LIC Housing Finance Ltd v Dy. CIT
ITAT BENCH 'A' MUMBAI
ITA Nos. 3533, 3534 & 3535/Mum/2010
Assessment Years: 2001-02, 2001-02 & 2003-04
R S Syal, AM and V Durga Rao, JM
Decided on: 29 April 2011
Counsel appeared:
Mr Prasad Bapat for the appellant
Mr Rajeev Agarwal for the respondent
Order
Per: V Durga Rao, JM:
These appeals pertaining to same assessee are directed against the orders of CIT(A)- for the
assessment years 2001-02 and 2003-04. Since identical issues are involved in these appeals, these
appeals were heard together and, therefore, a common order is passed for the sake of
convenience.
ITA No. 3533/Mum/2010
2. The ground raised in this appeal is in respect of section 14A of the Act.
3. Briefly the facts of the case are that the Assessing Officer had disallowed expenses of Rs.
9,94,23,807/- and the CIT(A) following the special decision of ITAT in the case of Daga Capital
Investment Ltd., 26 SOT 603 (Mum)(SB) directed the Assessing Officer to work out the
disallowance in pursuance to the said decision and in accordance with the provisions of Rule 8D
r.w. section 14A of the Act. Aggrieved the assessee carried the matter in appeal before the
CIT(A).
4. At the time of hearing before us, the learned representatives of the parties have agreed that this
issue is covered by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co.
Ltd., [2010] 328 ITR 81 (Bom.) wherein the Hon’ble Court held as under:-
“That the provisions of rule 8D of the Rules which have been notified with effect from March 24,
2008, would apply with effect from assessment year 2008-09. Even prior to assessment year
2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section
(1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which
has been incurred in relation to income which does not form part of the total income under the
Act. The AO 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. The proceedings for assessment year 2002-03 would stand remanded to
the AO. The AO should determine as to whether the assessee had 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 AO can adopt a reasonable basis
for effecting the apportionment. While making that determination, the AO should provide a
reasonable opportunity to the assessee of producing its accounts and relevant or germane
material having a bearing on the facts and circumstances of the case.”
5. In view of the ratio laid down by the Hon’ble jurisdictional High court in the case of Godrej &
Boyce Mfg. Co. Ltd. (supra), we remit the matter back to the file of the AO with a direction
decide the issue afresh in the light of the said judgment of the Hon’ble Jurisdictional High court
after providing reasonable opportunity of being heard to the assessee.
6. In the result, the appeal of the assessee is allowed for statistical purposes.
ITA NO. 3534/Mum/2010
7. In this appeal the assessee has raised the following ground of appeal:-
“The learned CIT(A) erred, in not accepting the appellant’s plea that full disclosure was made
with regard to non-convertible debentures written off in the amount of Rs. 4,68,34,997/- as
irrecoverable as recorded in the original assessment and as such the reopening under section 147
of the Act, 1961 constituted change of opinion which is not permissible as per the latest larger
bench decision of Supreme Court in Kelvinator of India ltd.
8. Briefly the facts of the case are that the assessee filed its return of income on 31/10/2001
declaring total income of Rs. 87,84,10,820/-. Assessment was completed u/s 143(3) of the Act on
26/02/04 determining the total income of the assessee at Rs. 89,23,61,930/-. Thereafter, the
Assessing Officer served notice u/s 147 dated 27/07/04 for escaping assessment on the ground
that the assessee had claimed a deduction of Rs. 20,15,06,237/- towards write off not charged to
P&L A/c, which included an amount of Rs. 4,68,34,997/- against non-convertible debentures and
Rs. 99,99,999/- against inter corporate deposits. The balance of Rs. 14,46,71,241/- against main
activity of the company. Since the main business of the company was financing for
purchase/construction of residential premises, investment in non-convertible debentures was in
the nature of investment and did not constitute ordinary course of business. Therefore, the
assessee had reduce this amount of Rs. 4,68,34,997/- from provisions for contingencies. Before
the learned CIT(A) the assessee filed written submissions wherein it was stated that in view of
disclosure of full facts with regard to the nonconvertible debentures written off as irrecoverable as
brought out in paragraph 4 of the original assessment order, therefore, the proceedings initiated
u/s 147 are not valid. It was further stated that since there being no change in the relevant facts,
any proposal to withdraw or disallow the deduction under proceedings u/s 147 would tantamount
to a mere change of opinion. For this contention, the assessee placed reliance on various case
laws including the judgment of the Hon’ble Delhi High Court in the case of CIT v Kelvinator of
India Ltd., 256 ITR 1. The learned CIT(A) following the decision of the Tribunal in the case of
CIBA India P. Ltd., v ITO [2009] 31 DTR 374 wherein the claim for deduction u/s 35(1)(iv) was
allowed in the original assessment order. Later the assessee found to be engaged in scientific
research not for itself but for its group companies. It was held that reopening was valid by holding
the condition to disclose fully and truly all material facts necessary for assessment is inapplicable
to the reassessment proceedings initiated within four years from the end of relevant assessment
year. In view of the above and after considering the submissions of the assessee, the CIT(A) held
that there was no infirmity in the action of the Assessing Officer in assuming jurisdiction u/s 147
of the Act. On being aggrieved, the assessee carried the matter in appeal before the ITAT.
