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TMI Blog2011 (3) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... giving due opportunity of hearing to the assessee and considering such details as may be filed before him - Hence, the appeal taken by the assessee is allowed for statistical purposes by restoring the issue to the A.O. Enhanced assessee's income by reducing claim of deduction u/s. 80-IA - the assessee's appeal challenging enhancement of income by Rs.1,12,08,623/- by way of reducing its claim of deduction u/s. 80-IA of the Act on the ground that electricity duty @ 9 paise per unit is to be excluded from the average landed cost of electricity as computed by the assessee, the ld. A/R fairly conceded that the said issue is covered against the assessee by the decision of I.T.A.T., Kolkata Bench in the case of Graphite India Ltd. vs. DCIT dated 06/12/2007, - Decided in favour of assessee. Interest under secs. 234A and 234B - Hence, the assessee's appeal in respect of charging of interest under secs. 234A and 234B of the Act are consequential and no specific adjudication is called for. - ITA No. 2182 (Kol) of 2009, ITA No. 328 (Kol) of 2010 - - - Dated:- 11-3-2011 - B.R. Mittal, C.D. Rao, JJ. Sri S.K. Tulsiyan for the Appellant Sri Sumat Sinha for the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces of the case the CIT (A) has erred in law in allowing deduction u/s.801B on the ground that penalty of Rs.30,000/- in respect of nan-sticking of holograms on county liquor bottles pertained to earlier year and not to the current year without giving a specific finding as to which particular year this pertained. 3. That on the facts and in the circumstances of the case the CIT (A) has erred in law in not dealing with all the issues raised in the enhancement notices in the appeal order. 4. That on the facts and in the circumstances of the case the CIT (A) has erred in law in passing the appeal order without obtaining the remand report called for in relation to notices of enhancement dated 15t and 1 5th September, 2008. 5. That on the facts and in the circumstances of the case the CIT (A) has erred in law in admitting additional evidences without allowing an opportunity to the department to examine the same. 6. That on the facts and in the circumstances of the case and the provisions of law the order of the Ld. CIT (A) ought to be set aside and the matter relating to deduction u/s.8OlA be restored to the file of the A.O. I CIT(A) with a direction to examine the enha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d sprits and chemical division for production of industrial alcohol. 4. For the assessment year under consideration, the assessee filed return declaring total income of Rs.62,96,56,002/- and adjusted book profit of Rs.234,88,26,950/- as per provisions of Sec. 115JB of the Act. The return was processed u/s. 143(1) at the returned figure and a refund of Rs.11,50,54,940/- was issued to the assessee. Thereafter the case was taken up for compulsory scrutiny. The A.O. completed the assessment u/s. 143(3) of the Act vide order dated 20/11/2007. It is relevant to state that the A.O. stated that the assessee is eligible for deduction u/s. 80-IA of the Act amounting to Rs. 92,02,62,828/- out of profits and gains derived from 13 power generation undertakings located at various places of U.P. and also stated that the assessee is eligible for deduction u/s. 80-IB of the Act amounting to Rs.7,71,49,709/- out of profits and gains derived from two industrial undertakings i.e. New Distillery at Balrampur and Chemical Division at Babhnan, both in U.P.. It is also relevant to state that the assessee claimed dividend exemption u/s. 10(33)/10(34) of the Act amounting to Rs.26,65,049/-. It is also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer by about Rs.53.78 crores, as proposed in the enhancement letters dated 1/9/2008 and 15/9/2008, should not be reduced considering that average selling rate as per electricity bill received by assessee from SEB/UPPCL should be treated as its market value. 8. In view of the aforesaid order of ld. C.I.T.(A), the assessee as well as department have filed these appeals before us.As mentioned hereinabove, the assessee has also filed cross objection along with condonation of delay of two days in the appeal filed by the department. 9. At the time of hearing, the ld. A/R submitted that appeal filed by the department is not maintainable as the Hon'ble High Court vide its order dated 4/12/2009 permitted the ld. C.I.T.(A) to issue the copy of the order and the Hon'ble High Court permitted to file an appeal before the Tribunal only to the assessee and no such permission was granted to the department. The ld. A/R further submitted that the department has filed this appeal only against the issues for which the ld. C.I.T.