ARINDAM SINHA,J. - (1.) The Revenue seeks to prefer appeal against order dated 14th October, 2014 passed by the Income Tax Appellate Tribunal "B" Bench, Kolkata in ITA no.805/KOL/2012 pertaining to the assessment year 2008-09.
(2.) Ms.Gutgutia learned advocate appeared on behalf of the Revenue and submitted that in the computation of total income the assessee had claimed Rs.25,68,04,353/- as long term capital gain being exempt income. Applying Rule 8D the Assessing Officer had computed disallowance under Section 14A the Income Tax Act, 1961 but the Tribunal had erred in law in deleting this disallowance. She handed up a calculation sheet detailing the manner in which calculation is made of disallowable expenditure by application of Rule 8D (i), (ii) and (iii). The sheet also contains such calculation made in respect of the assessee. That portion of the calculation is reproduced below: "Re - G K K Capital Markets (P) Limited Assessment Year 2008-09 LTCG claimed; treated as business income - Rs.25,80,33,811/- Tax -30% Rs. 7,74,10,143/- 14A by Assessee Rs.8,83,49,955/- assessee's offer Rs. 37, 28, 966/- u/s 8D (ii) 8D (iii) Rs.8,46,20,989/- Rs.2,53,86,296/-"
(3.) She then relied on a decision of this court in the case of Dhanuka and Sons vs. CIT reported in (2011) 12 taxmann.com 227 (Cal) in particular to paragraphs 6 to 9 as are reproduced below: "6. Mr. Sarkar, the learned advocate appearing on behalf of the revenue, has, on the other hand, supported the order passed by the Tribunal and has contended that the assessee itself having failed to produce material in support of its contention, the Assessing Officer rightly assessed the deductible income on proportionate basis. Mr. sarkar submits that the same is in conformity with Rule 8D of the Income tax Rule and thus, we should not interfere with the order passed by the Tribunal. 7. After hearing the learned counsel appearing for the parties and after going through the materials on record and the decisions cited by Mr. Khaitan, we find that the Supreme Court in the cases of CIT v. Maharastra Sugar Mills Ltd. [1971] 82 ITR 452 and Rajasthan State Warehousing Corpn. V. CIT [2000] 242 ITR 450/109 Taxman 145 having held that where there is one indivisible business giving rise to taxable income as well as exempt income, the entire expenditure incurred in relation to that business would have to be allowed even if a part of the income earned from the business is exempt from tax, section 14A of the Act was enacted to overcome those judicial pronouncements. The object of section 14A of the Act is to disallow the direct and indirect expenditure incurred in relation to income which does not form part of the total income. 8. In the case before us, there is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired,. Mr. Khaitan strenuously contended before us that for the last few years before the relevant previous year, no new share has been acquired and thus, the loan that was taken and for which the interest is payable by the assessee was not for acquisition of those old shares and, therefore, the authorities below erred in law in giving benefit of proportionate deduction. 9. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment." 3. She also relied on CBDT Circular no.5/2014 dated 11th February, 2014, in particular to paragraphs 4 and 6 therein which are set out below: "4. The above position is further clarified by the usage of term 'includible' in the Heading to section 14A of the Act and also the Heading to Rule-8D of I.T. Rules, 1962 which indicates that it is not necessary that exempt income should necessarily be included in a particular year's income, for disallowance to be triggered. Also, section 14A of the Act does not use the word "income of the year" but "income under the Act". This also indictes that for invoking disallowance under Section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration. 6. Thus, in light of above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income." ;