Decision Of The Hon’ble Supreme Court In The Case Of Maxoppinvestment Ltd v. Cit Reported In [2018] 402 Itr 640 (Sc).Paragraphs 34 And 41 Would Be Of Relevance To The Case On Hand, Whichis Quoted Hereinbelow For Better Appreciation (Page

OD-19 ORDER SHEETITAT/21/2022IA NO:GA/1/2022IN THE HIGH COURT AT CALCUTTASPECIAL JURISDICTION(INCOME TAX)ORIGINAL SIDE PRINCIPAL COMMISSIONER OF I.T.-2, KOL. -VS-M/S. WEST BENGAL INFRASTRUCTURE DEVELOPMENT FINANCECORPORATION LTD. BEFORE:HON’BLE JUSTICE T.S. SIVAGNANAMANDHON’BLE JUSTICE BIVAS PATTANAYAK DATE: 4 JULY 2022. Ms. S. Das De, Adv., for appellant/petitioner.Mr. J.P. Khaitan, Sr. Adv.; Mr. A. Sen, Adv., for respondent. The Court: This appeal by the Revenue, filed under section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act” for the sake of brevity),for a direction against the order dated November 9, 2021, passed by the Income TaxAppellate Tribunal, A-Bench, Kolkata, in ITA No.499/Kol/2020 for the assessmentyear 2013-14. The Revenue has raised the following substabtial questions of law forconsideration: (i)Whether on the facts and in the circumstances of the case, theTribunal was justified in law to confirm the CIT(A)’s action ofdeleting the addition under section 14A of the Act made by theAssessing Officer on the ground that the assessing officer hasfailed to give cogent reasons of dissatisfaction regarding thecomputation of the disallowance?Tribunal was justified in law to confirm the CIT(A)’s action ofdeleting the addition under section 14A of the Act made by theAssessing Officer on the ground that the assessing officer hasfailed to give cogent reasons of dissatisfaction regarding thecomputation of the disallowance? (ii)Whether on the facts and circumstances of the case the Tribunalwas justified in law in not appreciating the fact that thedisallowance under section 14A computed by the assessee was notdone as per section 14A read with rule 8D of the Income Taxrules, 1962?was justified in law in not appreciating the fact that thedisallowance under section 14A computed by the assessee was notdone as per section 14A read with rule 8D of the Income Taxrules, 1962? (iii)Whether on the facts and circumstances of the case the Tribunalwas justified in law in not considering the Circular no.05/2014,dated 11.02.2014, issued by the Board, wherein it clearlypostulated that provisions of rule 8D read with section 14A of theAct, have to be invoked for disallowance of expenditure evenwhen no exempt income was earned by the assessee in therelevant assessment year?was justified in law in not considering the Circular no.05/2014,dated 11.02.2014, issued by the Board, wherein it clearlypostulated that provisions of rule 8D read with section 14A of theAct, have to be invoked for disallowance of expenditure evenwhen no exempt income was earned by the assessee in therelevant assessment year? We have heard Ms. Smita Das De, learned counsel appearing for theRevenue, and Mr. J.P. Khaitan, learned senior counsel, assisted by Mr. Ananda Sen,learned counsel, appearing for the respondent. The issue raised in this appeal issquarely covered by the various tests of the Hon’ble Supreme Court which wereconsidered in the case of Kesoram Industries Ltd. –vs- Principal Commissioner ofIncome-Tax, reported in [2022] 441 itr 648(Cal). The operative portion of the saiddecision reads as follows: “The law on the issue is no longer res integra and we are gruided by the decision of the hon’ble Supreme Court in the case of MaxoppInvestment Ltd. v. CIT reported in [2018] 402 ITR 640 (SC).Paragraphs 34 and 41 would be of relevance to the case on hand, whichis quoted hereinbelow for better appreciation (page 665 of 402 ITR): “34. Having clarified the aforesaid position, the first and foremostissue that falls for consideration is as to whether the dominantpurpose test, which is pressed into service by the assessees wouldapply while interpreting section 14A of the Act or we have to go bythe theory of apportionment. We are of the opinion that thedominant purpose for which the investment into shares is made byan assessee may not be relevant. No doubt, the assessee likeMaxopp Investment Limited may have made the investment in order decision of the hon’ble Supreme Court in the case of MaxoppInvestment Ltd. v. CIT reported in [2018] 402 ITR 640 (SC).Paragraphs 34 and 41 would be of relevance to the case on hand, whichis quoted hereinbelow for better appreciation (page 665 of 402 ITR): “34. Having clarified the aforesaid position, the first and foremostissue that falls for consideration is as to whether the dominantpurpose test, which is pressed into service by the assessees wouldapply while interpreting section 14A of the Act or we have to go bythe theory of apportionment. We are of the opinion that thedominant purpose for which the investment into shares is made byan assessee may not be relevant. No doubt, the assessee likeMaxopp Investment Limited may have made the investment in order to gain control of the investee-company. However, that does notappear to be a relevant factor in determining the issue at hand. Thefact remains that such dividend income is non-taxable. In thisscenario, if expenditure is incurred on earning the dividend income,that much of the expenditure which is attributable to the dividendincome has to be disallowed and cannot be treated as businessexpenditure. Keeping this objective behind section 14A of the Actin mind, the said provision has to be interpreted, particularly, thewords ‘in relation to the income’ that does not form