(A) made enquiries by issuing letters dated 1/9/2008 and 15/9/2008 when he proposed to make an enhancement by reducing claim of exemption u/s. 80-IA of the Act, but aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued letter dated 1/9/2008 followed by a second letter dated 15/9/2008 to the assessee stating that there was a scope for enhancement of assessed income. We observe that the ld. C.I.T.(A) after making an enquiry and considering the submissions of the assessee has stated that only a sum of Rs.1,12,08,623/- on account of U.P. Government duty on electricity @ 9 paise per unit stands disallowed from average landed cost of electricity and, accordingly, reduced assessee's claim while computing the deduction u/s. 80-IA of the Act. We further observe that the ld. C.I.T.(A) also made an enhancement of income of the assessee by Rs.79,62,878/- u/s. 14A of the Act read with Rule 8D of I.T. Rules in respect of exempted dividend income of Rs.26,65,049/- by following the decision of Special Bench, I.T.A.T., Mumbai in the case of ITO vs. Daga Capital Management Ltd. [312 ITR 1 (AT)]. It is also relevant to state that the ld. C.I.T.(A) in the aforesaid two letters proposing to enhance income of the assessee also referred that a sum of Rs.30,000/- was to be reduced while claiming deduction u/s. 80-IB of the Act as this was the amount of penalty paid by the assessee. But while passing the appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of I.T. Rules, we observe that the A.O. has allowed the deduction of deduction u/s. 10(33)/10(34) of the Act while computing taxable income/book profit of the assessee. The A.O. has not considered any expenses attributable to the said exempted dividend income. The ld. C.I.T.(A) has held that Rule 8D of I.T. Rules introduced on 24th March, 2008 is applicable and relied upon the decision of Special Bench, I.T.A.T., Mumbai in the case of ITO vs. Daga Capital Management Ltd. (supra). 16. At the time of hearing, the ld. A/R submitted that ld. C.I.T.(A) enhanced the assessee's income by discovering a new source of income not found by the A.O. in the order appeal against. The ld. A/R relied on the decisions of Hon'ble Apex Court in the cases of CIT vs. Shapoorji Pallanji Mistry [44 ITR 891 (SC)] and CIT vs. Rai Bahadur Hardutroy Motilal Chamaria [66 ITR 443 (SC)]. He submitted that though the Hon'ble Apex Court in the case of CIT vs. Nirbheram Daluram [224 I.T.R. 610 (SC)] had taken a contrary view stating that the first appellate authority had wide powers, but the Hon'ble Delhi High Court (Full Bench) in the case of CIT vs. Sardarilal and Co. [251 ITR 864 (Del)] after considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cases (cited supra) by the ld. A/R in support of his submission. We are of the considered view that the decisions of the Hon'ble Apex Court relied upon by ld. A/R in the cases of Shapoorji Palanji Mistry (supra) and Rai Bahadur Hardutroy Motilal Chamaria (supra) are not applicable to the facts of the case before us as in the present case there is no dispute to the fact that the dividend income is exempted from tax and consequently the expenses, if any attributable thereto, are to be disallowed as per sec. 14A of the Act. We agree with the ld. A/R that Rule 8D of I.T. Rules as applied by ld. C.I.T.(A) for the assessment year under consideration, i.e. assessment year 2006-07, is not applicable in view of the decision of Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. (supra) holding that Rule 8D is prospective in nature and applicable from assessment year 2008-09. However, to make disallowance while considering the exempted income is not discovery of new source of income by relying on the documents not before the AO but it is a case of relying only on the facts disclosed in the return filed by the assessee. In the case of Shapoorji Palanji Mistry (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observe that the first appellate authority had not confined to the matter which had been considered by the I.T.O. but conducted enquiries in relation to new source of income in the taxability of income which had not been considered by the A.O. In that context, the Hon'ble High Court held that the jurisdiction to deal with the said new source of income in appropriate cases could be dealt with u/s. 147/148 of the Act and u/s. 263 of the Act, if requisite conditions are fulfilled. Therefore, we hold that the ld. C.I.T.(A) while considering to make disallowance of expenses in respect of exempted dividend income has not discovered the new source of taxable income of the assessee. Hence the said contention of the ld. A/R is not accepted. 19. Now coming to the question of disallowance to be made u/s. 14A of the Act, we agree with the ld. A/R that no facts have been brought on record attributing the expenses to exempted dividend income of Rs.26,65,049/-. However, it is a fact that some expenses must have been incurred by the assessee while earning exempted dividend income of Rs.26,65,049/-. As mentioned hereinabove, the A.O. while allowing exemption of dividend income from tax, he has ..... 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