NATIONAL STOCK EXCHANGE OF INDIA LIMITED,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI

PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:

3. Issues involved in all these six appeals are mostly common. We will first take up appeal for Assessment Year 2006-07 as the lead case whereby our observations and findings on the common grounds shall apply mutatis mutandis to other assessment years. In respect of disallowance made u/s.14A r.w.r. 8D, the issue is common to all the Assessment Years in appeal before us. However, this issue has to be dealt vis-à-vis period prior to introduction of Rule 8D and in Assessment Years post its introduction. Thus, we will take up Assessment Year 2006-07 relating to period prior to Rule 8D and all other four years being period after introduction of Rule 8D. Further, within this post period of introduction of Rule 8D, in Assessment Year 2015-16, assessee pointed out factual aspects of inadvertent mistake committed by it while making suo moto disallowance, which shall be dealt specific to this Assessment Year. Summary of all the issues to be dealt in this set of six appeals is tabulated below vis-à-vis their respective grounds in each of the assessment years.

M/s. National Stock Exchange of India Limited Sr. Grounds of appeal

Assessment Years No. 2006-07 2010-11 2011-12 2012-13 2015-16 I Assessee's Appeals GOA No. 1 GOA No. 1 GOA No. 1 GOA No. 1 GOA No. 3

1. Disallowance u/s. 14A r.w.r. 8D

2. Amortization of Lease GOA No. 2 GOA No. 2 GOA No. 2 GOA No. 2 GOA No. 1 Premium GOA No. 3 GOA No. 3 GOA No. 3 GOA No. 3 GOA No. 2

3. Recovery of Maintenance Charges GOA No. 4

4. Amount paid from Investment Compensation Reserve and ors /MUM/2022 National Stock Exchange of India Ltd. II Department Appeal GOA No. 1 1. Disallowance of Computer Software Expenses GOA No. 2 2. Disallowance of amount paid to NSE.IT Limited on account of Onsite Maintenance for Hardware and on account of Software support and Maintenance Charges

5.1. Thus, ld. Assessing Officer made a disallowance of Rs.1,71,60,184/- u/s. 14A r.w.r. 8D. Ld. CIT(A) upheld the said disallowance. It is important to note that the year under consideration is Assessment Year 2006-07, which is prior to the year when Rule 8D was introduced. Computation mechanism provided in Rule 8D cannot be applied prior to this introduction which was effective from 24.03.2008 relevant to Assessment Year 2008-09. It is a settled position of law that Rule 8D is prospective in operation, i.e., to be applied on and from Assessment Year 2008-09, as held by Hon'ble Jurisdictional High Court of Bombay in the case of Godrej and Boyce Manufacturing Co. Ltd. vs. DCIT [2010] 328 ITR 81 (Bom). The present issue is a legacy issue in the case of assessee, which has come up before the Coordinate Bench of ITAT from Assessment Year 2001-02 up to Assessment Year 2007-08, whereby disallowance at the rate of 1% of the exempt income has been sustained u/s. 14A, consistently for all these years.

5.2. We refer to findings arrived at by the Coordinate Bench in assessee’s own case in Assessment Year 2007-08 in dated 16.10.2019 in para-2.4, whereby ld. Assessing Officer is directed to disallow 1% of exempt income to work out disallowance u/s. 14A of the Act. Respectfully following the judicial precedents, we direct the ld. Assessing Officer to disallow 1% of exempt income to arrive at disallowance u/s.14A, since Rule 8D computation mechanism is not applicable in the year under

