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TMI Blog2011 (4) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... Calcutta High Court in the case of Exide Industries Ltd. Vs. Union of India [ 2007 (6) TMI 175 - CALCUTTA HIGH COURT] . Disallowance u/s 014A by invoking rule 008D of the I. T. Rules, 1962 - In Present case, we find that the assessee earned a sum of ₹ 5,31,095/- as dividend income and claimed that it did not have incurred any expense for earning such dividend income. The lower authorities following the decision of Special Bench, ITAT in the case of Daga Capital Management Pvt. Ltd. [ 2008 (10) TMI 383 - ITAT MUMBAI] disallowed the sum of ₹ 15,01,665/- on estimate basis as inadmissible deduction from business income u/s. 014A of the Act r.w. r 008D of the I. T. Rules. In view of facts of this case and the principl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. CIT(A) erred in not holding that provision for leave encashment is neither a statutory nor contingent liability and therefore not to be considered for the purpose of computing disallowance u/s. 43B(f) of I. T. Act, 1961. 3. The brief facts leading to the above issue are that the Assessing Officer observed in assessment order that the assessee has made a provision for leave encashment for a total sum of ₹ 35,10,455/-, which included liability on account of earlier Optical Fiber Goal Ltd., which merged with the company with a scheme of merger as approved by the Court. In the revised return the assessee made a fresh claim for allowance of the sum following the jurisdictional order in the case of Exide Industries Ltd. The depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tingent liability. It is a provision to be made for the entitlement of an employee achieved in a particular financial year. An employee earns certain amount by not taking leave which he or she is otherwise entitled to in that particular year. Hence, the employer is obliged to make appropriate provision for the said amount. Once the employee retires he or she has to be paid such sum on cumulative basis which the employee earns throughout his or her service career unless he or she avails of the leave earned by him or her. That does not have any nexus with the original enactment. An employer is entitled to deduction for the expenditure he incurs for running his business which includes payment of salary and other perquisites to his employees. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. That without prejudice to Ground No.2 above, though presuming but not admitting that expenses, if any, incurred to earn dividend income which is exempt u/s. 10(34) is not to be allowed, the Ld. CIT(A) further erred in confirming the disallowance made by the Ld. DCIT in a mechanical manner by applying the provisions of Rule 8D which is at an excessive figures. 6. Brief facts leading to the above issue are that Assessing Officer in the assessment order observed that the assessee earned ₹ 5,31,095/- as dividend out of its holding in shares as investments. Before him the assessee claimed that it did not incur any expenditure for earning tax free dividend income. The Assessing Officer following the decision of Special Bench in ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m part of the total income under the Act. The Assessing Officer must adopt a reasonable basis or method consistent with all the relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record; (vii) The proceedings for the assessment year 2002-03 shall stand remanded back to the Assessing Officer. The Assessing Officer shall determine as to whether the assessee has incurred any expenditure (direct or indirect) in relation to dividend income/income from mutual funds which does not form part of the total income as contemplated under Section 14A. The Assessing Officer can adopt reasonable basis for effecting the apportionment. While making that determination, the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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