By Mr v. Chandrasekhar, Adv., Withmr. S. Annamalai, Adv., Formr. M. Lava, Adv

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19[TH|]DAY OF JANUARY 2071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW A BETWEEN: ILT.A. NO.318 OF 2016 M/S. KODAGU DISTRICT CO-OPERATIVE.CENTRAL BANK LTD,REP. BY SRI. SHIVA KUMARA SWAMY|CHIEF EXECUTIVE OFFICER|GENERAL THIMMAYYA CIRCLE|MADIKERI-5/71201L (BY MR. V. CHANDRASEKHAR, ADV., WITHMR. S. ANNAMALAI, ADV., FOR|MR. M. LAVA, ADV.,) — ADPELLANT AND* ASSISTANT COMMISSIONER OF INCOME TAX!CIRCLE-1, AAYAKAR BHAVANBELUR ROAD, VIJAYANAGAR|HASSAN-5732701. (BY MR. JEEVAN J. NEERALGI, ADV.,). ~. RESPONDENT THIS I.T.A. IS FILED UNDER SEC. J6O0-A OF INCOME TAXACT 1961, ARISING OUT OF ORDER DATED 30.12.2015 PASSEDIN ITA NO.1047/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: (i) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW,STATED ABOVE AND ANSWER THE SAME IN FAVOUR OF THE.APPELLAN!. | (ii) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS|THEREIN TO THE EXTENT AGAINST THE APPELLANT IN THE.ORDER PASSED BY THE INCOME-TAXK APPELLATE TRIBUNAL IN ITANO.1047/BANG/2013DATED30.17.2015.REFERRED.TO]ASANNEXURE-A RELTAING TO ASSESSMENT YEAR 2009-10. THIS ILT.A. COMING ON FOR’ HEARING, THIS DAY, |ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (nereinafter referred to as the Act, for snort) nas|been filed by the assessee. The subject matter of the appealpertains to the Assessment Year 2009-2010. The appeal wasadmitted by a Bencn of this Court vide order dated|09.11.2016 on the following substantial questions of law: “1, Whether the Tribunal is justified in law in|confirming the addition of Rs.24,95,846/-|made under section 14A read witn Rule 8D by|noiding tnat the Appellant has not made any|claim tnat it nas not incurred any expenditurefor earning the exempt income” which= icontrarytomaterialOP)record|and.consequently perverse on the facts and|circumstance of the case?| 2. Whnetner the Tripunel erred In law In notholding that the assessing officer has not!arrived at the mandatory satisfaction as|required under section 14A and hence no- disallowance is possible on the facts and|circumstances of the case?" 2. Facts leading to filing of this appeal briefly stated are.tnat the assessee is a District Central Co-operative Bank andis engaged in the banking business. The assessee filed|return of income for the Assessment Year 2009-10 on29.09.2009 declaring an income of Rs.3,80,29,000/-. The|case of the assessee was selected for scrutiny and theAssessing Officer completed tne assessment by an orderdateq 30.17.7011.and|made|addition of asum of.Rs.2,38,30,7/75/- which included a sum of Rs.24,95,846/-cGisallowed under Section 14A of tne Act. Tne assesseethereupon filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 27.02.2013affirmed tne order passed by the Assessing Officer.|Thereafter, the assessee filed an appeal before the IncomeTax Appeliate Tribunal (hereinafter referred to as theTribunal’ for short). The Tribunal sustained disallowance ofRs.24,95,846/- made under Section 14A of the Act.—However, the appeal preferred by the assessee was partly allowed. In the aforesaid factual background, the assesseehas filed this appeal. allowed. In the aforesaid factual background, the assesseehas filed this appeal. 3. Learned counsel for tne assessee submits tnat.Section 14A of the Act mandates the Assessing Officer to firstreject the claim of tne assessee regarding the extent of sucnexpenditure and rejection must be disciosed by assigningcogent reasons. It is only after rejection of cogent reasons,the question of determination of expenditure py _ thAssessing Officer would arise. It is further submitted that inthe instant case, the aforesaid mandatory requirement has|not been fulfilled by the Assessing Officer. However, the|aforesaid aspect of the matter is neither been appreciated bythe Commissioner of Income Tax (Appeals) nor the Tribunal.In support of aforesaid submission, reliance has been placedon tne decision of the Supreme Court in |MAXOPPINVESTMENT LTD. Vs. COMMISSIONER OF INCOME-TAX, [2012] 347 ITR 272 (DELHI), which has been.upheld by the Supreme Court in the decision reported in“MAXOPP INVESTMENT LTD. Vs. CIT, (2018) 402 ITR|640. On the other nand, learned counsel! for the revenue| has invited our attention to Paragraphs 10 and 11 of theorder passed py the Tribunal and nas submitted that all theauthorities under the Act have rightly disallowed the claim forcdeduction under Section 14A of the Act and no interferencein this appeal is called for. 4. We have considered the submissions made by tnelearned counsel for the parties and nave perused the record. |Before proceeding further, it is apposite to take note of therelevant extract of Section 14A of the Act, which reads as|under:| "14A (1)XxXxxx (2)TheASSseSSINGOfficerSnal||determine|theamount.of.expenditure|Incurred in relation to such income which)qoes not form part of tne total incomeUnder this