6.2. Fact of the matter is that assessee had capitalized lease hold land and reported it as asset in its balance sheet and at the same time claimed amortization on the amount so capitalized. In the order of Coordinate Bench of ITAT for Assessment Year 2008-09, in dated 16.10.2019, a reference is made of the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals (supra) while setting aside the matter to the file of ld. Assessing Officer. Relevant extract of the decision of Coordinate Bench, in this respect is extracted below- and ors /MUM/2022 National Stock Exchange of India Ltd. "3.1. We have heard the rival submissions. We find that similar issue wax subject matter of adjudication by this tribunal in the case of IOT Infrastructure & Energy Services Ltd (formerly Indian Oil Tanking Limited) in & 2585/Mum/2009 for Asst Year 2004-05 ITA Nos. 34778 3241/Mum/2009 for Asst Year 2005-06; ITA No. 2208/Mum/2010 for Ast Year 2006-07, ITA No. 7035/Mum/2010 for Asst Year 2007-08 and ITA No 7430/Mum/2011 for Asst Year 2008-09 dated 17.5.2013 wherein it was held as under:-

“19. As regards the premium and other charges paid in respect of leasehold land, the Id. Counsel for the assessee has submitted that although a similar issue has been decided by the Tribunal against the assessed in A.Y. 1999- 2000, the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ind. reported in (2010) 329 TR 479 rendered subsequently on a similar issue is in favour of the assessee. A perusal of the judgment passed by the Hon'ble Gujarat High Court in the said case shows that the Tribunal in that case had found on analysis of the relevant lease agreement that the land in question was not acquired by the assessee. The lease Deed was registered because as per the Registration Act it was compulsory to do so. There was no change in the ownership of the land and the lease rent payable was very nominal. Keeping in view all these facts, it was held by the Tribunal that the benefit accrued to the assessee was only in the nature of an advantage for carrying on the business by paying nominal rent of the land and by obtaining the land on lease, the capital structure of the assessee did not undergo any change. Keeping in all these findings of fact recorded by the Tribunal, which were not specifically disputed by the Revenue, the Hon'ble Gujarat High Court did not find any infirmity in the order of the Tribunal deleting the disallowance made on account of lease rent paid by the assessee to GIC treating the same as Revenue expenditure. In our opinion, before the ratio of the decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals Ind. Ltd. (supra) is applied in the present case, the relevant facts are required to be verified, we therefore restore this issue to the file of the A.O. for deciding the same afresh in the light of the decision of Hon'ble Gujarat High Court in the case of San Pharmaceuticals Ind. Ltd. (supra) after verifying the relevant facts Ground No. 4 & 5 of the assessee's appeal are accordingly treated as allowed for statistical purpose.

3.2. Respectfully following the same, we restore this issue to the file of ld. AO for deciding the issue in the light of decision of Hon'ble Gujarat High Court in the case of Sun Pharmaceuticals India Ltd reported in 329 ITR 479 (Accordingly, the Ground Nos. 2(a) to 2(d) raised by the assessee are allowed for statistical purposes."

6.3. Respectfully following the aforesaid decision of Coordinate Bench, this present issue raised by the assessee is restored back to the file of ld. Assessing Officer for deciding afresh in terms of direction given above by the Coordinate Bench. Accordingly, ground no. 2(a) to 2(d) are allowed for statistical purposes.

7.1. We note that this issue had come up before the Coordinate Bench in assessee’s own case in the past several years. We refer to the order for Assessment Year 2016-17 and 2017-18 in and 731/Mum /2023, dated 26.10.2023 whereby the issue has been restored back to the file of ld. CIT(A) with a specific direction to deal with all the contentions raised by the assessee by passing a speaking order, in accordance with the law. In this order, reference is also made to the orders of Coordinate Bench for Assessment Year 2004-05 and 2005-06, wherein similar directions were given. Relevant extracts from the said order are reproduced as under: and ors /MUM/2022 National Stock Exchange of India Ltd. “31. Heard both the sides on this issue and perused the material on record. The Id. Counsel has referred submission made before the Id. CIT(A) stating that maintenance charges recovered were separate charges for proving facilities such as securities etc. The assessee explained before the Id. CIT(A) that these were the reimbursement of expenses incurred by the assessee.

