Goetze (India) Ltd. v. Commissioner of Income-tax-IV, New Delhi

ORDER

K.G. Bansal, Accountant Member. - These appeals of the assessee and the revenue, pertaining to assessment year 2000-01, against the revisionary orders of the CIT, Delhi-IV, New Delhi, and the appellate order of CIT (Appeals)-XV, New Delhi, passed on 29-11-2006 in Appeal No. 185/04-05 respectively were argued in a consolidated manner by the ld. counsel for the assessee and the ld. DR. Therefore, a consolidated order is passed.

ITA No. 208 (Delhi)/2005 - assessment year 2000-01 - Appeal of the assessee

2. This appeal of the assessee emanate from the order of Commissioner of Income-tax, Delhi-IV, New Delhi, passed on 22-12-2004 under the provision of section 263 of the Act. The facts of the case are that the assessee had filed the return of income computing the adjusted book profit at Rs. 2,86,09,379 under section 115JA of the Act and loss of Rs. 3,05,25,654 under other provisions of the Act. This return was revised on 28-3-2002 declaring adjusted book profit at Rs. 1,92,73,285 under section 115JA and total income under the other provisions at a loss of Rs. 3,05,25,654. The assessment was completed under section 143(3) of the Act on 28-3-2003 determining the adjusted book profit at Rs. 1,92,73,285, as declared in the revised return, and the total income at Rs. 2,45,57,950. The case record of the assessee was examined by the ld. CIT (Appeals). The assessment order was found to be prima facie erroneous and prejudicial to the interest of the revenue. Therefore, a notice under section 263 dated 29-6-2004 was served on the assessee. This notice was followed by another notice dated 28-7-2004 under the aforesaid provision. The assessee complied with both the notices. After considering the facts of the case and the submissions of the assessee, the ld. CIT revised the order, particularly vide paragraphs 3, 4 and 5 of her order, and directed the Assessing Officer to pass a consequential order. Such order was passed by the Assessing Officer on 5-1-2005 determining the adjusted book profit at Rs. 2,93,83,152 and the total income at nil. Aggrieved by this order, the assessee is in appeal before us.

3. Ground Nos. 1 to 4 were stated to be general in nature to the effect that the order passed by the ld. CIT under section 263 of the Act was illegal, erroneous and untenable in law. It was stated by the learned counsel before us that specific grounds, following subsequently, will cover these grounds also. Therefore, although these grounds were argued individually, there is no need to give any finding on these grounds.

3.1 Various parts of ground No. 5 are to the effect that the ld. CIT (Appeals) erred on facts and in law in holding that the order of the Assessing Officer was erroneous insofar as he allowed the deduction of Rs. 1.53 crore from book profit for calculating adjusted book profit under section 115JA of the Act. It was inter alia mentioned that the Assessing Officer had raised queries into this matter and the view taken by him was a possible view under the law. It is further mentioned that the aforesaid deduction was in accordance with law and this amount could not be added to the book profits while computing adjusted book profit under section 115JA. Therefore, it was prayed that the order to this extent may be reversed and the order of the Assessing Officer may be restored.

3.2 In the aforesaid connection, it is mentioned in the revisionary order that the reserve was not created earlier by any debit to the profit and loss account. It is further mentioned that clause (i) of the Explanation to section 115JA mandates the reduction of the amount withdrawn from any reserves or provisions if any such amount is credited to the profit and loss account. On the basis of this provision, it was held that once this clause becomes inapplicable for computing adjusted book profits, then, such profits have to be computed in accordance with the decision of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. Commissioner Of Income Tax, Kochi. [2002] 255 ITR 273 , on which even the assessee had relied when it claimed that the diminution in the value of assets cannot be added in the book profits under section 115JA. This provision operated against the assessee in respect of the amount withdrawn from the reserves and credited to P&L account. Thus, it was held that the Explanation of the assessee was contradictory in these two matters. Accordingly, it was also held that the assessee could not have reduced the aforesaid amount from the book profit while computing adjusted book profit.

