUNT. THE FACTS OF THE APPELLANT ARE SIMILAR TO THE FACTS OF THE ABOVE CASE. AS ADMITTED BY THE APPELLANT THE DISPUTE BETWEEN THE A PPELLANT AND LABOUR UNIONS WAS REFERRED TO INDUSTRIAL TRIBUNAL. THE APPELLANT HAS FILED A SLP BEFORE THE HONBLE SUPREME COURT WHICH IS STILL PENDING FOR FI NAL DISPOSAL. WHEN THE ORDER WAS PASSED BY THE A.O, THE A.O HAS RIGHTLY HE LD THAT IT WAS NOT AN ASCERTAINED LIABILITY. THE LIABILITIES HAD ALSO NO T CRYSTALLIZED DURING THE YEAR. HENCE, RESPECTFULLY FOLLOWING THE DECISION OF THE H ONBLE TRIBUNAL, THE GROUND IS DISMISSED. 4.3 BEFORE US LD. A.R. SUBMITTED THAT:- THE LABOUR UNION OF THE APPELLANT COMPANY HAD BEEN NEGOTIATING WITH THE APPELLANT FOR WAGE REVISION FROM THE YEAR 2000-01. THE LABOUR UNION ON BEHALF OF THE WORKMEN OF PLANT II SUBMITTED A CHART ER OF DEMANDS FOR THE YEARS FROM 2001 TO 2004. THE APPELLANT MADE AN OFF ER BY WAY OF DRAFT WAGE SETTLEMENT AND THE SAME WAS REFERRED TO I.E. J OINT COMMISSIONER OF LABOUR (JCL). THE FIRST CONCILIATION WAS ON 3 RD APRIL 2006. UNION DID NOT AGREE. THE MATTER WAS REFERRED TO INDUSTRIAL TRIBUN AL VIDE G.O. NO.871 DT.12.12.2006. THE ISSUE IS STILL IN DISPUTE BEFORE THE SUPREME COURT. IN THAT PROPOSAL, THE APPELLANT HAD INDICATED THE A MOUNT OF SALARY INCREASE THEY ARE PREPARED TO PAY. IN THE DRAFT WAGE SETTLE MENT, THE APPELLANT MADE THE FOLLOWING MAIN PROPOSALS: PROPOSED A REVISED SCALE OF PAY TO BE EFFECTIVE FRO M 1.1.2005 ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 7 NO INCREASE IN WAGES AND ALLOWANCES SHALL BE PAYABL E FOR THE PERIOD 1.1.2001 TO 31.12.2004 BUT AGREED TO PAY A O NE-TIME LUMP SUM AMOUNT OF RS.21,000/- PER EMPLOYEE. PROPOSAL OF THE APPELLANT WERE NOT ACCEPTED BY THE UNION WHO WANTED A HIGHER SALARY INCREASE. THE UNION RAISED THE ISSUE BEFORE THE INDUSTRIAL DISPUTE AUTHORITIES. THE DISPUTE IS STILL PENDING BEFORE SC. THE SC IN 2008 HAD AS AN INTERIM RELIEF DIRECTED THE APPELLANT TO PAY THE EMPLOYEES AS PER THE COMPANYS PROPOSAL AND IN 2011 AN ADDITIONAL RS .50,000/- PER EMPLOYEE. AS FAR AS THE APPELLANT COMPANY IS CONCE RNED THE LIABILITY TO PAY TO THE EMPLOYEES AS PER THEIR PROPOSAL ACCRUED WHEN THEY SUBMITTED THE PROPOSAL TO JCL IN THE COURSE OF CONCILIATION PROCE EDINGS. THIS AMOUNT WAS THE MINIMUM AMOUNT PAYABLE AND HAD ACCRUED WHEN THE APPELLANT HAD SENT THEIR SIGNED PROPOSAL. THIS AMOUNT WAS NEVER IN DI SPUTE. PROVISION MADE FOR WAGE ARREARS: THOUGH THE MATTER WAS IN DISPUTE, THE PROPOSAL MADE BY THE APPELLANT IN THE DRAFT WAGE SE TTLEMENT TO THAT EXTENT IS AN ASCERTAINED LIABILITY. THERE WAS NO DISPUTE ON THAT LIABILITY