Before the Id. CIT(A) the assessee also submitted that in the case of the assessee itself for A.Y. 2005-06 the ITAT vide its combined order, dated 30.12.2011 has restored the matter back to the Id. CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order in accordance with the law. The assessee has also referred the relevant part of the ITAT order for A.Y. 2004-05 and A.Y. 2005-06 in its submission reproduced as under:

"Para 98 In Ground No.5, the assessee is aggrieved by the CIT(A)'s treating an amount of Rs. 1,39,91,621 being maintenance charges recovered from the licenses as "income from house property"

Para 99. The relevant material facts are like this. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has let out a part of its premises to various persons like ONGC, SEBI. National Securities Clearing Corp Ltd etc, and earned rental income from the same. The Assessing Officer further noticed that the total rentals received from these persons included rent (Rs. 12,05,13,061), maintenance charges (Rs. 1,39,91,621) and municipal taxes (Rs.2,43,72,366), but the assessee has not shown the amount of Rs.1,39,91,621 in the computation of income from house property. This amount was instead taken to the profits and gains from business and was shown as reduced from expenditure for maintenance, and only the net amount (excess of expenses over this receipt) was taken to the profit and loss account. The stand of the assessee was that the maintenance charges recovered was nothing but a reimbursement of expenses, and in fact a partial reimbursement. However, the Assessing Officer did not accept the said plea and included the maintenance expenses in the computation of income from house property. Aggrieved, assessee carried the matter in appeal but without any success. Elaborate arguments were advanced on the factual and legal aspects of this treatment, but the CIT(A) dismissed the arguments of the assessee by making a very brief observation to the effect that since the Assessing officer has based his conclusions on Hon'ble Supreme Court's judgment in the case of Shambhu Investments (263 ITR 143), the action of the Assessing Officer is sustained. The assessee is not satisfied and is in further appeal before us.

Para 100. Having heard the rival contentions and having perused the material on record, we find that the CIT(A) has indeed been very superficial in his approach and has simply brushed aside contentions of the assessee The issue in appeal does not have much to do with the decision of Hon’ble Supreme Court in the case of Shambhu Investments (supra). It is a case where separate payment is being made and there is no dispute that the rent is to be treated as income from house property. The question really is whether a 5146 made these legal submissions which the CITIA) had no occasion to deal with separate payment is being made for other services whether the same could be treated as income from house property It is also to be examined whether such a payment is to be excluded for determination of annual value. There are decisions on the coordinate benches as also and ors /MUM/2022 National Stock Exchange of India Ltd. Hon'ble Courts above dealing with fine points regarding these aspects. Learned counsel has, even before us, made these legal submissions which the CIT(A) had no occasion to deal with by way of a speaking order. In this view of the matter, we deem it fit and proper to remit the matter to the file of the CIT(A) with a specific direction to deal with all the contentions of the assessee by way of a speaking order and in accordance with the law. We direct so. Para 101. Ground No. 5 is thus allowed for statistical purposes in theterms indicated above. Fara 111 In Ground No. 3, the assessee is aggrieved by the CIT(A)'s treating an amount of Rs. 1,62,05,179 being maintenance charges recovered from the licenses as "income from house property". Para 112 Following the discussions and the conclusions earlier in this order, with respect to identical issue for the immediately preceding year, we remit this issue to the file for adjudication de novo by way of a speaking order, in accordance with the law and after giving a due and fair opportunity to the 32. In view of the facts, provision of law and findings of the ITAT Mumbai on the similar issue and identical facts as referred above we restore this issue to the file of the Id. CIT(A) for deciding a fresh by way of speaking order after taking into consideration the detailed submission made by the assessee. Therefore, this ground of appeal is allowed for statistical purpose.

33. In the result ground no.1 of the appeal of the assessee is allowed and grounds no.2 to 3 of the appeals of the assessee are allowed for statistical purposes.”