9. The learned counsel for the assessee has submitted that the assessee has disclosed fully and
truly all the material facts before the Assessing Officer and the Assessing Officer had discussed
the issue in respect of non-convertible debentures in paragraph 4 of his order and there is no new
material found by the assessee, therefore, initiation of proceedings u/s 147 would tantamount
mere change of opinion and reopening of assessment u/s 147 is not valid in the eye of law.
10. On the other hand, the learned Departmental Representative has supported the order passed by
the Assessing Officer.
11. We have heard the learned representatives of the parties and perused the record. In the present
case, the assessment was completed u/s 143(3) of the Act, after considering the material on
record. The Assessing Officer reopened the assessment for income escaping the assessment on
the ground that the assessee had claimed a deduction of Rs. 20,15,06,237/- towards ‘write off not
charged to P&L A/c, which included an amount of Rs. 4,68,34,997/- against non-convertible
debentures and Rs. 99,99,999/- against inter corporate deposits and the balance of Rs.
14,46,71,241/-. The Assessing Officer held that since the main business of the company was
financing for purchase/construction of residential premises, investment in non-convertible
debentures was in the nature of investment and did not constitute ordinary course of business. He
further held that the assessee had reduce the said amount of Rs. 4,68,34,997/- from the provisions
for contingencies, which is not in order. From the above, it is very clear that the Assessing Officer
has reopened the assessment on the ground that acquiring debentures is not normal business
activity of the assessee company. We find that there is no additional material on record before the
Assessing Officer to come to the above conclusion and reopening the assessment u/s 147 for the
reason that the income of the assessee had escaped assessment. The learned CIT(A) has also not
disputed this fact that the assessee had not disclosed fully and truly all the material facts
necessary for the assessment. According to the learned CIT(A) reopening is valid even if the
assessee has disclosed fully and truly all the material facts that are necessary for assessment if the
reopening is within 4 years. In our considered opinion this finding of the CIT(A) is contrary to the
law laid down by the Hon’ble Supreme Court and also the Hon’ble Jurisdictional High Court. The
Hon’ble Supreme Court in the case of CIT v Kelvinator India Ltd., 320 ITR 561 held that after 1st
April, 1999 the Assessing Officer has power to reopen the assessment u/s 147 of the Act provided
the Assessing Officer has reason to believe that the income has escaped assessment and there is a
tangible material to come to the conclusion that there is an escapement of income. Mere change
of opinion cannot per-se be the reason to reopen the assessment. In the similar circumstances, the
Hon’ble jurisdictional High Court in the case of Asian Paints Ltd. v DCIT and Others, 308 ITR
195 has held that issuance of notice u/s 148 of the Act for the reason that some material which
was available on record while making assessment was inadvertently excluded from consideration
amount to reopening of assessment u/s 147. Reopening of assessment merely on the basis of
change of opinion is not permissible under the law. The CIT(A) has relied on the decision of the
Tribunal in the case of CIBA India P. Ltd., v ITO (supra) wherein the assessment was made u/s
143(1) and subsequently it was reopened whereas, in the present case, the assessment was made
u/s 143(3) of the Act and subsequently it was reopened on the same facts and material. The facts
of the case under consideration are entirely different from the facts of the case relied upon by the
CIT(A). Therefore, respectfully following the ratios laid down by the Hon’ble Supreme Court in
the case of Kelvinator India ltd.(supra) and the Hon’ble Jurisdictional High Court in the case of
Asian Paints Ltd. (supra), we hereby quash the reopening assessment made by the Assessing
Officer u/s 147 of the Act. Accordingly, the ground of appeal raised by the assessee in this regard
is allowed.
