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TMI Blog2014 (9) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure prescribed under Rule 8D of the I.T Rules - the revision proceeding is liable to be quashed, as the view entertained by CIT on the issue of disallowance u/s 14A is not in accordance with the law - the AO has examined the issue of disallowance to be made u/s 14A of the Act - the assessee had declared a dividend income and the net profit returned by it was 129.34 crores - the issue relating to invoking of the provisions of Rule 8D was specifically questioned by the AO and the assessee has given above reply - the AO has proceeded to compute the disallowance - the AO has examined the applicability of Rule 8D to the case of the assessee herein - the AO has examined the issue of disallowance to be made u/s 14A of the Act - the assessment order cannot be termed as erroneous and prejudicial to interests of revenue simply because the CIT is having a different view in this matter – Decided in favour of assessee. - I.T.A. No. 2820/Mum/2013 - - - Dated:- 28-8-2014 - Shri B. R. Baskaran (AM) And Sanjay Garg, (JM),JJ. For the Petitioner : Shri S. C. Tiwari and Ms. Natasha Mangat For the Respondent : Shri R R Prasad ORDER Per B. R. Baskaran, Accountant Member: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CIT Vs. A.W. Figgies Co. Ors.(24 ITR 405)(SC), further submitted that the partnership firm, per se, does not have separate legal existence from its partners. Accordingly it was contended that the income earned by a partner from the partnership firm should not be considered as exempted income. The assessee further submitted that the Tribunal in the case of Yatish Trading Company has held that the interest paid on acquisition of shares held as stock in trade need not be disallowed against the dividend income. The assessee submitted that even in the case of Daga Capital management P Ltd (117 ITD 169), two members had taken contrary view and the decision was rendered on a majority view. Accordingly the assessee submitted that the assessing officer has taken one of the possible views. The assessee also submitted that the assessing officer, before invoking Rule 8D, should arrive at satisfaction that the claim made by the assessee is not correct. Accordingly, the assessee contended before the Ld CIT the impugned assessment order cannot be considered to be erroneous, since the AO has taken one of the possible views. 5. The Ld CIT was not convinced with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax in the hands of the partnership firm itself and hence the share income received by the assessee has suffered tax already. Hence, it cannot be equated with Dividend income and cannot be considered as exempted income. He further submitted that the assessee herein is having both own funds and borrowed funds. The investments made in the partnership firm is covered by the own funds alone. He submitted that when the interest free funds available with the assessee is sufficient to meet its investments and the assessee had also raised a loan, then it can be presumed that the investments were made from the interest free funds available. For this proposition, the Ld A.R placed reliance on the decision rendered by Hon'ble jurisdictional Bombay High Court in the case of CIT Vs. Reliance Utilities Power Ltd (313 ITR 340). 7. He further submitted that the Ld CIT was not correct in law in presuming that the disallowance u/s 14A is required to be computed compulsorily under Rule 8D of the I.T Rules. In this regard, the Ld A.R invited our attention to the decision rendered by Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd Vs. DCIT (2010)(328 ITR 81), wherein t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly his mind on this aspect and hence the assessment order will be rendered erroneous and prejudicial to the interests of revenue. In this regard, the Ld D.R placed reliance on the decision rendered by Hon'ble Supreme Court in the case of Malabar Industrial Co.Ltd (supra) and also the decision rendered by Hon'ble Karnataka High Court in the case of Infosis Technologies (341 ITR 293)(kar). 10. In the rejoinder, the Ld A.R submitted that the assessing officer has adopted one of the possible courses permissible in law and hence the Ld CIT was not justified in passing the impugned revision order. He submitted that the view entertained by Ld CIT that the Rule 8D is mandatory is contrary to the binding decision of Hon'ble Bombay High Court. Accordingly, he contended that the impugned revision order cannot be sustained. 11. We have heard the rival contentions and carefully perused the record. The scope of revision proceedings initiated under section 263 of the Act was considered by Hon'ble Bombay High Court in the case of Grasim Industries Ltd. V CIT (321 ITR 92) by taking into account the law laid down by the Hon'ble Supreme Court. The relevant observations are e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. [2000] 243 ITR 83 (SC) has been followed and explained in a subsequent judgment of the Supreme Court in CIT v. Max India Ltd. [2007] 295 ITR 282. 12. In Gabriel India Ltd. [1993] (203 ITR 108) (Bom), law on this aspect was discussed in the following manner by the Hon'ble jurisdictional High Court (page 113) : . . . From a reading of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is ' erroneous in so far as it is prejudicial to the interests of the Revenue' . It is not an arbitrary or unchartered power, it can be exercised only on fulfillment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 14A of the Act as per the procedure laid down in Rule 8D of the IT Rules as per the decision of Godrej Boyce Mfg Co Ltd (supra), which is effective from AY 2008-09. (b) Interest paid on borrowed capital utilized for acquiring shares held as stock in trade is to be included in the calculation of disallowance to be made u/s 14A as per Rule 8D in terms of the Special Bench decision in the case of Daga Capital Management (P) Ltd (supra) It can be seen that the second ground flows from the first ground only. However, the Ld A.R has pointed out to us that the Hon'ble Bombay High Court, in the case of Godrej Boyce Mfg Co Ltd (supra), has clearly held that the provisions of sec. 14A does not authorize or empower the AO to apply the prescribed method irrespective of the claim made by the assessee. It is now well settled proposition that the assessing officer should examine the claim of the assessee having regard to the accounts maintained by the assessee and only, if he is not satisfied with the claim, then he can proceed to compute the disallowance u/s 14A of the Act in terms of Rule 8D of the I.T Rules. The Hon'ble Bombay High Court in the above said case has clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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