7.2. In view of the above fact, provision of law and findings of Coordinate Bench in assessee’s own case on the same issue, we restore this issue to the file of ld. CIT(A) for deciding afresh, by way of passing a speaking order, after taking into consideration all the submissions and contentions made by the assessee. Accordingly, ground no. 3(a) to 3(d) are allowed for statistical purposes.

Nature of items Amount Software update subscription charges for Oracle 33,01,841 licences Purchase of all fusion Erwin data modeler 4.1.4 3,34,083 Procurement of web logic server -advantage edition 9,19,194 8.1 software Dragon natural speaking software Version 7.0 11,833 Software expenses for licence to use fee for the 50,000 prowess service charges Reversal of prepaid towards systematic Anti virus 6,77.196 desktop licence Renewal of Lotus Notes licence 8,17,085 Procurement of FX client server version 5.1 55,336 Total 61,66,568 13.1. He treated expenses towards purchase of these software as capital in nature and allowed depreciation at the rate of 25% as applicable to intangible assets. On appeal before the ld. CIT(A), he found that these expenditures relate to subscription and renewal charges only. He thus, accepted the contention of the assessee that expenses incurred by the assessee on software expenses are periodical and recurring and therefore revenue in nature. Claim of the assessee was allowed by disregarding the depreciation given by the ld. Assessing Officer while making the addition.

"(a) Whether on the facts and circumstance of the case and in law, the Hon'ble ITAT was justified in deleting the additions in respect of disallowance of software expenditure to the extent of Rs. 23,62,368/- as capital expenditure as software used for the first time will have to be considered as capital in nature?”

14.1. While answering this question, Hon’ble Court referred to the decision of Tribunal for Assessment Year 2001-02, wherein the expenditure was allowed as revenue. It answered substantial questions of law in favour of assessee by holding that software expenditure is allowable as revenue expenditure. Relevant extracts are as under: 2. As regards the first question, ITAT relying upon on its order in the assessee's own case relating to Assessment year 2001-02 held that the software expenditure was a revenue expenditure. The appeal filed by the Revenue for the assessment year 2001 and 2002 has been dismissed for want of removal of office objections and thus the order passed by the ITAT for the Assessment year 2001-2002 has attained finality. Moreover, the Tribunal in its order relating the assessment year 2001-02 has allowed expenditure as revenue expenditure by recording thus: "7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit making apparatus of the assessee and hence the same is to be disallowed a revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an Enterprises Resources Planning (ERP) package and hence it facilitate the assessee's trading operations or enabling the management to conduct the assessee's business more efficiently or more profitably but it is not in the nature of profit making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs.20.60 lakhs is of revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the LD AR of the assessee."

Amount Purpose Comprehensive onsite maintenance for stratus 732,90,427 machine and development of onsite engineer Software support and maintenance charges for 6,52,61,510 FY 2005-06 Total 13,85,51,937 16.1. Ld. Assessing Officer noted that in addition to the above payments, assessee has also made payment of Rs.4,70,96,616/- under the head ‘IT management and consultancy charges’. Assessee furnished necessary details along with agreements entered by it with NSE.IT Ltd. and corroborated the same by furnishing all the required documentary evidences in the form of invoices. However, ld. Assessing Officer questioned the scope of agreements vis-à-vis payments made by the assessee and alleged that these have been claimed by inflating the expenditure to reduce the taxable income. He thus, made the addition of Rs.13,85,51,937/- by disallowing the two payments of 16.2. Before ld. CIT(A), assessee has elaborately explained the arrangement made by it with its subsidiary company, i.e. NSE.IT Ltd. in reference to the agreements entered into by it. It was submitted that Schedule 1 of the agreement, dated 02.03.2006 effective for the period from 01.10.2005 to 31.03.2007 specified the four heads under which payments had to be made by the assessee. i) Software development ii) Software maintenance iii) Software testing iv) Facility management and operations 16.3. Assessee explained each of the claim made under each of the four above stated heads, for which ld. Assessing Officer had mis- interpreted and misread the four categories against which assessee had made claim of expenditure. It was submitted that amount of Rs.6,52,61,510/- was made for services towards software support and maintenance which was debited under the head ‘Repairs and maintenance’. Amount of Rs.4,70,96,616/- pertains to facility management and operation services which was debited under the head ‘IT management and consultancy charges’. Copies of invoices for both these categories were placed on record for which remand report was called by the ld. CIT(A). According to the assessee, ld. Assessing Officer has erroneously presumed that these amounts have been paid for different purposes in terms of this contractual obligations, possibly because of the similarity in the nomenclature used for these payments. and ors /MUM/2022 National Stock Exchange of India Ltd. 16.4. For amount of Rs.7,32,90,427/-, which relates to onsite maintenance of stratus machines and various other server machine related hardware, an agreement dated 13.10.2005 was placed on record. Schedule 1 of this agreement described the nature of service being annual maintenance of various server machines. Relevant invoices were also furnished which were subjected to remand report from the ld. Assessing Officer.

