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TMI Blog2013 (8) TMI 825X X X X Extracts X X X X X X X X Extracts X X X X ..... lly, every amount lying in the current accounts is interest bearing ones, therefore, the provisions of clause-(iii) of Rule-8D(2) is rightly applicable - Once rule become applicable and the same has to be applied fully - Decided in favour of Revenue. - I.T.A. No.3655/M/2012, C.O. No.115/M/2013 - - - Dated:- 3-7-2013 - Shri D. Manmohan And Shri D. Karunakara Rao, AM,JJ. For the Appellant : Shri Pravin Kumar, CIT-DR For the Respondent : Ms. Arati Vissanji ORDER Per D. Karunakara Rao, AM: There are two appeals under consideration and they are cross appeals. Appeal ITA No.3655/M/2012 is filed by the Revenue and C.O. No.115/M/2013 is filed by the assessee. As a matter of rule and the connection of the issues, we have clubbed, heard them together and being disposed in this consolidated order. Appeal wise and ground wise adjudication is given in the following paragraphs. ITA No. 3655/M/2012 - Revenue's Appeal 2. Firstly, we shall take up ITA No. 3655/M/2012 which is filed by the Revenue on 23.5.2012 against the order of the CIT (A)-7, Mumbai dated 30.01.2012 for the AY 2008-2009. In this appeal, Revenue raised the following effective ground which read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade by the assessee are narrated in para 5.5 of the assessment order. Briefly stated, assessee pro-rating the common expenditure, in favour of only direct expenditure which is clearly allocable to the earning of the income and reliance was placed on the nexus theory and not on ad-hoc estimation. Without prejudice, assessee submitted that 1% of the gross dividend income amounting to Rs. 3,01,838/- should be considered as a disallowable expenditure u/s 14A towards administrative expenses attributable to the earning of the dividend income. 4. Per contra, after considering the above stand of the assessee, the Assessing Officer heavily relied on the Bombay High Court judgment in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT for the proposition that Assessing Officer, when not satisfied with the assessee's method of determining the disallowable expenditure, is justified in rejecting the assessee's method and adopting the reasonable basis u/s 14A of te Act. He also mentioned that, for the AY 2008-2009, application of Rule-8D is mandatory and automatic and the disallowance has to be worked out on as per the said rule and not on the basis of any adhoc estimation ie 1% of the gross div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the tax audit report. In fact, Rs.2.14 Crs ie apportioned expenditure relatable to the exempt income is the bone of contention here. Aggrieved with the same, assessee filed an appeal before the first appellate authority. 5. During the proceedings before the first appellate authority, in connection with the disallowance of an amount of Rs. 2.14 Crs, assessee vehemently argued and filed the written submissions which is reproduced in para 5.1 of the impugned order. The said submission contains the argument that the investment by the assessee was made in the Government securities in accordance with the policy of the Government and the total investment in such securities is less than their own funds and not out of any interest bearing funds. Therefore, no interest paid expenditure is relatable to the said investment in securities. In this regard, assessee mentioned that the cost free funds amounting to Rs. 938.61 Crs is available as on 31.3.2008 and the investment in shares stands at Rs. 17.28 Crs only. Assessee also submitted that in case of an indivisible business activities, entire expenditure is allowable without any apportionment. In this regard, he relied on the judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds and assessee failed to distinguish and identify the expenditure out of common expenses. Regarding the dissatisfaction of the AO about the method adopted by the assessee, Ld DR mentioned that the investment is never made in isolation qua the common expenditure incurred in connection with earning of other taxable incomes. There is an expenditure in every normal amount attributable to the earning of the exempt income, therefore, assessee failed to discharge the onus and the AO has rightly dissatisfied with the method adopted by the assessee. Assessee cannot say that that no expenditure is incurred out of the administrative expenses. Further, Ld DR mentioned that the assessee offered, without prejudice, 1% of the dividend income which is relatable to the earning of the exempt income and it is on ad-hoc estimations which are not permitted under section 14A of the Act. Therefore, as per the Ld DR, AO's rejection of the method adopted by the assessee by providing reasons was not merely a case of rejecting the assessee's claim without discussion and discussion. What is required is only preliminary satisfaction on the inaccuracy of the method adopted by the assessee and the explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax free income which yielded exempt income, provided sufficient free funds are available. This is the case relevant for the assessment year 2003-2004. 8. We have heard both the parties and perused the orders of the Revenue Authorities as well as the decisions cited by the Ld Representatives of both the parties. There is no dispute about the basic facts that the assessee made an investment in shares, which yielded dividend income and interest income of Rs. 3,01,83,832/-. It is an admitted fact that assessee offered itself average cost of investment amounting to Rs. 20,25,559/-. However, there is a dispute with regard to the disallowance of a portion of administrative expenses also u/s 14A r w r 8D. Applying the provisions of the said rule, Assessing Officer is of the opinion that Rs. 2.14 Crs is the administrative expenses, which are to be disallowed u/s 14A of the Act. Per contra, assessee opined that no administrative expenses are required to be disallowed. However, without prejudice, assessee offered 1% of the dividend income amounting to Rs. 3,01,838/-. CIT (A) accepted the assessee's offer made by the assessee without prejudice and disapproved the AO's decision of applying th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tly the assessee's tax auditors applied the provisions of rule 8D in making the disallowance of Rs 20, 25,559/- but it was only under clause (iii) of Rule 8D(2) and kept the administrative expenditure away from the said rule 8D(2)(1) (ii) from making any the disallowance. Assessee is engaged in the banking activity and it is an admitted fact the current balance is the source of investment in shares and assessee has not demonstrated how the interest bearing funds are lying in the current accounts of the assessee, a banking company. Normally, every amount lying in the current accounts is interest bearing ones, therefore, the provisions of clause-(iii) of Rule-8D(2) is rightly applicable. In our opinion, such partial application of the rule is not proper and not sustainable in law. Once rule become applicable and the same has to be applied fully. Further, the assessee offers 1% of the exempt income as the expenditure attributable to earning of the exempt income. This line of adjudication by the CIT(A) is not proper considering the legal provisions of section 14A that what is to be disallowed is the expenditure incurred for earning of the exempt income and not the part of the exempt in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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