9911796707
TMI Blog2017 (11) TMI 447X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 8D is applied or not, ignoring directions given by Tribunal in its order dated 5th August, 2011. 3. The order of CIT(A) being contrary to law, evidence and facts should be set aside, amended or modified in light of grounds deduced above and decision of Bombay High Court in case of Godrej & Boyce Mfg. Co. Ltd. 4. Each ground of appeal hereinabove is independent and without prejudice to each other. 5. Appellant craves leave to reserve to itself the right to add, alter, or amend any of the grounds of appeal at or before the time of hearing and to produce such further evidences, documents and papers as may be necessary. 2. Briefly stated, the facts of the case are that the assessee company which is a Share & Stock Broker had e-filed its return of income for A.Y. 2007-08 on 19.10.2007, declaring total income of Rs. 8,60,26,502/-. The case of the assessee was taken up for scrutiny proceedings under Sec. 143(2) of the 'Act'. The A.O framed assessment under Sec. 143(3) at an income of Rs. 12,02,66,734/- after making certain disallowances, including a disallowance under Sec. 14A r.w.r 8D of Rs. 10,03,105/-. The assessee carried the matter in appeal before the CIT(A), who co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed, and there was neither any scope for any estimate of expenditure, nor any notional expenditure could be allocated for the purpose of earning the income, however, the A.O had acted in a most whimsical manner and without identifying the indirect expenditure incurred by the assessee on the basis of the material or evidence made available on record, had repeated the disallowance on the basis of estimate, conjectures and surmises. The assessee further referring to the order of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. P. Ltd. (supra), submitted that though the Hon'ble High Court had categorically observed that the A.O while making a disallowance under Sec. 14A remained under a statutory obligation to establish a proximate relationship between the expenditure and the income which did not form part of the total income of the assessee, however, the A.O despite specific directions of the Tribunal to consider the principle laid down by the Hon'ble High Court, had however, failed to establish any live nexus between indirect expenses and the income which did not form part of the total income of the assessee, and had merely on the basis of a guess work disl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pheld the disallowance by principally agreeing with the A.O, but however, restricted the quantum of disallowance of Rs. 10,03,105/- made by the A.O, to an approximate figure of Rs. 10,00,000/-. 6. The assessee being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The Ld. Authorized representative (for short 'A.R') for the assessee submitted that the A.O had erred in passing the order under Sec. 143(3) r.w.s 254, without following the directions of the Tribunal. It was submitted by the ld. A.R that the A.O despite specific directions given by the Tribunal while restoring the matter to the file of the A.O, had however failed to readjudicate the matter in conformity with the specific directions of the Tribunal, and thus gravely erred in bypassing the judgment of the jurisdictional High Court in the case of Godrej & Boyce Mfg. P. Ltd. (supra), as well as the order of the Tribunal in the case of Yatish Trading Co. P. Ltd. (supra). The ld. A.R averred that the A.O without establishing any proximate connection of any expense incurred by the assessee and the earning of the dividend income, over and above that shown by the assessee, had thus most arbitrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue under consideration. We find that the assessee who is a share & stock broker had earned dividend income in respect of the shares held by him, both by way of 'Investments' as well as 'Stock in trade'. That as observed by us hereinabove, the assessee had identified certain expenses, viz. part of salary of an employee, telephone expenses, conveyance expenses and certain other incidental expenses, as pertaining to the earning of the dividend income. The A.O while passing the order under Sec. 143(3) r.w.s 254 had repeated the disallowance of Rs. 10,03,105/- by working out the indirect expenses as per Rule 8D(2)(iii), i.e @ 0.5% of the average value of the investments in share and securities (including those held by the assessee as stock in trade), therein aggregating to Rs. 20,06,21,007/-. We are of the considered view that pursuant to the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. India Advantage Securities Ltd. (2016) 380 ITR 0471 (Bom), no disallowance under Sec. 14A could have been validly made by the A.O in respect of the dividend earned by the assessee on the shares which were held by it as stock in trade. We thus, in the backdrop of our aforesai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the exempt income, unless there was an actual expenditure in relation to earning of the tax free income. We do not find ourselves as being in agreement with the disallowance carried out by the A.O u/s 14A, without recording of a specific finding by him as to how and which all expenses over and above those aggregating to Rs. 72,116/- (supra) were related to earning of the exempt income by the assessee. We find that the restoring of the matter by the Tribunal vide its order passed in ITA NO. 4669/Mum/2010, dated. 05.08.2011, to the file of the A.O, with a specific direction to readjudicate the same in the backdrop of the judgment of the Hon'ble High Court of Bombay in the case of Godrej & Boyce Mfg. Co.(supra) and the order of the Tribunal in the case of Yatish Trading Co. Ltd. (supra), was specifically keeping in view the said fallacy in the original order of the A.O. 10. We have given a thoughtful consideration to the facts of the case and are unable to persuade ourselves to subscribe to the view of the lower authorities. We would look into the proposition canvassed before us by the ld. A.R, as regards the requirement of a satisfaction on the part of the A.O, in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equirement of a satisfaction on the part of the A.O as regards not accepting the correctness of the claim of the assessee in respect of the expenses claimed by him to have been incurred in relation to income which does not form part of the total income of the assessee, had held as under:- "Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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