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TMI Blog2012 (8) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... t sec. 36(1)(viii) being an incentive provision has to be construed keeping in mind the intent and purpose of the section namely for the industrial, agricultural and infrastructural development through providing long term finance. The Appellant is carrying on the said activity and the receipts stated above do not constitute separate business but part of the business of providing long term finance. Hence, section 36(1 )(viii) should be allowed. 3. The appellant prays that the Corporation may be allowed to add, amend, alter, forego any of the grounds at the time of hearing." 3. At the outset of the hearing, the ld. AR submitted that the issue raised in the assessee's appeal is covered against the assessee by the decision of Hon'ble Delhi High Court in assessee's own case reported in 204 Taxman 6 and also by the various decisions of ITAT in different years. The Hon'ble High Court has held as under :- "Firstly, the point to be considered is whether the dividend income received in respect of the investment in redeemable preference shares can be treated as profits derived from the business of providing long-term finance. 'Long term finance' is defined in clause (h) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld by the Tribunal, this is also an investment of the funds of the assessee for making use of the idle funds remaining with it during the interregnum period. The interest cannot be considered as profit derived from the business of providing long-term finance within the meaning of the section. No question of law arises out of the factual finding of the Tribunal, which is not challenged as perverse. The question cannot be admitted. Next question is directed against the finding of the Tribunal that the service charges on SDF loans do not qualify for the deduction because the loans are not provided by the assessee but are given by the Government through the assessee for which service charges are paid. This factual finding is not challenged by the assessee. The funds of the assessee are not involved. The Government's funds are routed through the assessee. The assessee cannot therefore be considered to be carrying on the business of providing long-term finance. It is in receipt of only service charges and not interest, obviously because its funds are not involved. It is also not the case that the assessee borrows monies from the Government for interest and advances loans for higher in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is issue as under :- "7. In the course of hearing of this appeal, it has been pointed out by both the parties that identical issue had come for consideration before the Income Tax Appellate Tribunal, Delhi Bench 'F', New Delhi, in the assessee's own case pertaining to the assessment years 1999-2000 and 2004-05 where the Tribunal vide its order dated 20.11.2009 in ITA Nos. 167 & 168/Del/2008, has decided this issue against the assessee by observing and holding as under :- "11. We have considered the rival submissions. We find that only dispute to be decided by us as to whether the assessee is eligible for deduction u/s 36(1)(viii) with regard to three type of incomes i.e. dividend received by the assessee on long term investment, interest from bank accounts from short term deposits and service charges on SDF loans. We feel that for this purpose, we should reproduce the provisions of sec. 36(1)(viii) as it was on the statute book during the relevant period. The same has been produced by the ld.CIT(A) on page no.20 of his order and from there, we reproduce it herein below: - (i) The deductions provided for in the following clauses shall be allowed in respect of matter dealt with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidering the dispute as to whether duty drawback receipts of DEPB benefits from part of the net profits of eligible industrial undertakings for the purpose of deduction u/s 80I/80IA/80IB of the I.T. Act, 1961. In these sections also, deduction is allowable on profits and gains derived from eligible business. Eligible business has been defined in sub sections 3 to 11 and 11A of sec.80IB. Sub section 1 of sec. 80IB is relevant which contains similar provisions as contained in sec. 36(1)(viii) reproduced as above. We, therefore, reproduce the provisions of sub section 1 of sec. 80IB, which is as under: - "80IB. (1) Where the gross total income of an assessee includes any profits and gains derived from any business referred to in sub-sections (3) to [911), (11A) & (11B)] (such business being hereinafter referred to as the eligible business), there shall, in accordance with the subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to such percentage and for such number of assessment years as specified in this section." 13. When we compare the provisions of sec. 36(1)(viii) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he contention of ld. AR of the assessee that in earlier years and in subsequent years, deduction was allowed to the assessee u/s 36(1)(viii) with regard to these receipts, we find that relevant assessment orders for those years are available on pages 162 to 185 of the paper book. In this regard, we find that similar deduction is said to be allowed by the department with regard to these three receipts in assessment years 2002-03 and 2003-04 but action has been taken by the department subsequently u/s 148 and u/s 263 and hence the assessment orders of these two years are not relevant. Regarding earlier years, we also find that upto A.Y. 1995- 96, the provisions of sec. 36(1)(viii) were different and as per those provisions, deduction was allowable to an eligible assessee to the extent to 40% of total income computed before making any deduction u/s 36(1)(viii) and chapter VIA. Hence, upto A.Y.1995- 96, deduction was to be allowed to the assessee without excluding any part of these three receipts. As per amendment by the Finance Act, 1995 with effect from 1.4.1996, the provisions have been changed and as per the changed