12. In the result, the appeal of the assessee is allowed.
ITA NO. 3535/Mum/10
13. The assessee has raised the following grounds of appeal:
“1. The learned CIT(A) erred on the facts and in the circumstances of the case and in law, in not
accepting the appellant’s plea that the provisions of section 14A of the Act, 1961 are not
applicable to the tax free dividend and interest income earned by the appellant.
2. Without prejudice to the above ground, the appellant contends that Rule 8D of the Income tax
rules was not applicable to the appellant in assessment year under appeal and that it was
applicable only prospectively with effect from 24/03/2008.”
14. Briefly the facts of the case are that the assessee claimed dividend and interest income from
tax free bonds u/s 10(33) & 10(15) of the Act amounting to Rs. 3,39,38,675/- which were exempt
from tax. The assessee contended that provisions of section 14A were not applicable in its case as
well as the investments of the company had been made out of its own funds. It was contended
that the borrowings of the company were mainly LIC, Banks NHB and through issue of Nonconvertible
debentures and in all these cases there was a provision in the loan agreement/offer
documents that money will be used for the purpose of the business of the company i.e. lending for
purchases or construction of residential house. The Assessing Officer noted that the claim that all
the borrowings had only been utilized for the advancing loans for purchase and construction of
residential house only, had not been substantiated by giving statement of utilization of the
specific borrowings, the statement of accounts prepared by the assessee included item of
expenditure which had been utilized for earning income including income classified as exempt.
The major source of the funds for the assessee was borrowings on which interest was paid.
Accordingly, the Assessing Officer worked out by apportioning the interest expenditure of Rs.
652,35,72,508/- to all the activities of the assessee in proportion to the income earned from each
activity. Thus, the disallowance was worked out u/s 14A at Rs. 2,92,15,306/-. Aggrieved, the
assessee carried the matter in appeal before the CIT(A).
15. Before the CIT(A), the assessee filed written submissions wherein, inter-alia, it was stated
that whatever tax free dividend accrued to the assessee was attributable to short term investments
made out of internal funds. Reliance was placed on CIT v Hero Cycles (P&H). After considering
the submissions of the assessee, the CIT(A) following the special bench decision of ITAT in the
case of ITO v Daga Capital Investment Ltd. [2008] 26 SOT 603 (Mum)(SB), directed the
Assessing Officer to verify the correctness of the working of disallowance of Rs. 6,30,15,147/-
submitted by the assessee on the basis of figures available in the Balance Sheet and the profit and
loss account at his end and in the light of the formula provided in rule 8D. The amount so worked
out in terms of Rule 8D would substitute the amount disallowed as per the assessment, resulting
in enhancement of the disallowance made by the Assessing Officer. Aggrieved the assessee is in
appeal before the ITAT.
16. At the time of hearing before us, the learned representatives of the parties have agreed that
this issue is covered by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg.
Co. Ltd., [2010] 328 ITR 81 (Bom.) wherein the Hon’ble Court held as under:-
“That the provisions of rule 8D of the Rules which have been notified with effect from March 24,
2008, would apply with effect from assessment year 2008-09. Even prior to assessment year
2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section
(1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which
has been incurred in relation to income which does not form part of the total income under the
Act. The AO 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. The proceedings for assessment year 2002-03 would stand remanded to
the AO. The AO should determine as to whether the assessee had 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 AO can adopt a reasonable basis
for effecting the apportionment. While making that determination, the AO should provide a
reasonable opportunity to the assessee of producing its accounts and relevant or germane
material having a bearing on the facts and circumstances of the case.”
17. In view of the ratio laid down by the Hon’ble jurisdictional High court in the case of Godrej
& Boyce Mfg. Co. Ltd. (supra), we remit the matter back to the file of the AO with a direction
decide the issue afresh in the light of the said judgment of the Hon’ble Jurisdictional High court
after providing reasonable opportunity of being heard to the assessee.