BUT ONLY ON THE ADDITIONAL AMOUNT OVER AND ABOVE THE PROPOSAL B Y THE APPELLANT. ACCORDINGLY, THE APPELLANT COMPUTED THE WAGE ARREAR S FOR THE YEAR 2005 AND 2006 AS PER THE PROPOSED REVISED PAY SCALE IN T HE DRAFT WAGE SETTLEMENT AND MADE A PROVISIONS OF RS.81 LAKHS IN THE BOOKS OF ACCOUNT IN THE FINANCIAL YEAR 2006-07(A.Y 2007-08). TO SUMMARISE, 1. REASON FOR MAKING THE PROVISION IN F.Y 2006-07: THE DISPUTE WAS REFERRED TO THE INDUSTRIAL TRIBUNAL BY G.O DATED 12 .12.2006 WHICH IS IN THE F.Y 2006-07 AND ACCORDINGLY, THE LIABILITY TO THE A PPELLANT AS PER THE DRAFT WAGE SETTLEMENT HAS CRYSTALLIZED IN F.Y 2006-07. ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 8 2. QUANTIFICATION: THE AMOUNT OF AS PER THE REVIS ED PAY SCALE PROPOSED FOR THE YEAR 2005 & 2006 IN THE DRAFT WAGE SETTLEMENT W AS COMPUTED AND FPRS MADE IN THE BOOKS OF ACCOUNT AS IT IS AN ASCERTAINE D LIABILITY. HENCE THE PROVISION IS FOR AN ACCRUED LIABILITY AND SHOULD BE ALLOWED BOTH FOR THE NORMAL COMPUTATION AS WELL AS IN THE COMPUT ING BOOK PROFITS. ACCOUNTING STANDARD BY CBDT 218 ITR 1 ST. BHARATH EARTH MOVERS 245 ITR 428 SC NEYVELI LIGNITE CORPORATION 93 TTJ 685 CHENNAI IBP CO LTD 78 TTJ 158 CAL. FURTHER THE LD. A.R. RELIED IN THE DECISIONS OF THE CASE OF IBP CO. LTD. VS. ACIT REPORTED IN [2003] 78 TTJ(CAL.) 158 AND NE YVELI LIGNITE CORPORATION LTD. VS. ACIT IN (2005) 93 TTJ (CHENNAI ) 685 AND ARGUED BY STATING THAT TO THE EXTENT OF RS.81 LAKHS THE LIABILITY IS ASCERTAINED BECAUSE THE ASSESSEE HAD AGREED FOR PAY ING THE AFORESAID AMOUNT FOR WAGE SETTLEMENT AND THE SAME W AS REFERRED TO JOINT COMMISSIONER LABOUR IN THE COURSE OF CONCILIA TION PROCEEDINGS. IT WAS THEREFORE PLEADED THAT THE AMOUNT OF ` 81/- LAKHS MAY BE TREATED AS ASCERTAINED LIABILITY AND DEDUCTION MAY BE ALLOWED WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE U/S.115JB OF THE ACT AS ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 9 WELL AS COMPUTING THE TOTAL INCOME AS PER THE NORMA L PROVISIONS OF THE ACT. 4.4 LD. D.R STOUTLY OPPOSED TO THE SUBMISSIONS OF THE LD. A.R AND ARGUED IN SUPPORT OF THE ORDERS OF THE REVENUE. HE VEHEMENTLY POINTED OUT THAT THE AMOUNT OF ` 81/- LAKHS IS NOT AN ASCERTAINED LIABILITY AND IS ONLY A PROPOSAL MADE BEFORE THE JO INT COMMISSIONER OF LABOUR AND THE SAME HAS NOT BEEN REACHED FINALITY. IT WAS THEREFORE PLEADED THAT THE ORDERS OF THE REVENUE MAY BE SUSTA INED. 4.5 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. A.R, IF THE ASSESSEE HAS MADE A COMMITMENT IN THE DRAFT WAGE SE TTLEMENT BEFORE THE JOINT COMMISSIONER OF LABOUR, TO THAT EX TENT IT