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TMI Blog2012 (10) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... speaking order - in favour of assessee for statistical purposes. - ITA No.961/Bang/2011, ITA No.975/Bang/2011 - - - Dated:- 18-7-2012 - N Barathvaja Sankar, N V Vasudevan, JJ. For Appellant: Shri C Ramesh, CA For Respondent: Shri S K Ambastha, CIT ORDER Per: N Barathvaja Sankar: These are cross appeals filed by the assessee M/s.Jupiter Capital (P) Ltd., Bangalore and the revenue for the assessment year 2007-08 against the appellate order dated 18-8-2011 of the CIT(A)-I, Bangalore. There are two issues brought before us by the assessee as well as the revenue relating to disallowance u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as "the Act"] and 40A(2) respectively. 2. The brief facts are that the assessee M/s.Jupiter Capital (P) Ltd. is a private limited company which derives income from portfolio management, dividend and interest. The assessee filed return of income for the assessment year 2007-08 declaring a loss of Rs.44,00,286/-. The assessment was completed u/s 143(3) of the Act determining the total income at Rs.3,90,17,741/-. Amongst various additions, the following were also added back to the income returned: i) Disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elief of Rs.33,70,435/-. The summary of the CIT(A) s findings are as under: 7.9. SUMMARY:- i) Section 14A(2) and 14(3) were introduced to the Act by F.A. 2006 w.e.f.1-4-2007. Rule 8D was inserted to I.T. Rules, 1962 on 24.03.2008. These amendments are clarificatory, explanatory and curative in nature and also machinery provisions. It explained the circumstances under which sub-section 1 of section 14A of I. T. Act could be made applicable. It also settled the dispute regarding the quantum of disallowance. Hence, following the ratio decidendi of the case Allied Motors (P) Limited Vs. CIT (1997) 224 ITR 677 (SC) the amendments, though have been given prospective dates of operation, has to be ascribed retrospective effect and hence held applicable to the A. Y.2007-08 relevant here. ii) The total effect of such amendments is that AO is empowered to treat a definite sum as disallowable if a portion of total income declared by the assessee includes exempted income irrespective of the fact whether such amount is claimed as expenditure or not in the accounts of the assessee. If such a claim has been made and it does not confirm to Rule 8, the A.O. has to record a satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Bombay in the case of Godrej Boyce Manufacturing Company Ltd Vs. DCIT(2010) 328 ITR 81 (Bom) . 6. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the investments in subsidiaries are in the interest of the business activity of the appellant and such investments cannot be considered as investments resulting in exempt income for the purpose of computation in Rule 8D r.w.s. 14A of the Act. 7. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that the investment in private limited companies are not made with the intention of earning dividends and therefore such investments cannot be considered as for the purpose of earning income exempt under the provisions of the Act. 8. The learned Commissioner of Income Tax (Appeals) erred in not appreciating the fact that any gain arising on transfer of investments in private limited companies are assessable to tax under the provisions of the Act and therefore such investments cannot be considered as for the purpose of earning income exempt under the provisions of the Act. 9. The learned Commissioner of Income Tax (Appeals) erred in alternatively confi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s erred in allowing the relief of Rs. 15,00,000/- by excluding the investment. in Mutual Fund with growth options from the ambit of "Investment", income from which does not or shall not form part of the total income, without appreciating the fact that the yearly dividends accruing to the assessee, which are re-invested, do not or shall not form part of the total income of the assessee. 3. The learned CIT(A) has erred in deleting the addition/disallowance of Rs. 2,57,88,378/- being the expenditure directly relating to income which does not form part of the total income and that the learned CIT(A) further erred in shifting the disallowance from direct to indirect expenses, holding the same to be not directly attributable to any particular income or receipt and thereby, allowing a relief of Rs. 18,70,435/- to the assessee. 4. The learned CIT(A) has erred in not following the provisions of Rule 8D read with Section 14A in its true sense and right spirit. 3.4 We have heard rival submissions and considered the facts and material on record. At the time of hearing learned authorized representative of the assessee placed on record a copy of the order of this Tribunal in assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act and has held that the expenditure is unreasonable and excessive. The Assessing Officer does not dispute either the genuineness of expenditure or the fact that it is held for the purpose of the business activity. Since the genuineness and also the requirement for the purpose is not under dispute expenditure cannot be disallowed. The Assessing Officer has not brought out any evidence to conclude that the expenditure is excessive. The revenue cannot sit on the judgment of the prudence of a businessman. The Assessing Officer could not have disallowed 100% of the expenditure by invoking provisions of sec.40A(2) . The CIT(A), considered the above submissions in light of the facts of the case. He held that having agreed that the expenditure is genuine, unless it is established that the payment is excessive, provisions of sec.40A(2) of the Act cannot be invoked. Considering the facts of the case and also the arguments of the assessee the CIT(A) deleted the addition of Rs.45 lakhs made by invoking provisions of sec.40A(2) of the Act. 4.2 Now, the revenue is aggrieved and is on appeal against the order of the CIT(A). The relevant grounds read as under: i) The learned CIT(A) ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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