18. In the result, the appeal of the assessee is allowed for statistical purposes.
ITAT BENCH 'A' MUMBAI
ITA Nos. 3533, 3534 & 3535/Mum/2010
Assessment Years: 2001-02, 2001-02 & 2003-04
R S Syal, AM and V Durga Rao, JM
Decided on: 29 April 2011
Counsel appeared:
Mr Prasad Bapat for the appellant
Mr Rajeev Agarwal for the respondent
Order
Per: V Durga Rao, JM:
These appeals pertaining to same assessee are directed against the orders of CIT(A)- for the
assessment years 2001-02 and 2003-04. Since identical issues are involved in these appeals, these
appeals were heard together and, therefore, a common order is passed for the sake of
convenience.
ITA No. 3533/Mum/2010
2. The ground raised in this appeal is in respect of section 14A of the Act.
3. Briefly the facts of the case are that the Assessing Officer had disallowed expenses of Rs.
9,94,23,807/- and the CIT(A) following the special decision of ITAT in the case of Daga Capital
Investment Ltd., 26 SOT 603 (Mum)(SB) directed the Assessing Officer to work out the
disallowance in pursuance to the said decision and in accordance with the provisions of Rule 8D
r.w. section 14A of the Act. Aggrieved the assessee carried the matter in appeal before the
CIT(A).
4. At the time of hearing before us, the learned representatives of the parties have agreed that this
issue is covered by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg. Co.
Ltd., [2010] 328 ITR 81 (Bom.) wherein the Hon’ble Court held as under:-
“That the provisions of rule 8D of the Rules which have been notified with effect from March 24,
2008, would apply with effect from assessment year 2008-09. Even prior to assessment year
2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section
(1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which
has been incurred in relation to income which does not form part of the total income under the
Act. The AO 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. The proceedings for assessment year 2002-03 would stand remanded to
the AO. The AO should determine as to whether the assessee had 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 AO can adopt a reasonable basis
for effecting the apportionment. While making that determination, the AO should provide a
reasonable opportunity to the assessee of producing its accounts and relevant or germane
material having a bearing on the facts and circumstances of the case.”
5. In view of the ratio laid down by the Hon’ble jurisdictional High court in the case of Godrej &
Boyce Mfg. Co. Ltd. (supra), we remit the matter back to the file of the AO with a direction
decide the issue afresh in the light of the said judgment of the Hon’ble Jurisdictional High court
after providing reasonable opportunity of being heard to the assessee.
6. In the result, the appeal of the assessee is allowed for statistical purposes.
ITA NO. 3534/Mum/2010
7. In this appeal the assessee has raised the following ground of appeal:-
“The learned CIT(A) erred, in not accepting the appellant’s plea that full disclosure was made
with regard to non-convertible debentures written off in the amount of Rs. 4,68,34,997/- as
irrecoverable as recorded in the original assessment and as such the reopening under section 147
of the Act, 1961 constituted change of opinion which is not permissible as per the latest larger
bench decision of Supreme Court in Kelvinator of India ltd.
8. Briefly the facts of the case are that the assessee filed its return of income on 31/10/2001
declaring total income of Rs. 87,84,10,820/-. Assessment was completed u/s 143(3) of the Act on
26/02/04 determining the total income of the assessee at Rs. 89,23,61,930/-. Thereafter, the
Assessing Officer served notice u/s 147 dated 27/07/04 for escaping assessment on the ground
that the assessee had claimed a deduction of Rs. 20,15,06,237/- towards write off not charged to
P&L A/c, which included an amount of Rs. 4,68,34,997/- against non-convertible debentures and
Rs. 99,99,999/- against inter corporate deposits. The balance of Rs. 14,46,71,241/- against main
activity of the company. Since the main business of the company was financing for
purchase/construction of residential premises, investment in non-convertible debentures was in
the nature of investment and did not constitute ordinary course of business. Therefore, the
assessee had reduce this amount of Rs. 4,68,34,997/- from provisions for contingencies. Before
the learned CIT(A) the assessee filed written submissions wherein it was stated that in view of
disclosure of full facts with regard to the nonconvertible debentures written off as irrecoverable as
brought out in paragraph 4 of the original assessment order, therefore, the proceedings initiated
u/s 147 are not valid. It was further stated that since there being no change in the relevant facts,
any proposal to withdraw or disallow the deduction under proceedings u/s 147 would tantamount
to a mere change of opinion. For this contention, the assessee placed reliance on various case
laws including the judgment of the Hon’ble Delhi High Court in the case of CIT v Kelvinator of
India Ltd., 256 ITR 1. The learned CIT(A) following the decision of the Tribunal in the case of
CIBA India P. Ltd., v ITO [2009] 31 DTR 374 wherein the claim for deduction u/s 35(1)(iv) was
allowed in the original assessment order. Later the assessee found to be engaged in scientific
research not for itself but for its group companies. It was held that reopening was valid by holding
the condition to disclose fully and truly all material facts necessary for assessment is inapplicable
to the reassessment proceedings initiated within four years from the end of relevant assessment
year. In view of the above and after considering the submissions of the assessee, the CIT(A) held
that there was no infirmity in the action of the Assessing Officer in assuming jurisdiction u/s 147
of the Act. On being aggrieved, the assessee carried the matter in appeal before the ITAT.