WILL BE AN ASCERTAINED LIABILITY OF THE ASSESSEE COMPANY BECAU SE AT LEAST TO THAT EXTENT THE ASSESSEE COMPANY WILL HAVE TO MAKE THE P AYMENT. HOWEVER, THESE ASPECTS CAN BE VERIFIED ONLY FROM TH E DRAFT WAGE SETTLEMENT AGREEMENT AND THE SAME IS NOT BEFORE US FOR OUR PERUSAL. THEREFORE, WE REMIT BACK THE ISSUE TO THE FILE OF L D. ASSESSING OFFICER ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 10 TO EXAMINE THE DRAFT WAGE SETTLEMENT AGREEMENT IN T HE LIGHT OF THE DECISIONS RELIED UPON BY THE ASSESSEE AND PASS APPR OPRIATE ORDER AS PER MERIT AND LAW. 5. GROUND NO.2 - DISALLOWING THE PROVISION FOR DOUBTFU L DEBTS DURING THE COURSE OF ASSESSMENT PROC EEDINGS IT WAS OBSERVED BY THE LD. ASSESSING OFFICER THAT THE ASSE SSEE HAD NOT WRITTEN OFF THE BAD DEBTS IN ITS BOOKS OF ACCOUNTS, HOWEVER CLAIMED DEDUCTION ON ACCOUNT OF THE SAME IN THE COMPUTATION STATEMENT. THEREFORE THE LD. ASSESSING OFFICER ADDED THE SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT (A) CITING SE CTION 115JB(2) CLAUSE-(I) OF EXPLANATION-1 CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. 5.2. BEFORE US, THE LD. A.R. RELIED UPON THE DECIS ION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF VIJAYA BANK REPOR TED IN 323 ITR 166 AND ARGUED BY STATING THAT THE PROVISION FOR BA D DEBTS CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED AS DEDUCTION. LD. D. R STOUTLY OPPOSED TO THE SUBMISSIONS OF THE LD. A.R AND ARGUE D BY STATING THAT THE ASSESSEE HAD NOT WRITTEN OFF ITS BAD DEBTS IN I TS BOOKS OF ACCOUNTS ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 11 AND THEREFORE THE SAME CANNOT BE ALLOWED AS DEDUCTI ON WHILE COMPUTING THE INCOME OF THE ASSESSEE. 5.3. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS AVAILABLE ON RECORD AND THE DECISION CITE D BY THE LD. A.R. THE DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF M/S.VIJAYA BANK (SUPRA) IS NOT APPLICABLE CONSIDERI NG THE FACTS OF THE ASSESSEES CASE. IN THAT CASE, THE ASSESSEE IS A B ANK WHO DRAWS ITS ACCOUNT AS PER THE GUIDELINES PROVIDED BY THE RESER VE BANK OF INDIA (RBI). THERE ARE LEGAL IMPLICATIONS FOR WRITING OFF THE DEBTS IN THE ACCOUNTS OF BANK BY CREDITING THE DEBTORS ACCOUNTS . THE SYSTEM OF ACCOUNTING IS ALSO DIFFERENT. VARIOUS CLASSIFICATIO NS WITH RESPECT TO DEBTORS ARE DRAWN IN THE BOOKS OF ACCOUNTS AS PER T HE NORMS SPECIFIED BY THE RBI. IN SUCH CIRCUMSTANCES, THE H ONBLE APEX COURT HAD HELD THAT IT WOULD SUFFICE TO REDUCE THE BAD DE BTS IN THE STATEMENT OF ACCOUNTS AND ACTUAL WRITE OFF BAD DEBTS IN THE B OOKS OF ACCOUNTS WOULD NOT BE NECESSARY. WITH RESPECT