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TMI Blog2015 (12) TMI 1766X X X X Extracts X X X X X X X X Extracts X X X X ..... l principles of res-judicata are not applicable to income tax proceedings, Secondly Rule 8D of Income tax Rules, 1962 is applicable from assessment year 2008-09. On merits based on facts and circumstances of the case , we have observed above that the substantial activity of the assessee company is to make investments and substantial amount of revenue stream for the assessee company is from dividends and interest income which are exempt from tax. Thus, most humbly we reject the contentions of the assessee company and we uphold the disallowance of total expenditure of ₹ 43,48,277/- made by the AO under Section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 , in the case of the assessee company keeping in view the peculiar facts and circumstances of the case. Decided against the assessee. - I .T.A. No. 1747/Mum/2013 - - - Dated:- 23-12-2015 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER Assessee by Shri Chetan Karia Revenue by : Ms. Vinita J. Menon O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : This appeal filed by the assessee company , being ITA No. 1747/Mum/2013, is directed against the order d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly attributable to exempt income Already disallowed in computation ₹ 5,13,278/- Nil II Interest NOT directly attributable to exempt income (A x B/C) N.A. N.A. III 0.5% of average value of investments 0.5% of ₹ 86,96,55,303/- ₹ 43,48,277 TOTAL DISALLOWANCE U/S 14A read with RULE 8D OF I.T. RULES ₹ 43,48,277/- The A.O., thus added an amount of ₹ 43,48,277/- to the assessee s company total income u/s 14A of the Act. 5. Aggrieved by the assessment orders dated 21-11-2011 passed u/s 143(3) of the Act of the AO, the assessee company preferred an appeal before the CIT(A) and submitted that the assessee company has earned dividend income of ₹ 8,40,14,978/- from listed companies and mutual funds and an amount of ₹ 13,38,525/- as interest income on 6.75% A.R.S. Tax Free Bonds which has been claimed exempt from income tax whereas only ₹ 5,13,278/- were offered for disallowance u/s 14A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e return of income filed with the Revenue while fact of the matter is that the assessee company disallowed expenditure of ₹ 5,13,278/- u/s 14A of the Act . The assessee company submitted that AO cannot proceed to compute disallowance under Rule 8D of Income Tax Rules, 1962 before recording the finding that the disallowance made by the assessee company is incorrect. The CIT(A) after considering the facts of the case and submission of the assessee observed that by the decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. v. CIT, 328 ITR 81(Bom.) , Hon ble Bombay High Court has held that Rule 8D of Income Tax Rules, 1962 is applicable from assessment year 2008-09 for computing the disallowance u/s 14A of the Act and accordingly as per Rule 8D of Income Tax Rules, 1962, direct expenses on account of interest and other expenses are to be disallowed in addition on account of apportionable expenses of 0.5% of average investment made by the assessee company. The CIT(A) accordingly held that the A.O. has rightly applied Rule 8D of Income Tax Rules, 1962 for making the disallowance of expenses to the tune of ₹ 43,48,277/- and the CIT(A) confirmed the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance adopted by the assessee company has been accepted by the CIT(A) which is not challenged by the Revenue. 5. The ld. D.R., on the other hand, relied upon the orders of authorities below and submitted that the A.O. has rightly applied Rule 8D of Income Tax Rules ,1962 in the case of the assessee company. 6. We have heard the rival contentions and also perused the material placed on record. We have observed that the assessee company has made investment of ₹ 90,43,30,175/- as on 31st March, 2009 , of which the market value of the said investment as on 31-03-2009 is ₹ 326.63 crores. The total dividend income earned by the assessee company is ₹ 8,40,14,974/- and interest of ₹ 13,38,525/- on 6.75% A.R.S. Tax Free bonds is also earned by the assessee company during the previous year , which are claimed as exempt income. The assessee company has made sales of products in trading business of ₹ 62,48,788/- which is relatively a small amount as compared to the dividend and interest income of ₹ 8,62,09,965/- earned by the assessee company during the year. The assessee company has purchases(net of increase/ decrease in stock ) of traded goods dealt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in relation to the earning of exempt income and thereafter, proceeded to apply Rule 8D of Income Tax Rules, 1962. Rule 8D of Income Tax Rules, 1962 is applicable from the assessment year 2008-09 as per the decision of Hon ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. (supra) and in the instant appeal the relevant assessment year is 2009-10 whereby Rule 8D of Income Tax Rules, 1962 is clearly applicable which is merely a machinery provisions to compute disallowance u/s 14A of the Act which is a substantive Section to disallow expenditure incurred in relation to income which does not form part of the total income under the Act. In our considered view, the authorities below have rightly applied the Rule 8D of Income Tax Rules, 1962 in the instant case as the relevant assessment year is 2009-10 keeping in view the peculiar facts and circumstances of the case which we have discussed above in this order. The contentions of the assessee company that the CIT(A) has accepted the method of computation adopted by the assessee company for assessment year 2005-06 and 2006-07 can not be accepted as first of all principles of res-judicata are not applicable to income tax pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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