16.5. To summarize, assessee made following payments to its subsidiary company, i.e., NSE.IT Ltd. and claimed as business expenditure-

Sr. Nature Debited under the Amount No. Head

20. Now we take up disallowance u/s.14A r.w.r.8D for the four Assessment years which is a period post introduction of Rule 8D. For this we take up appeal for Assessment Year 2010-11, wherein and ors /MUM/2022 National Stock Exchange of India Ltd. assessee had claimed, following incomes as exempt in its return filed for the year. Nature of income Amount (Rs) Exemption Section Interest on tax free 8,03,04,610 10(15) bonds Dividend on mutual 153,08,75,011 10(35) funds TOTAL 161,11,79,621

21. Assessee made suo moto disallowance in its computation for Rs.1,72,84,507/- u/s.14A towards expenditure incurred in relation to aforesaid tabulated exempt income. Assessee worked out this suo moto disallowance out of employee and other administrative costs taking it as reasonable expenses incurred in relation to earning of exempt income. For this purpose, assessee took total annual salary of two of its Assistant Managers and Chief Manager, who were handling investment of the assessee, 25% of annual salary of Manager, 20% of annual salary of Sr. Vice President, 10% of annual salary of Director, 5% of annual salary of two Senior Management persons. In addition to this, it also took proportionate administrative expenses which included insurance, rates and taxes, printing, postage, telephone, stationary, travelling and conveyance, electricity charges, auditors renumeration, depreciation, etc., by applying ratio of said salary to the total salary incurred during the year. Assessee also considered notional rent for space occupied by the concerned investment department for working out this suo moto disallowance. Assessee thus, demonstrated reasonable nexus of incurring of these expenditures in relation to exempt income earned by it. Detailed working of suo moto disallowance presented by it before the authorities below is extracted below: and ors /MUM/2022 National Stock Exchange of India Ltd. 21.1. All along proceedings before the authorities below, assessee had contended that, Rule 8D can be invoked only if ld. Assessing Officer is not satisfied with the correctness of the claim of assessee in respect of expenditure incurred in relation to exempt income “having regard to the accounts of the assessee”. According to the assessee, section 14A(2) does not ipso facto empowers the Assessing Officer to apply the method prescribed in Rule 8D straight away without considering whether the claim made by the assessee in respect of expenditure incurred is correct or otherwise without having regard to the accounts of the assessee. Application of Rule 8D is not compulsory or mandatory unless accounts and records of the assessee have been examined by the Assessing Officer to find out any incorrectness or defect or shortcomings in the suo moto disallowance claimed by the assessee. Thus, there is a pre-requisite of recording of satisfaction by the Assessing Officer having regard to the accounts of the assessee for invoking Rule 8D for which inaccuracy ought to be pointed out on the method of apportionment or allocation of expenses by the assessee. Without discharging this onus, Assessing Officer is not entitled to make disallowance by invoking Rule 8D. There is no room for any presumption at the end of Assessing Officer for taking such an action. However, Assessing Officer rejected the submissions made by the assessee as the suo moto working of disallowance was not in accordance with Rule 8D and disallowed Rs.6,89,96,788/- over and above the suo moto disallowance of Rs.1,72,84,507/- made by the assessee by invoking provisions of Rule 8D(2)(iii) being 0.5% of average value of investments. For making this disallowance, ld. Assessing Officer held that – a) the estimate made by the assessee has no scientific basis nor it is mandated by law. and ors /MUM/2022 National Stock Exchange of India Ltd. (b) the partial disallowance u/s. 14A made by the assessee is not commensurate with the nature of investment activity of the assessee. (c) the working of the assessee leaves out various other resources that the organization has to deploy in the owning and manage- ment of the investments;