3.3 Before us, the ld. counsel drew our attention to page 18 of the paper book, being the report of the Board of Directors, wherein it was mentioned that the capital assets of the company; being land, building, plant and machinery, which were acquired over last three decades, were revalued to reflect their current replacement cost as on 1-7-1985. The revaluation was carried out by a professional and accredited firm of valuers, which resulted in upward valuation of land, building, plant and machinery by Rs. 40.85 crore, which has been credited to "Assets Revaluation Reserve". Further our attention was drawn towards the accounts as on 30-6-1986, Schedule-2 of which shows addition of about Rs. 40.84 crore to the Capital Redemption Reserve. Our attention was also drawn towards page 145 of the paper book, being the last page of the order of "B" Bench of Delhi Tribunal in the case of the assessee for assessment year 1999-2000 in ITA No. 3923 (Delhi)/2002, dated 4-4-2006, wherein it was mentioned that "In over all analysis we are satisfied that the mistake being of law was apparent from record and thus ought to have been rectified. Accordingly, we direct the Assessing Officer to rectify the mistake and compute the income after applying provisions of section 115JA of the Act after reducing the aforesaid two amounts in accordance with Explanation below that section."

3.4 On the basis of this order of the Tribunal, the case of the ld. counsel was that the matter had been decided in favour of the assessee by the Tribunal in respect of an order passed by the Assessing Officer under section 154 of the Act. Thus, the order represents a possible view in the matter, being the order of the Tribunal and, therefore, this issue could not have been raised in proceedings under section 263 of the Act. In order to support this contention, reliance was placed on the decision of Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 , in which it was inter alia held that the phrase "prejudicial to the interest of the revenue" has to be read alongside the word "erroneous", used in section 263 of the Act. Every order of the Assessing Officer, which may result into loss of revenue, could not be taken to be an order prejudicial to the interest of the revenue. When the Assessing Officer adopts one course of action out of a number of courses permitted by the law, which results into loss of revenue, or where two views are possible on the same matter and the Assessing Officer takes one view with which the Commissioner does not agree, then, it cannot be said that the order is erroneous and prejudicial to the interest of the revenue until it is manifestly shown that the view taken by the Assessing Officer is completely unsustainable in law. Our attention was also drawn towards the provision contained in the proviso to the aforesaid clause (i), which reads that - "where this section is applicable to an assessee in any previous year (including the relevant previous year), the amount withdrawn from reserves created or provisions made in a previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 but ending before the 1st day of April, 2001 shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions (out of which the said amount was withdrawn) under this Explanation." In this connection, it was submitted that the order pertained to assessment year 2000-01 and, therefore, in terms of the proviso, the aforesaid clause (i) could not have been invoked for working out the adjusted book profit. It was also submitted that the decision in the case of Apollo Tyres Ltd. (supra) supports the case of the assessee inasmuch as adjustments have to be made to the book profits as provided in the Explanation to the section and clause (i) of the Explanation has to be given effect to. In this connection, it was also submitted that the finding of the ld. CIT that the provision of the aforesaid Explanation (i) was not applicable was not based on any sound logic. In this connection, reliance was placed on the order of "D" Bench of Delhi Tribunal in the case of SRF Ltd. v. Asstt. CIT [1993] 47 ITD 504 , which dealt with analogous law contained in section 115J. The order dealt with the provision as it stood under section 115J for assessment year 1989-90. It was held that the withdrawal from the Revaluation Reserve, which had not been created by making a debit to the profit and loss account but by the increase in the value of assets on their revaluation, credited to profit and loss account, could not be added to the book profits for computing adjusted book profits under section 115J of the Act. Therefore, it was argued that the ld. CIT erred in not allowing the decrease in the book profits by the amount of Rs. 1.53 crore.

3.5 In reply, the ld. DR submitted that the aforesaid claim was not made in the original return, which leads to an inference that the reduction claimed by the assessee was not applicable. The claim was made in the revised return. The assessee had been claiming depreciation on the enhanced value of the assets in the profit and loss account from year to year from assessment year 1986-87. In this year, the aforesaid amount was withdrawn from the reserve and credited to the profit and loss account. Since the amount had been credited to the profit and loss account, the ld. CIT was right in mentioning that the credit forms part and parcel of the book profit, liable to be taken into account while working out adjusted book profits. The facts of the case of SRF Ltd. (supra) were different because the adjustment in that case was made in the appropriation account and not in the profit and loss account. It was also submitted that the Assessing Officer did not follow the consistent approach adopted in earlier years and, thus, violated the rule of consistency.

