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TMI Blog2014 (1) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income on 28.10.2004 declaring total income of Rs.70,50,76,527/-. The case was selected for scrutiny and thereafter the assessment was framed u/s 143(3) vide order dated 28.12.2006 and the total income was determined at Rs.71,06,99,533/- after making various disallowances/additions. Aggrieved by the action of the A.O. assessee carried the matter before CIT(A). CIT(A) vide its order dated 16.10.2007 granted partial relief to the assessee. Against the aforesaid order of CIT(A) the assessee is now in appeal before us. 3. The only effective ground raised by the assessee is with respect to disallowance u/s 14A. 4. During the course of assessment proceedings the A.O. observed that assessee had dividend income of Rs.5,99,30,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decisions:- (1) Everplus Securities & Finace Ltd. - 101 ITD 151/285 ITR (AT) 112 (Delhi) (2) Rhythm Exports (P) Ltd. vs. CIT -2 SOT (Mum)429/97 TTJ 493 (Mum) (3) Harish Krishnakant Bhatt vs. ITO -278 ITR (AT)1 (Ahd) (4) Mumbai Bench in the case of ACIT vs. Citi Corp Finance India Ltd., reported in 111 TTJ 82 (Mum) wherein it has been held that it is not correct to say that dividend income can be earned by incurring no or nominal expenses and all expenses connected with such exempt income have to be disallowed u/s 14A regardless of whether they are direct or indirect., fixed or variable and managerial or financial and provisions of sub section 2 and 3 of section Sec.14A inserted by Finance Act 2006 are procedural in nature and hence appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, on the basis of its own estimate has worked out the disallowance of administrative expenses incurred for managing the portfolio u/s 14A. It is also an admitted fact that all the investments of the assessee are in Demat form and dividends were credited to its account electronically. The A.O. while disallowing the expenditure could not controvert or find any fault in the working of disallowance of administrative expenses made by the assessee. The A.O. has not given a finding that the assessee has incurred expenditure in excess which has been suo motu disallowed by the assessee while computing its income. In the case of Godrej Boyce Manufacturing Company Ltd. vs. DCIT 328 ITR 81(Bom), Hon'ble High Court has held that Rule 8D is appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form part of the total income. The requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture in relation to exempt income under rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard." 10. Considering the facts of the present case in the light of the ratio laid down by the aforesaid decision of Hon'ble Delhi High Court, the A.O., while rejecting the claim of assessee with regard to disallowance u/s 14A, has not given any cogent reasons for rejecting the claim of assessee. Secondly the operation of Rule 8D is applicable prospectively w.e.f. A.Y. 2007-08 and thirdly the assessee suo motu had made the disallowance of administrative expenses, thus considering the totality of the facts and relying on the aforesaid decision of Hon'ble High Courts, we are of the view that in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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