There is no dispute that during the course of assessment proceedings the assessee while explaining the source of jewellery interalia stated that Mrs. Darshana K. Jethani has received jewellery of gold and diamond by way of ‘Will’ of Smt.Lachmi Ukarmal Mangtani, her grandmother. In support, he also placed on record the copy of the said will for verification and also stated that the said will was executed in the presence of Dr.Murli M. Ratnani (PAN- address).
In the instant appeal, there are total three grounds. Ground No. 3 is general in nature. Ground Nos. 1 and 2 raises the same issue. Both impugn the directions issued by Ld. CIT (A) to the AO to re-compute the deduction u/s 80HHC in accordance with the decision of Hon’ble Special Bench of ITAT Mumbai in the case of Topman Exports 318 ITR 87 in view of the fact that the above decision has been reversed by the Hon’ble Bombay High Court on 29.6.2010.
The captioned appeal is fixed for hearing before the Hon’ble ‘G’ Bench today. The appellant has received partial relief. As the tax effect of the remaining issue is not significant, the appellant does not wish to pursue the appeal. In the circumstances, kindly allow the appellant to withdraw the appeal.
One thing is clear that the DR has not challenged the allowability of deduction u/s. 80-O, he has shown serious reservations on the basis of allowability, i.e. whether the deduction should be allowed on net amount or on gross amount.
Though the Appellant had treated it as itemised-sale of assets. The Appellant had sold business of Sealants and Adhesives as a whole to PIL.Therefore, the provisions of Sec.50B have been rightly invoked by both the lower authorities.
The facts emerging out of the assessment order are that the assessee is dealing in organic manure. For the year under consideration, the return of income declaring the total income of Rs.13,50,000/- was efiled on 30.10.2007. This case was selected for scrutiny assessment and accordingly notices u/s.143(2) and 142(1) of the Act were issued and served upon the assessee.
The correct sequence, in our considered opinion, for making any disallowance u/s. 14A is to, firstly, examine the assessee’s claim of having incurred some expenditure or no expenditure in relation to exempt income. If the AO gets satisfied with the same, then there is no need to compute disallowance as per Rule 8D. It is only when the AO is not satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure having been incurred in relation to exempt income, that the mandate of Rule 8D will operate.
In this case, the assessee had exchanged old flat with new flat to be constructed by the builder under development agreement which amounts to transfer under section 2(47) of the Act. Thus, the only other condition which is required to be satisfied is that assessee either purchases a new residential flat within the prescribed limit or constructs a new residential flat within a period of 3 years from the date of transfer.
A.O. has applied Rule 8D holding that Rule 8D is retrospective in nature. It is now settled that Rule 8D is prospective and is applicable on and from the A.Y. 2008-09. We direct the A.O. to recalculate the disallowance, if any, without applying Rule 8D on the dividend income shown at Rs..4,00,039/-. The A.O. is further directed to verify the contention of the appellant that the investments have not been made out of borrowed capital, after giving the appellant an opportunity of being heard.
Disallowance under section 14A has to be made in accordance with the principle laid down by the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg.Co.Ltd. Mumbai. Vs. Dy. Commissioner of Income . Rule 8D should not be applied and the AO has to adopt a reasonable basis or method consistent with all relevant facts and circumstances and after affording reasonable opportunity to the assessee to place all germane material on the record.