3.6 In order to support his contention, reliance was placed on the decision of Hon'ble Delhi High Court in the case of Gee Vee Enterprise…Petitioner v. Additional Commissioner Of Income Tax… [1975] 99 ITR 375 , in which it was held that failure to make sufficient enquiries before granting registration to a firm would amount to passing an order, which was erroneous and prejudicial to the interest of revenue. Further, reliance was placed on the decision of Hon'ble Allahabad High Court in the case of Swarup Vegetable Products Industries Ltd. (No. 1) v. CIT [1991] 187 ITR 412 , in which it was held that where the contention of the assessee that the amount belonged to a third party was accepted without making any enquiry, the resulting order would be erroneous and prejudicial to the interest of revenue, amenable to the revisionary jurisdic- tion of the CIT. Reliance was also placed on the decision of Hon'ble Orissa High Court in the case of Umashankar Rice Mill v. Commissioner Of Income-Tax. [1991] 187 ITR 638 , in which it was held that where the revisionary jurisdiction was available to the Commissioner on the basis of material on record and the Commissioner felt that there should be further enquiry, he could exercise such jurisdiction conferred on him under section 263 of the Act. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of Duggal & Co. v. CIT [1996] 220 ITR 456 , in which the reason for borrowing fund at a higher rate of interest and lending at a lower rate of interest was not examined by the Assessing Officer. The Hon'ble Court was of the view that the order was amenable to revisionary jurisdiction and the CIT was right in directing the Assessing Officer to disallow that part of the interest which was incurred for non-business purposes. Reliance was also placed on the order of Delhi Bench of the Tribunal in the case of Ranbaxy Laboratories Ltd. v. Addl. CIT [2008] 110 ITD 428 , in which it was held that acceptance of the value of an international transaction without application of mind by the Assessing Officer resulted into an order which was erroneous and prejudicial to the interest of revenue.

3.7 It was submitted that the whole position has to be seen on the date when the revisionary order was passed by the Commissioner as held by Hon'ble Supreme Court in the case of Commissioner Of Income Tax, (Central) Ludhiana v. Max India Limited [2007] 295 ITR 282 . It may also be mentioned that it was held in that case that when Assessing Officer adopts one of the two courses permissible in law, which results into some loss of revenue, such an order cannot be said to be erroneous and prejudicial to the interest of revenue.

3.8 We have considered the facts of the case and rival submissions. The decision in the case of Apollo Tyres Ltd. (supra) was that the Assessing Officer cannot open the accounts which have been drawn in accordance with the Companies Act, certified by the Chartered Accountant, passed by the General Body of the company, and placed before the Registrar to which he has not taken objection. However, it is not the ratio of that case that no adjustment as mentioned in clauses (a) to (f) and (i ) to (ix) cannot be made to book profits for working out the deemed income under section 115JA. The aforesaid clause (i) permits the reduction of the amounts withdrawn from any reserve of provision if any such amount is credited to profit and loss account. However, the provision contained in the proviso to this clause carves out the exception that where the provision was made in the previous year relevant to assessment year commencing on or after the first day of April, 1997 but ending before the first day of April, 2001, the amount shall not be reduced from the book profit unless the book profit of such year has been increased by those reserves or provisions out of which the said amount was withdrawn under this Explanation. The case of the learned counsel was that the case was covered by the proviso to clause (i). Therefore, the assessee was justified in reducing the amount from the book profit. The case of the learned DR is based on the fact that while working out book profits of earlier years, the assessee had claimed depreciation on the enhanced value of the assets and, therefore, a further reduction of the amount in this year would lead to double deduction. We are of the view that the case of the ld. DR did not base upon correct legal interpretation of the clause and the proviso thereto. The reserve was created in assessment year 1986-87 by enhancing the value of the assets, on which depreciation was being debited to the books of account. However, for the purpose of computation of total income, the depreciation could not have been claimed and was also not allowed by the Assessing Officer. At the time of creation of the reserve, the provision contained in section 115JA was not there on the statute. It was inserted in the Act by Finance (No. 2) Act, 1996, with effect from 1-4-1997. Thus, it became applicable for assessment year 1997-98 and onwards. Therefore, insofar as computation of adjusted book profit is concerned, the creation of reserve had no implication and even it did not alter in any manner the computation of the total income. This provision remained on the statute book for assessment years 1997-98 to 2000-01. Since the reserve was not created in these years, there was no question of any adjustment in the book profit in these years at the time of its creation. Accordingly, there could have been no implication of withdrawing certain amount from this reserve and crediting it to the profit and loss account. Therefore, the case of the ld. CIT is based on erroneous interpretation of law that the reduction could not be made in respect of amount withdrawn from this reserve as it had been credited to profit and loss account. In any case, such an interpretation is amenable to a valid difference of opinion, as held in the case of SRF Ltd. (supra) under the analogous law contained in section 115J. Therefore, we are of the view that in terms of the decision in the case of Malabar Industrial Co. Ltd. (supra), the order cannot be said to be erroneous and prejudicial to the interest of revenue. Such is also the decision in the case of Max India Ltd. (supra). In view of the fact that the decision of the Assessing Officer was one possible view in the matter, the other cases relied upon by the ld. DR regarding lack of enquiry etc. cease to have any implication. Accordingly, it is held that the ld. CIT could not have made adjustment in respect of this matter.

