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TMI Blog2015 (11) TMI 1631X X X X Extracts X X X X X X X X Extracts X X X X ..... ate estimation. As the disallowance was made on an ad hoc percentage without any basis or assigning any reason whatsoever, the disallowance was rightly set aside by the Appellate Authorities. As per the provisions of Section 14A of the Act, the Assessing Officer shall determine the amount of expenditure incurred in relation to exempt income which does not form part of the total income, if he was not satisfied with the correctness of the claim of the assessee in respect of such expenditure. It is settled principle of law that the Assessing Officer is required to record the non-satisfaction of the correctness of the claim. In the absence of such recording of non-satisfaction, the disallowance is untenable. In the case on hand, we do not find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ARAVIND, ADV. FOR THE RESPONDENT : SRI A. SHANKAR, ADV. JUDGMENT This appeal is directed against the orders passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'ITAT'), Bangalore Bench C in ITA No. 1515/Bang/2012, 02.05.2014 confirming the order of the Appellate Commissioner and the order passed by the Deputy Commissioner of Income Tax, Circle-11(5), Bangalore. 2. The respondent-assessee is an undertaking of Government of Karnataka engaged in financing industrial units. During the assessment year 2009-10, the assessee had made investments to the tune of ₹ 1,24,04,17,118/- in securities on which it earned dividend income of ₹ 2,51,95,563/-. The assessee company filed its return o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d tax free investment. Further, regarding disallowance of 0.5% of the average investments as aforementioned (supra), the Appellate Commissioner directed the Assessing Officer to verify as to whether double addition was made on this account, since the assessee had contended that it had already disallowed an identical amount in its computation of income filed in the return of income. The ITAT, by its order dated 02.05.2014 affirmed the order passed by the Appellate Commissioner concluding that the disallowance made by the Assessing Officer was not in accordance with the provisions of Rule 8D(2)(ii) of the Rules. It further observed that the Assessing Officer has failed to specify as to why 5% was adopted and as to what is the basis to arri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the total income under this Act: Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Rule 8D of the Rules: Method for determining amount of expenditure in relation to income not includible in total income. 8D - (1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with - (a) the correctness of the claim of expenditure made by the assessee; or (b) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. (3) For the purposes of this rule, the total assets shall mean, total assets as appearing in the balance sheet excluding the increase on account of revaluation of assets but including the decrease on account of revaluation of assets. 4. Sri K.V. Aravind, learned counsel appearing on behalf of the Revenue taking us through the material on record contends that the orders passed by the Appellate Commissioner as well as the ITAT are liable to be set aside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is required to record the non-satisfaction of the correctness of the claim. In the absence of such recording of non-satisfaction, the disallowance is untenable. In the case on hand, we do not find any such finding given by the Assessing Officer in the order of assessment for the assessment year 2009-10. 5. As regards the issue of computation of the expenditure, Rule 8D of the Rules contains three limbs, namely:- (i) Expenditure directly related to the earning of exempt income; (ii) Interest expenditure not directly attributable to any particular income; and (iii) Amount equal to one-half per cent of the average value of investments, income from which does not form part of total income. As regards the 1st and 3rd limbs of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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