IN THE HIGH COURT OF DELHI AT NEW DELHI 
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   ITA 411/2012  
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 CIT            ..... Appellant 
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 Through : Sh. Kamal Sawhney, Sr. Standing Counsel. 
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 versus 
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 APOLLO FINANCE LTD         ..... Respondent 
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 Through : Sh. Manoj. K. Giri and Sh. A. Sharma, Advocates. 
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 CORAM: 
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 HON'BLE MR. JUSTICE S. RAVINDRA BHAT 
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 HON'BLE MR. JUSTICE R.V.EASWAR 
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 O R D E R 
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      01.08.2012 
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 The question of law sought to be raised by the Revenue is as to the 
 correctness of the ITAT?s order with regard to disallowance made under 
 Section 14A of the IT Act. 
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 The assessee, a registered Non-Banking Finance Company (NBFC) had 
 filed a return for the relevant year disclosing a loss of 
 Rs.2,41,66,610/-; it was assessed to book profit of Rs.61,78,320/- and 
 normal profit at Rs.53,15,710/-. The AO noted that the Assessee had 
 earned dividend income of Rs.4,40,24,000/- which was exempt under Section 
 10(34). On application of Section 14A read with Rule 8D, the disallowance 
 was worked-out at Rs.2,94,82,320/-. The CIT(A), applying the decision of 
 the Bombay High Court in Godrej and Boyce Mfg. Co. Ltd. v. DCIT 328 ITR 81 
 held that Rule 8D was inapplicable for any year prior to the Assessment 
 Year 2008-09 and that the AO had acted incorrectly in working-out the 
 disallowance. Considering the materials on record for the Assessment 
 Years 2005-06 and 2006-07, in which years the disallowance was worked-out 
 at Rs.1 lakh and Rs.1.5 lakh respectively, CIT(A) restricted the 
 disallowance to Rs. 2 lakh. The Revenue?s appeal to the Tribunal was 
 dismissed. The Tribunal reasoned as follows: 
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 ?XXXXXX   XXXXXX   XXXXX 
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 5.  We have carefully considered the rival submissions in the light fo 
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 the material placed before us. It has been held by Hon?ble Bombay High Court in the case of Godrej and Boyce Mfg. Pvt. Ltd. (supra) that Rule 8D 
 is applicable for and from Assessment Year 2008-09, therefore, it has to 
 be held that the Assessing Officer was not right in making disallowance 
 on the basis of Rule 8D. But, at the same time, it has been observed by 
 Hon?ble Bombay High Court in the said decision that u/s 14A (1) it is for 
 the Assessing Officer to determine as to whether the assessee had 
 incurred any expenditure in relation to the earning of income which does 
 not form part of the total income under the Act and, if so, to quantify 
 the extent of disallowance. The Assessing Officer would have to arrive at 
 this determination after furnishing an opportunity to the assessee to 
 produce its accounts and to place on the record all relevant material in 
 support of the circumstances which are considered to be relevant and 
 germane. It has further been concluded by their Lordships that even prior 
 to Assessment Year 2008-09 when Rule 8D was not applicable, the Assessing 
 Officer has to enforce the provisions of sub-section (1) of Section 14A. 
 For that purpose, the Assessing Officer is duty bound to determine the 
 expenditure which has been incurred in relation to income which does not 
 form part of the total income under the Act. The Assessing Officer must 
 adopt a reasonable basis or method consistent with all the relevant facts 
 and circumstances after furnishing a reasonable opportunity to the 
 assessee to place all germane material on record. 
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 6.  If we see the adjudication by learned CIT (A) in the light of the 
 aforementioned observations of their Lordships, then, it can be found 
 that learned CIT (A) without specifying the material on the basis of 
 which he has restricted the disallowance to Rs. 2 lac has determined the 
 amount which is contrary to the aforementioned observations of their 
 Lordships of the Bombay High Court. Mere history of the case will not be 
 sufficient to determine the extent of the disallowance. Therefore, it 
 will be appropriate in law if the matter is restored back to the file of 
 Assessing Officer for the purpose of determining the quantum of 
 disallowance as per the aforementioned observations of their lordships of 
 the Hon?ble Bombay High court in the aforementioned case. Therefore, we 
 restore this issue to the file of the Assessing Officer to give the 
 assessee a reasonable opportunity of hearing on this issue and to allow 
 the assessee an opportunity to place all material on record on the basis 
 of which the extent of disallowance can be calculated. We direct 
 accordingly. 
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 This Court notices that the reasoning in Godrej and Boyce Mfg. Co. 
 Ltd. v. DCIT 328 ITR 81 has been followed by the Delhi High Court in 
 Maxopp Investments Limited v. CIT New Delhi 2012 (247) CTR (Del). The 
 directions given by the Tribunal are in conformity with the decision of 
 this Court. In view of this, we find no reason to interfere with the 
 order of the Tribunal; no substantial question of law arise. The Appeal 
 is accordingly dismissed. 
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 S. RAVINDRA BHAT, J 
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 R.V.EASWAR, J 
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 AUGUST    01, 2012 
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 ?ajk? 
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 $ 1 
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