4. Various parts of ground Nos. 6, 7 and 8 are in respect of the addition of Rs. 183.60 lakhs for the purpose of computing adjusted book profits under section 115JA. It is mentioned that the profit and loss account drawn under the Companies Act did not allocate any expenditure towards earning of the dividend income. It is further mentioned that the issue had been examined by the Assessing Officer in the assessment proceedings. It is also mentioned that the assessee had sufficient capital and free reserves to make investment in the dividend-bearing investment. It is also mentioned that the ld. CIT erred in holding that the onus to prove that no expenditure was incurred in earning the dividend was on the assessee. It is also mentioned that the formula used by the CIT was incorrect, legally untenable, arbitrary and completely uncalled for.

4.1 In this connection, it is mentioned in the revisionary order that the assessee incurred expenditure of Rs. 183.60 lakhs for earning dividend income. The dividend income formed part of book profit. Clause (f) of the Explanation to section 115JA mandates the increase of book profit by the amount of expenditure relatable to any income to which any of the provisions of Chapter III applies. Dividend income was not to be included in the total income as per Chapter III. Therefore, the expenditure relating to this income, debited in the books of account, had to be added to the book profit.

4.2 Before us, the learned counsel submitted that the funds of the assessee were mixed funds as submitted before ld. CIT. No investment was made in the units of the UTI or the shares of Escorts Ltd. in this year, from which dividend incomes of Rs. 23.43 lakhs and Rs. 1.34 crore were earned. These assets were acquired during the previous years 1984-85 to 1997-98, aggregating to about Rs. 14.58 crore. The assessee earned dividends from these assets aggregating to about Rs. 13.42 crore. Therefore, by and large the whole of the investment was recouped by way of dividend. It was further submitted that it was argued before her that no expenditure was incurred for earning the aforesaid income. However, the ld. CIT worked out a formula on pages 8 and 9 of her order and allocated expenditure of Rs. 183.63 lakhs for earning the income. This amount was much more than the dividend income earned by the assessee. It was also submitted that some shares were also sold and, therefore, it can be said that the whole of the investment was recouped by the assessee. In such a situation, no expenditure could be allocated by making estimates and working out a formula to allocate expenditure in relation to earning this income.

4.3 In order to support the aforesaid contentions, reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 , a case dealing with the interpretation of section 36(1)(iii) regarding deduction of interest. The gist of the decision is that in case of a mixed fund, if the assessee is in possession of sufficient interest-free funds, then, the presumption would be that investments yielding no return would be out of interest-free funds. Further, reliance was placed on the decision of Hon'ble Supreme Court in the case of Munjal Sales Corpn. v. CIT [2008] 298 ITR 298 , in which it was held that since monies were borrowed from the partners in earlier years and the Tribunal had given a finding that such borrowings were for the purpose of business, the assessee would be entitled to deduct the interest in computing the income in subsequent years. It was also held that the opening balance of profits in the year under consideration was Rs. 1.91 crore, which was sufficient to cover the loan of Rs. 5 lakhs given to the sister concern. Thus, no disallowance could be made from the interest in computing the total income. Reliance was also placed on the decision of Hon'ble Delhi High Court in the case of Commissioner Of Income-Tax v. Tin Box Co. [2003] 260 ITR 637 , in which it was held that in absence of pointing towards any specific interest-bearing funds borrowed by the assessee, which were diverted to the sister concern, no part of the interest paid by the assessee could be disallowed in computing the income particularly when the capital and interest-free unsecured loans exceeded the interest-free advances. Reliance was also placed on the decision of Hon'ble Supreme Court in the case of Max India Ltd. (supra) for the proposition that the order passed by the Assessing Officer was not erroneous and prejudicial to the interest of the revenue.