Act In accordance with such|method as may be prescribed. If theAssessing Officer, having regard to theaccounts of the assessee, is not satisfiedwith the correctness of the claim of the|assessee in respect of such expenditure inrelation to income which does not form partof the total [Income under this Act. (3) The provisions of sub-section (2)Shall also apply in relation to a case where’an assessee claims that no expenaiture nas|been incurred by nim in relation to income.wnicn does not form part of tne total’Income under this Act. ~ Thus, from perusal of tne aforesaid provision, it is.axiomatic tnat if the Assessing Officer, naving regard to theaccounts of the assessee, is not satisfied with regard to thecorrectness of the claim of the assessee in respect of suchexpenditure in relation to income which does not form part oftne total income of the assessee, then tne Assessing Officermay either re-assess the income under Section 14/7 of theAct or pass an order ennancing the assessment or reducingthe refund already made or otherwise increasing the liabilityof the assessee under Section 154 of the Act for any|Assessment Year. 5. In the instant case, the Assessing Officer in-Paragrapn 5 of the order nas dealt witn the claim of theassessee with regard to disallowance under Section 14A of the Act. Paragraph 5 of the Act is reproduced below forreference: "5,Disallowance|U/s_114-The.dssesseeclaimed that [Income received from Mutual Fund Istotally exempt from Income Tax U/s 10(23D)(i) & (i)of the Income Tax Act, 1961. Tnese mutual funds areregistered under tne Securities and Exchange Boardof India Act, 1992 or regulations made thereunder.Further any income from such other Mutual fund setup by the Public Sector Bank or a Public FinancialInstitution or authorized by the Reserve Bank of Indiaand subject to sucn conditions as the CentralGovernment may, by Notification in the OfficialGazette, specify in tnis benaif are exempted from.Income tax. Rule 8D Is not applicable in this case and.the entire income from mutual fund be allowed under|Sec.10(23D)(i) & (il) of the Income Tax Act, 1961. "5,Disallowance|U/s_114-The.dssesseeclaimed that [Income received from Mutual Fund Istotally exempt from Income Tax U/s 10(23D)(i) & (i)of the Income Tax Act, 1961. Tnese mutual funds areregistered under tne Securities and Exchange Boardof India Act, 1992 or regulations made thereunder.Further any income from such other Mutual fund setup by the Public Sector Bank or a Public FinancialInstitution or authorized by the Reserve Bank of Indiaand subject to sucn conditions as the CentralGovernment may, by Notification in the OfficialGazette, specify in tnis benaif are exempted from.Income tax. Rule 8D Is not applicable in this case and.the entire income from mutual fund be allowed under|Sec.10(23D)(i) & (il) of the Income Tax Act, 1961. [ have considered the claim of the assessee.Under Rule 8D of the Income Tax Rules, with effectfrom asst. year 2008-09 there is a provision fordisallowance to the extent of one-half per cent of theaverage of the value of Investment, income whichdoes not or shall not form part of the total income, asappearing in the balance sheet of the assessee, onthe first day and the last day of the previous year.The assets represent Bond Fund/Income Fund, StateGovt. Undertaking Bonds and Snares in Co-operativeInstitutions ana the average is worked out as under: Opening BalanceRs.47,40,36,800|Closing Balance.Rs.52,45,01,677RS.99,853,58,4/ Rs.99,83,38,4/77 divided by 2 = 49,91,69,239 x0.5% = Rs.24,95,846/-. Accoraingly,adSUITof|Rs.24,95,846/-ISaisallowea and aaded to tne total income admitted bythe assessee and brought to taxOo Thus, from perusal of tne order passed by tneAssessing Officer, it is evident tnat the Assessing Officer nasnot determined the amounts of the expenditure and has notrecorded any reasons with regard to correctness of the claimmade by the assessee in respect of sucn expenditure, inrelation to the income which does not form part of the totalincome of the assessee. The Assessing Officer beforeembarking upon determination of the amount of expenditureincurred in the light of the exempted income, has to record afinding that ne is not satisfied with the correctness of theclaim of the assessee in respect of such expenditure. Theaforesaid mandatory requirement nas not been fulfilled bythe Assessing Officer before disallowing the assessee underSection 14A of the Act. 6. In view of the preceding analysis, the substantialquestions of law framed by this Court is answered in favourof the assessee and against the revenue. 7. In the result, the order passed by the AssessingOfficer dated 30.12.2011, order passed by the Commissionerof Income Tax (Appeals) dated 27.02.2013 and the orderpassed by the Tribunal dated 30.12.2015, insofar as itpertains to disallowance of the claim of the assessee underSection 14A of the Act, are hereby quashed. In the result, the appeal is|allowed Sd/-JUDGE Sd/-—JUDGE RV/GH