VIJAY SOLVEX LTD vs. THE ASSIT COMMISSIONER INCOME TAX ALWAR

By way of these appeals, the appellants have challenged the judgment and order of the Tribunal whereby the Tribunal has partly allowed the appeal of the assessee.

This Court while admitting ITA No.325/2017 on 13.12.2017 framed following substantial question of law: “ Whether in the facts and circumstances of the case, the learned ITAT was justified in upholding the disallowance under Section 14A by applying the rule 8D without any rhyme and reason when

This Court while admitting ITA No.326/2017 on 10.11.2017 framed following substantial question of law: “ Whether in the facts and circumstances of the case, the learned ITAT was justified in upholding the disallowance under Section 14A by applying the rule 8D without any rhyme and reason when undisputedly the assessee has reserves and surplus far in excess of the investment made in the year during the relevant assessment year?”

In both the appeals, the issue is now squarely covered by the decision of this Court in D.B. Income Tax Appeal No.90/2016, M/s. Vijay Solvex Ltd. vs. The Income Tax Appellate Tribunal and Anr. decided on 04.08.2017 wherein Para No.3, observed as under:-

The issue is covered by the decision of Supreme Court in Godrej & Boyce Manufacturing wherein it has been held as under:- “36. Section 14A as originally enacted by the Finance Act of 2001 with effect from 1.4.1962 is in the same form and language as currently appearing in Sub-section (1) of Section 14A of the Act. Sections 14A (2) and (3) of the Act were introduced by the Finance Act of 2006 with effect from 1.4.2007. The finding of the Bombay High Court in the impugned order that Subsections (2) and (3) of Section 14A is retrospective has been challenged by the Revenue in another appeal which is presently pending before this Court. The said question, therefore, need not and cannot be gone into. Nevertheless, irrespective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. Insofar as the Appellant-Assessee is (3 of 4) [ITA-325/2017]

We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the Assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the Assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the Assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.

In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002- 2003, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the (4 of 4) [ITA-325/2017]

In that view of the matter, the issues are answered in favour of the assessee and against the department.

Both the appeals stand allowed.

Copy of this order be placed in connected file.