9. The learned counsel for the assessee has submitted that the assessee has disclosed fully and
truly all the material facts before the Assessing Officer and the Assessing Officer had discussed
the issue in respect of non-convertible debentures in paragraph 4 of his order and there is no new
material found by the assessee, therefore, initiation of proceedings u/s 147 would tantamount
mere change of opinion and reopening of assessment u/s 147 is not valid in the eye of law.
10. On the other hand, the learned Departmental Representative has supported the order passed by
the Assessing Officer.
11. We have heard the learned representatives of the parties and perused the record. In the present
case, the assessment was completed u/s 143(3) of the Act, after considering the material on
record. The Assessing Officer reopened the assessment for income escaping the assessment on
the ground that the assessee had claimed a deduction of Rs. 20,15,06,237/- towards ‘write off not
charged to P&L A/c, which included an amount of Rs. 4,68,34,997/- against non-convertible
debentures and Rs. 99,99,999/- against inter corporate deposits and the balance of Rs.
14,46,71,241/-. The Assessing Officer held that since the main business of the company was
financing for purchase/construction of residential premises, investment in non-convertible
debentures was in the nature of investment and did not constitute ordinary course of business. He
further held that the assessee had reduce the said amount of Rs. 4,68,34,997/- from the provisions
for contingencies, which is not in order. From the above, it is very clear that the Assessing Officer
has reopened the assessment on the ground that acquiring debentures is not normal business
activity of the assessee company. We find that there is no additional material on record before the
Assessing Officer to come to the above conclusion and reopening the assessment u/s 147 for the
reason that the income of the assessee had escaped assessment. The learned CIT(A) has also not
disputed this fact that the assessee had not disclosed fully and truly all the material facts
necessary for the assessment. According to the learned CIT(A) reopening is valid even if the
assessee has disclosed fully and truly all the material facts that are necessary for assessment if the
reopening is within 4 years. In our considered opinion this finding of the CIT(A) is contrary to the
law laid down by the Hon’ble Supreme Court and also the Hon’ble Jurisdictional High Court. The
Hon’ble Supreme Court in the case of CIT v Kelvinator India Ltd., 320 ITR 561 held that after 1st
April, 1999 the Assessing Officer has power to reopen the assessment u/s 147 of the Act provided
the Assessing Officer has reason to believe that the income has escaped assessment and there is a
tangible material to come to the conclusion that there is an escapement of income. Mere change
of opinion cannot per-se be the reason to reopen the assessment. In the similar circumstances, the
Hon’ble jurisdictional High Court in the case of Asian Paints Ltd. v DCIT and Others, 308 ITR
195 has held that issuance of notice u/s 148 of the Act for the reason that some material which
was available on record while making assessment was inadvertently excluded from consideration
amount to reopening of assessment u/s 147. Reopening of assessment merely on the basis of
change of opinion is not permissible under the law. The CIT(A) has relied on the decision of the
Tribunal in the case of CIBA India P. Ltd., v ITO (supra) wherein the assessment was made u/s
143(1) and subsequently it was reopened whereas, in the present case, the assessment was made
u/s 143(3) of the Act and subsequently it was reopened on the same facts and material. The facts
of the case under consideration are entirely different from the facts of the case relied upon by the
CIT(A). Therefore, respectfully following the ratios laid down by the Hon’ble Supreme Court in
the case of Kelvinator India ltd.(supra) and the Hon’ble Jurisdictional High Court in the case of
Asian Paints Ltd. (supra), we hereby quash the reopening assessment made by the Assessing
Officer u/s 147 of the Act. Accordingly, the ground of appeal raised by the assessee in this regard
is allowed.