provisions, deduction was allowable to the extent of 40% of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... present case because the judgment is in connection with sec. 80IA/80IB and the dispute in the present case is with regard to sec. 36(1)(viii). In this regard, the reliance have been placed on the judgment of Hon'ble Apex Court rendered in the case of Padma Sundara Rao (supra). It has been held by Hon'ble Apex Court in this case that Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the facts situation, of the decision on which reliance is placed. We feel that as per this judgment of Hon'ble Apex Court, before placing reliance on a particular judgment, it has to be seen that the factual situation of the present case fits in with the fact situation of such decision. In the present case, we have already noted that in the present case as well as in the case of Liberty India (supra),the dispute is regarding the words "derived from". In both these cases, we have noted that items of profit in dispute are eligible to be regarded at income attributable to the eligible business but the same cannot be regarded as profit derived from eligible business. Hence, we find that due care has been taken by us to find out that the fact situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee should be reduced from interest income from bank and only such net interest income should be excluded from business profit for the purpose of calculating deduction allowable to the assessee u/s 36(1)(viii). With these observations, we set aside the order of the CIT(A) on this issue in both the years and restore this matter back to the file of AO for a fresh decision as per above discussion. In this regard, we feel that the judgment of Hon'ble Delhi High Court rendered in the case of CIT V. Sh. Ram Honda Power Equipment as reported in 289 ITR 475 (Del.) is directly applicable because in this judgment, necessary guide lines have been laid down by Hon'ble Delhi High Court with regard to granting of netting of the interest. The AO should decide this aspect in the light of this judgment of Hon'ble Delhi High Court after providing adequate opportunity of being heard to the assessee. This aspect is decided in favour of the assessee in both years for statistical purposes because netting is to be allowed by the AO only to the extent nexus is established by the assessee and in the light of the above said judgment of Hon'ble Delhi High Court." 8. Since the issue has already been decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Rule 8D of the IT Rules. Therefore, the CIT (A) should not have disturbed the calculation made by the Assessing Officer. The CIT (A) was not justified in restricting the disallowance at the 10% of the exempted income. 10. On the other hand, ld. AR submitted that although the Rule 8D is applicable for the Assessment Year 2008-09, however, the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. & Ors. Vs. CIT reported in 247 CTR (Del.) 162 has held that prior to disallowance, the condition precedent for the Assessing Officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. Assessing Officer must record his dis-satisfaction of the correctness of the claim made by the assessee or with the correctness claim made by the assessee that no expenditure has been incurred. Assessing Officer is to satisfy on an objective analysis and for cogent reasons. Therefore, the CIT (A) was justified in restricting the addition. 11. We have heard both the sides on the issue. After hearing, we hold that this issue needs re-examination in view of the decision of the Hon'ble jurisdictional High Court in the case of Maxopp Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne examines the provision carefully, one would find. that the AO is required to determine the amount of such expenditure only if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the Act. In other words, the requirement of the AO embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if AO returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-s. (3) is nothing but an offshoot of sub-s. (2) of S. 14A. Sub-s. (3) applies to cases where the assessee claim that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. In other words, sub-s. (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-s. (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s taken. Rule 80 would operate prospectively. If the said rule were to have retrospective effect, nothing prevented the CBDT from saying so, particularly, in view of the fact , that it had the power to make a rule retrospective by virtue of s. 295(4). Instead of making r. 8D retrospective, cl.1 (2) of the Income-tax (Fifth Amendment) Rules, 2008 made it clear that the Rules would come into force from the date of their publication in the Official Gazette. It is, therefore, clear that r. 80 was prospective in operation and cannot be regarded as being retrospective.-Godrej & Boyce Mfg. Co. Ltd. vs. Dy. CIT (2010) 234 CTR (Bom) 1 : (2010) 43 DTR (Bom) 177 : (2010) 328 ITR 81 (Bom) conncurred with. Insofar as sub-ss. (2) and (3) of s. 14A are concerned, they have also been introduced by virtue of the Finance Act, 2006 w.e.f. 1st April, 2007. Para 11.3 of Circular No. 14 of 2006, dt. 28th Dec. 2006 specifically provided for applicability of the provisions of sub-s. (2) and it clearly indicated that it would be applicable "from the asst. yr. 2007-08 onwards". It is, therefore, clear that sub-ss. (2) and (3) of s. 14A were introduced with prospective effect from the asst. yr. 2007-08 onwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the pre-r. 80 period, whenever the issue of s. 14A arises before an AO, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the Act. 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 an 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 on 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 Assessing Officer will have to determine the amount of expenditure incurred in relation to income w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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