part of totalincome. Considered in this hue, the principle of apportionment ofexpenses comes into play as that is the principle which is engrainedin section 14A of the Act. This is so held in Walfort Share andstock Brokers P. Ltd. [2010] 326 ITR 1(SC), relevant passagewhereof is already reproduced above, for the sake of continuity ofdiscussion, we would like to quote the following few lines therefrom(page 16 of 326 ITR): ‘The next phrase is, “in relation to income which does not form partof total income under the Act”. It means that if an income does notform part of total income, then the related expenditure is outside theambit of the applicability of section 14A… The theory of apportionment of expenditure between taxable and non-taxable has,in principle, been now widened under section 14A’’….41.Having regard to the language of section 14A(2) of the Act,read with rule 8D of the Rules, we also make it clear that beforeapplying the theory of apportionment, the Assessing Officer needs torecord satisfaction that having regard to the kind of the assessee, suomotu disallowance under section 14A was not correct. It will be inthose cases where the assessee in his return has himself apportionedbut the Assessing Officer was not accepting the said apportionment.In that eventuality, it will have to record its satisfaction to this effect.Further, while recording such a satisfaction, the nature of the loantaken by the assessee for purchasing the shares/making theinvestment in shares is to be examined by the Assessing Officer.”Two important issues have been pointed out in the aforementioneddecision. Firstly that the provisions of section 14A has to beinterpreted, particularly, the words that “in relation to the income”that does not form part of total income. Therefore, it was held thatthe principle of apportionment of expenses comes into play as that isthe principle which is incorporated in section 14A of the Act. Withregard to as to how the power under section 14A(2) read with rule 8D of the Rules could be invoked it was pointed out that theAssessing Officer needs to record satisfaction that having regard tothe kind of the assessee suo motu disallowance under section 14Awas not correct and it will be in those cases where the assessee in hisreturn has himself apportioned but the Assessing Officer was notaccepting the said apportionment. In any event, the AssessingOfficer was not accepting the said apportionment. In any event, theAssessing Officer will have to record its satisfaction to the saideffect. As pointed out earlier the Assessing Officer has not recordedsatisfaction and when this was pointed out before the Commissionerof Income-tax(Appeals) the same was not decided by theCommissioner of Income-tax(Appeals), the issue was also notdecided by the Tribunal when the assessee raised the same, thoughthe grounds have been noted. The Tribunal has not rendered anydecision on the said point but granted partial relief to the assesseewith regard to the interest alone. We also take note of the decisionof this court in the case of CIT v. Ashish jhunjhunwala reported in[2015] (12) TMI 905(Cal), and the decision in Pr. CIT v. BritanniaIndustries limited I.T.A.T/45/2017 dated July 19, 2018. It waspointed out that the assessee has to make a claim (including a claim that no expenditure was incurred) with regard to the expenditureincurred for earning income which is not chargeable to tax. Such aclaim has to be examined by the Assessing Officer and only if anobjective satisfaction is arrived at by the Assessing Officer that theclaim made by the assessee cannot be accepted, the AssessingOfficer can then proceed to apply computation mode as provided inrule 8D(2) of the Rules. we also take into consideration the decisionof the hon’ble Supreme Court in Godrej and Boyce ManufacturingCo. Ltd. v. Dy. CIT [2017] 394 ITR 449 (SC); [2017] 7 SCC 421,wherein it was held that the law postulates the recording ofsatisfaction as the requirement ot be complied with by the AssessingOfficer. The law on the subject as noted has been reiterated inseveral subsequent decisions as well, and, therefore, the issue has tobe decided by the Tribunal, before the Tribunal can remand thematter to the Assessing Officer to do the computation as directed tobe done in paragraphs 11 and 12 of the order passed by the Tribunaldated April 26, 2018 in I.T.A.T./373/Kol/2013 etc. However, wemake it clear that so far as the relief which was granted to theassessee with regard to the interest portion shall remain intact for allthe three assessment years and the matter is remanded to the Tribunal to consider as to whether the Assessing Officer hadfollowed the mandate in section 14A(2) of the Act and while doingso, the Tribunal shall take note of the decisions which we havereferred to above which have laid down the procedure to be adoptedby the Assessing Officer.” In the case on hand, we have perused the assessment order and we find that no satisfaction has been recorded by the assessing officer as the assessing officermerely comes to the conclusion that the disallowance made suo moto by the assesseeis not convincing. This finding does not satisfy the tests laid down by the Hon’bleSupreme Court in the decision referred to above. Therefore, we find that the Tribunalwas right in rejecting the appeal filed by the Revenue.In the result, the appeal stands dismissed. The substantial questions oflaw are answered against the Revenue. The stay application also accordingly stands dismissed. (T.S. SIVAGNANAM, J.) (BIVAS PATTANAYAK, J.)