12. In the result, the appeal of the assessee is allowed.
ITA NO. 3535/Mum/10
13. The assessee has raised the following grounds of appeal:
“1. The learned CIT(A) erred on the facts and in the circumstances of the case and in law, in not
accepting the appellant’s plea that the provisions of section 14A of the Act, 1961 are not
applicable to the tax free dividend and interest income earned by the appellant.
2. Without prejudice to the above ground, the appellant contends that Rule 8D of the Income tax
rules was not applicable to the appellant in assessment year under appeal and that it was
applicable only prospectively with effect from 24/03/2008.”
14. Briefly the facts of the case are that the assessee claimed dividend and interest income from
tax free bonds u/s 10(33) & 10(15) of the Act amounting to Rs. 3,39,38,675/- which were exempt
from tax. The assessee contended that provisions of section 14A were not applicable in its case as
well as the investments of the company had been made out of its own funds. It was contended
that the borrowings of the company were mainly LIC, Banks NHB and through issue of Nonconvertible
debentures and in all these cases there was a provision in the loan agreement/offer
documents that money will be used for the purpose of the business of the company i.e. lending for
purchases or construction of residential house. The Assessing Officer noted that the claim that all
the borrowings had only been utilized for the advancing loans for purchase and construction of
residential house only, had not been substantiated by giving statement of utilization of the
specific borrowings, the statement of accounts prepared by the assessee included item of
expenditure which had been utilized for earning income including income classified as exempt.
The major source of the funds for the assessee was borrowings on which interest was paid.
Accordingly, the Assessing Officer worked out by apportioning the interest expenditure of Rs.
652,35,72,508/- to all the activities of the assessee in proportion to the income earned from each
activity. Thus, the disallowance was worked out u/s 14A at Rs. 2,92,15,306/-. Aggrieved, the
assessee carried the matter in appeal before the CIT(A).
15. Before the CIT(A), the assessee filed written submissions wherein, inter-alia, it was stated
that whatever tax free dividend accrued to the assessee was attributable to short term investments
made out of internal funds. Reliance was placed on CIT v Hero Cycles (P&H). After considering
the submissions of the assessee, the CIT(A) following the special bench decision of ITAT in the
case of ITO v Daga Capital Investment Ltd. [2008] 26 SOT 603 (Mum)(SB), directed the
Assessing Officer to verify the correctness of the working of disallowance of Rs. 6,30,15,147/-
submitted by the assessee on the basis of figures available in the Balance Sheet and the profit and
loss account at his end and in the light of the formula provided in rule 8D. The amount so worked
out in terms of Rule 8D would substitute the amount disallowed as per the assessment, resulting
in enhancement of the disallowance made by the Assessing Officer. Aggrieved the assessee is in
appeal before the ITAT.
16. At the time of hearing before us, the learned representatives of the parties have agreed that
this issue is covered by the Hon’ble jurisdictional High Court in the case of Godrej & Boyce Mfg.
Co. Ltd., [2010] 328 ITR 81 (Bom.) wherein the Hon’ble Court held as under:-
“That the provisions of rule 8D of the Rules which have been notified with effect from March 24,
2008, would apply with effect from assessment year 2008-09. Even prior to assessment year
2008-09, when rule 8D was not applicable, the AO had to enforce the provisions of sub-section
(1) of section 14A. For that purpose, the AO is duty bound to determine the expenditure which
has been incurred in relation to income which does not form part of the total income under the
Act. The AO 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. The proceedings for assessment year 2002-03 would stand remanded to
the AO. The AO should determine as to whether the assessee had 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 AO can adopt a reasonable basis
for effecting the apportionment. While making that determination, the AO should provide a
reasonable opportunity to the assessee of producing its accounts and relevant or germane
material having a bearing on the facts and circumstances of the case.”
17. In view of the ratio laid down by the Hon’ble jurisdictional High court in the case of Godrej
& Boyce Mfg. Co. Ltd. (supra), we remit the matter back to the file of the AO with a direction
decide the issue afresh in the light of the said judgment of the Hon’ble Jurisdictional High court
after providing reasonable opportunity of being heard to the assessee.
18. In the result, the appeal of the assessee is allowed for statistical purposes.
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