22. Ld. Assessing Officer also noted that in view of the decision of Hon'ble Jurisdictional High Court of Bombay in the case of Godrej and Boyce Manufacturing Company Ltd. vs. DCIT, from Assessment Year 2008-09 and onwards, Rule 8D will apply and no estimate can be resorted to. Ld. CIT(A) also confirmed the disallowance made by ld. Assessing Officer. While doing so, he observed that “Where the entire exercise of estimating the possible expenditure incurred for earning for exempt income is such that a fair estimate is not possible, the obvious recourse is to resort to the readymade formula prescribed u/r 8D.”

23.1. Also, from the perusal of observations of the ld. CIT(A) in para – 5.4, we note that disallowance has been sustained primarily on a view that where a fair estimate is not possible, the obvious recourse is to formula prescribed in Rule 8D. However, there is no specific detailing as to how the fair estimate is not possible when assessee has furnished details of its working corroborated by all the evidences.

23.2. We take note of the working of suo moto disallowance made by the assessee, details of which are already extracted above and reflects adoption of scientific approach. Provisions of section 14A(2) requires the Assessing Officer to invoke Rule 8D only if he is not satisfied with the correctness of the claim of the assessee in respect of the expenditure, in relation to the exempt income having regard to the accounts of the assessee. Even Rule 8D postulates similar condition and ors /MUM/2022 National Stock Exchange of India Ltd. as mentioned in section 14A(2) wherein also the satisfaction to be arrived at by the ld. Assessing Officer on the correctness of the claim of expenditure made by the assessee is “having regard to the accounts of the assessee”. There is no change in Rule 8D(1) even though method of computation of disallowance has been substituted with a different method.

23.3. We note that if the ld. Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income after “having regard to the accounts of the assessee”, he can determine the amount of such expenditure for making disallowance under section 14A. The satisfaction arrived at by ld. Assessing Officer in terms of the provisions is not just a mere disagreement with the submissions made by the assessee but has to be an objective satisfaction by taking into consideration the methodology adopted by the assessee for the claim made by it and then arriving at a satisfaction accepting or rejecting the same “having regard to the accounts of the assessee”.

23.4. In the present case before us, ld. Assessing Officer has not taken into consideration the elaborate details and scientific basis adopted while arriving at the suo moto disallowance but has proceeded merely on his own presumptions to invoke section 14A r.w.r. 8D. Ld. Assessing Officer has failed to record reasons as to why the rate of percentage adopted by assessee on various expenses incurred for earning exempt income is not acceptable having regard to the accounts of the assessee. He has rejected the working of accounts of assessee without pointing out specific expenditure, which has not been considered or quantified by the assessee. Since no proper satisfaction has been recorded by the ld. Assessing Officer in terms of and ors /MUM/2022 National Stock Exchange of India Ltd. the provisions of section 14A(2) of the Act, “having regard to the accounts of the assessee”, about the correctness of the claim of the assessee in respect of expenditure incurred in relation to exempt income, we do not find any reason for upholding the disallowance made by the AO under section 14A read with Rule 8D. We delete the disallowance made by the ld. Assessing Officer and direct to adopt the suo moto disallowance made by the assessee under section 14A of the Act. Accordingly, ground taken by the assessee in this respect is allowed.

