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TMI Blog2019 (7) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... e going to Rule 8. In such circumstances we are not impressed by the submission canvassed on behalf of the Revenue that once there are mixed funds, Rule 8 would be attracted automatically. In the overall view of the matter, we are convinced that no error, not to speak of any error of law, could be said to have been committed by the Tribunal in passing the impugned order. - R/TAX APPEAL NO. 100 of 2019 - - - Dated:- 18-6-2019 - MR J. B. PARDIWALA AND MR A.C. RAO, JJ. For The Appellant (s) : MR VARUN K. PATEL For The Opponent (s) : MR MANISH SHAH ORAL JUDGMENT ( PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. This Tax Appeal under Section 260A of the Income Tax Act, 1961, is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal dated 1st August 2018 in the ITA No.1413/AHD/2014 for the Assessment Year 2010-11. 2. The Revenue has proposed the following substantial questions of law in its memorandum of the Tax Appeal : ( a) Whether on the facts and in circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the Assessing Officer rightly made the disallowance under Section 14A of the Act. He submitted that in a recent decision in the case of Maxopp Investment Limited (supra), the Supreme Court has reiterated that the purpose behind Section 14A of the Act is not to permit deduction of the expenditure incurred in relation to the income which does not form part of the total income. It is to ensure that the assessee does not get double benefit. 6. He further submitted that this Court, in the case of PCIT-II v. Shreno Limited, (2018)409 ITR 401 (Gujarat), has referred to the decision of the Supreme Court in the case of S.A.Builders Limited v. CIT, (288)ITR 1 and observed that the exposition of law made by the Supreme Court in the case of S.A.Builders Limited (supra) and the observations made therein have been applied by this Court on various occasions particularly in connection with the disallowance to be made under Section 14A of the Act and it has been held that if the assessee can demonstrate the availability of the surplus interest free funds for making the investment generating tax free income, the disallowance under Section 14A of the Act would not be j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submit that such an issue does not arise in the present case so as to make the dictum of Maxopp Investment Limited (supra) applicable to the case on hand. He submitted that Maxopp Investment Limited (supra) should not be understood as laying down a proposition of law that the requirement of sub-rule (1) of Rule 8D of the satisfaction to be arrived at by the Assessing Officer before applying the formula given in sub-rule (2) of Rule 8D is done away. He submitted that the decision of the Supreme Court in Maxopp Investment Limited (supra) does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds, i.e. interest free as well as interest bearing funds, and utilized them for making investments into securities earning tax free income and the rest applicability of Section 14A read with Rule 8D would be automatic. 10. In such circumstances referred to above, Mr.Shah prays that there being no merit in this Tax Appeal, the same may not be admitted. He would submit that the question proposed cannot be termed as a question of law, much less a substantial question of law. ANALYSIS : 11. Ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment Limited (supra), the Supreme Court has clarified that the satisfaction has to be recorded by the Assessing Officer to show that the voluntary disallowance of the expenditure made by the assessee on the expenditure incurred for earning exempt income is not in order. The Assessing Officer, in such circumstances, is obliged to assign reasons for he not being satisfied having regard to the accounts maintained by the assessee and the suo motu disallowance made by the assessee under Section14A of the Act. We may reproduce the relevant observations of the Supreme Court in this regard thus : Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned the expenditure but the Assessing Officer did not accept the assessee's apportionment. In that eventuality, he will have to record its satisfaction to this effect. Further, while recording su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irming the decision of the High Court. 17. We do not find that this portion of the judgment of the Supreme Court in case of Maxopp Investment Ltd., can be seen as fundamentally changing the understanding and interpretation of Section 14A and Rule 8D of the Rules adopted by this Court and various Courts, noted above. This judgment does not lay down a proposition that the requirement of sub-rule (1) of Rule 8D of the satisfaction to be arrived by the Assessing Officer before applying the formula given in sub-rule (2) of Rule 8D is done away with. In other words, the judgment in case of Maxopp Investment Ltd., does not lay down a proposition that the moment it is demonstrated that the assessee had availed of mixed funds i.e. interest free as well as interest bearing funds and utilized them for making investments into securities earning tax free income and the rest applicability of the Section 14A read with Rule 8D would be automatic. We are conscious that neither in M/s. Max India Ltd., Punjab Haryana nor in Gujarat State Fertilizer and Chemicals case, this High Court had noticed the judgment of the Supreme Court in case of Maxopp Investment Ltd. Nevertheless in vi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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