TO OTHER ASSE SSEES, THE HONBLE APEX COURT HAD CATEGORICALLY HELD IN THE CA SE TRF LTD. VS. DCIT REPORTED IN 323 ITR 397 THAT IT IS NOT NECESSARY FOR THE ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 12 ASSESSEE TO ESTABLISH THE DEBT HAD BECOME IRRECOVER ABLE. IT IS ENOUGH IF THE BAD DEBTS ARE WRITTEN OFF AS IRRECOVE RABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE . FOR THE ABOVE REASONS, WE FIND THAT THE ACTION OF THE REVENUE IS APPROPRIATE IN THE CAS E OF THE ASSESSEE WHICH IS NOT A BANK GOVERNED BY THE RULES OF RBI AN D ACCORDINGLY WE HEREBY HOLD THAT THE AMOUNT OF ` 1,42,321/- SHOWN AS PROVISION FOR BAD DEBTS WHICH IS NOT CREDITED TO THE ACCOUNTS OF THE DEBTORS AND THUS WRITTEN OFF CANNOT BE ALLOWED AS DEDUCTION WHI LE COMPUTING THE INCOME OF THE ASSESSEE. ACCORDINGLY, THIS GROUND I S HELD AGAINST THE ASSESSEE. REVENUES APPEAL & ASSESSEES APPEAL 6.1. GROUND NO.1 & 3 : ADDITION U/S.14A OF THE ACT THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE LD . CIT (A) WHO HAD SUSTAINED THE ADDITION U/S.14A OF THE ACT BEING 5% OF THE DIVIDEND INCOME ATTRIBUTED AS EXPENDITURE FOR EARNI NG EXEMPT INCOME WHILE AS THE REVENUE IS AGGRIEVED BY THE ORDER OF T HE LD. CIT (A) WHO HAD REJECTED THE COMPUTATION U/S.14A OF THE ACT READ WITH RULES 8D OF THE RULES. ON THIS ISSUE WE FIND THE FINDING OF THE LD. CIT (A) ITA NO.1165 & 981 /MDS/2012 M/S.MANALI PETROCHEMICALS 13 TO BE IN ORDER BECAUSE RULE-8D OF THE RULES HAS COM E INTO EFFECT FROM 24.03.2008 RELEVANT TO THE ASSESSMENT YEAR 200 8-09. THEREFORE, THE AFORESAID RULES WILL NOT BE APPLICAB LE TO THE CASE OF THE ASSESSEE, SINCE THE RELEVANT ASSESSMENT YEAR IS 200 7-08. MOREOVER ON THIS ISSUE, THIS BENCH OF THE TRIBUNAL HAS BEEN CONSISTENTLY TAKING A VIEW THAT 3% OF THE EXEMPT INCOME CAN BE TREATED AS THE EXPENDITURE INCURRED FOR EARNING SUCH INCOME AND AC CORDINGLY SUCH AMOUNT HAS TO BE DISALLOWED. THEREFORE IN THE CASE OF THE ASSESSEE ALSO, WE HEREBY HOLD THAT 3% OF THE DIVIDEND INCOME WHICH IS EXEMPT FROM TAX SHALL BE TREATED AS THE EXPENDITURE INCURR ED FOR EARNING SUCH DIVIDEND INCOME AND THE SAME SHALL BE DISALLOWED AS ALLOWABLE DEDUCTION. IT IS ORDERED ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES, WHILE AS THE APPEAL OF THE RE VENUE IS DISMISSED. ORDER PRONOUNCED ON 10 TH JULY, 2015 AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S.GANESAN) ( . ) (A.MOHAN ALANKAMONY) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 10 TH JULY, 2015 . K S SUNDARAM. / 3045 6 5#0 /COPY TO: 1. 78 /APPELLANT 2. 3978 /RESPONDENT 3. - :0 ( )/CIT(A) 4. - :0 /CIT 5. 5; 30