25.2. We also find that the Hon'ble jurisdictional High Court of Bombay in CIT v. M/s Asian Paints Ltd., in of 2016, vide order dated 06/04/2019, for the assessment year 2008-09, while dismissing the appeal filed by the Revenue on a similar issue held that in the absence of recording of satisfaction in terms of section 14A(2) of the Act, invocation of Rule 8D is not permissible. Relevant findings of the Hon'ble Court, are reproduced as under:- "4. Regarding question no.(c) :-

(a) In its return of income, the respondent made a suo-moto disallowance of Rs.15.21 lakhs being the expenditure incurred to earn exempt income under Section 14A of the Act. The Assessing Officer disregarded the same and proceeded to disallow an amount of Rs. 1.10 crores under Section 14A of the Act read with Rule 8D of the Rules as expenditure incurred to earn exempt income. Thus, adding Rs.1.10 crores to the income of the respondent.

(b) Being aggrieved, the respondent filed an appeal to the CIT(A) but without success.

(c) On further appeal, the impugned order of the Tribunal while allowing the appeal held that before invoking the provisions of Rule 8D of the Income Tax Rules, the Assessing Officer has to record his non satisfaction with the suo moto disallowance of expenditure made towards earning exempt income by the respondent. This exercise not having been carried out by the Assessing Officer before applying Rule 8D of the Income Tax Rules, the disallowance of expenditure to earn exempt income cannot be sustained.

(d) This issue is no longer res integra as the Apex Court in Gorej & Boyce Mfg. Co. Ltd. v. Dy. CIT, 394 ITR 449 decided the issue in favour of the respondent. In the above case, the Supreme Court has while considering the issue of disallowing of expenditure incurred to earn exempt income observed as under “Whether such determination is to be made on application of the formula prescribed under rule 8D or in best jusigment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not ssible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It only thereafter that the provisions of section 14A (2) and (3) read with rule 8D of the Rules or a best dgment determination, as earlier prevailing, would become applicable."

Thus, Rule 8D of the Rules cannot be invoked where the suo moto disallowance made by the respondent ssessee is not found to be satisfactory by the Assessing Officer having regard to the accounts of the assessee, In the absence and ors /MUM/2022 National Stock Exchange of India Ltd. of recording the aforesaid fact of non- satisfaction in terms of Section 14A(2) of The Act, invocation of Rule 8D is not permissible. (e) Therefore, in view of the above decision of the Apex Court, this question also does not give rise to any substantial question of law. Thus, not entertained."

25.3. Thus, ground no. 1(a) to 1(c) taken by the assessee is allowed. Since similar facts exists in the case of for Assessment Year 2011-12 and 2012-13, ground no.1 in these two years are also allowed as held in ground no.1 for Assessment Year 2010-11.

27.1. He also placed reliance on the decision of Hon'ble Jurisdictional High Court of Bombay in the case of CIT vs. Pruthvi Brokers and Share Holders [2012] 349 ITR 336 (Bom), wherein it was held that assessee is entitled to raise before appellant authorities’ additional grounds in terms of additional claims not made in return filed by it.

28.1. We are in agreement with the contentions raised by the assessee to accept its revised computation by adopting the methodology, it has applied in the preceding years, for which we have already given our findings as noted above. For this, we place reliance on the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. Having held so, the disallowance made u/s.14A is to be accepted to the extent of suo moto disallowance computed by the assessee made in its revised computation at a figure of Rs.88,32,868/- in terms of our observations and findings as given in grounds raised in appeal for Assessment Year 2010-11. Thus, ground no.3 for this year, raised by the assessee is allowed.

Order is pronounced in the open court on 28 February, 2025