4.4 In reply, the ld. DR submitted that the ld. CIT disallowed a portion of interest and administrative expenses on a reasonable basis. If the computation had been done as per order of the Special Bench of the Tribunal in the case of ITO v. Daga Capital Management (P.) Ltd. [2008] 117 ITD 169 (Mum.) , the amount of disallowance would have been more than the amount computed by the ld. CIT. In order to support the finding of the ld. CIT, reliance was placed on the decision of "C" Bench of Delhi Tribunal in the case of Motor & General Finance Ltd. v. Dy. CIT [2004] 90 ITD 449 , a case dealing with deduction under section 80M. The facts are that the assessee had mixed funds in which the loan amount, profit and other accruals were deposited. Investments were made in shares and bonds from this account, on which dividend income was earned. The case of the assessee was that it was in possession of huge funds of its own out of which investments were made. In support thereof certain charts were filed before the CIT (Appeals) listing year-wise profits and reserves. However, the Assessing Officer and the CIT (Appeals) allocated some interest towards earning of the dividend income without recording any positive finding that borrowed funds were used for investment in shares and bonds. On these facts, the Tribunal mentioned that various facts brought on record by the assessee were not considered in proper perspective. The lower authorities had also not established nexus between borrowed funds and investments. Consequently the matter was restored to the file of the Assessing Officer to re-examine the matter and ascertain whether any borrowed fund was invested in shares and bonds.

4.5 In the rejoinder, the ld. counsel relied on the decision in the case of Apollo Tyres Ltd. ( supra). It was also submitted that no change could be made to book profit for disallowing any expenditure for earning non-taxable income on assumptions and presumptions.

4.6 We have considered the facts of the case and rival submissions. We may at the outset consider the provisions contained in clause (f) of the Explanation to section 115JA and sub-section (1) of section 14A of the Act. Under the aforesaid clause (f), the amount of expenditure relatable to any income to which any of the provisions of Chapter III applies has to be added to the book profit. Under the provision contained in section 14A, no deduction is to be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Since we are dealing with the issue of expenditure relating to dividend income, a matter falling under Chapter III, it becomes clear on perusal of these two provisions that they are similar in nature. Clause (f) uses the words "expenditure relatable to any income", while section 14A uses the words "expenditure incurred by the assessee in relation to income". These words have the same meaning. We may also add here that section 14A contains two more sub-sections, sub-section (2) and sub-section (3), which do not find a place in the clause (f). Therefore, insofar as computation of adjusted book profit is concerned, provisions of sub-section (2) and sub-section (3) of section 14A cannot be imported into clause (f).

4.7 We may also deal with the arguments of the rival parties which, according to us, have no bearing in deciding this issue. One of the arguments of the ld. counsel was that the expenditure disallowed by the ld. CIT (Appeals) was more than the dividend income. We find that this argument is inconsequential for the reason that expenditure incurred in earning an income may at times be more than the income itself, say, in case of an industrial company in the first year of its operation when large amount of depreciation is claimed for deduction or when large amount of advertisement expenditure is incurred, such cases may result into loss, which can also happen in the case of dividend income where expenditure by way of interest on borrowed capital for investment and other expenses may exceed the dividend income. One of the arguments of the learned DR was that the disallowance worked out on the basis of the order of the Special Bench of the Tribunal in the case of aforesaid Daga Capital Management (P.) Ltd. (supra) will be more than the disallowance made by the learned CIT. The order in the case of Daga Capital Management (P.) Ltd. (supra) heavily relied on the rules framed under sub-section (2) of section 14A, which is not applicable while interpreting clause (f) of the Explanation.

4.8 It is an admitted fact that the funds of the assessee are mixed funds. Investment was made in past and in this year there was a reduction in the investment as some were disposed of. Thus, there was no fresh investment in this year. No disallowance was made in past under the aforesaid clause (f). It is the case of the learned counsel that the investments have been more or less recouped by way of dividends received in past and the sales effected, thus, leading to a conclusion in the scenario of mixed funds that no expenditure was incurred in this year for earning the dividend income. It was also his case that the capital and free reserve far exceeded the investments. Therefore, prima facie, the presumption is that investment was made out of own funds. In this connection, he relied on the decision rendered under section 36(1)(iii) regarding ascertainment of interest-bearing funds which were not used for the purpose of business but diverted as interest-free advances to sister concern and others. To our mind, similar consideration can be extended in interpreting clause (f) for working out the expenditure incurred on income which does not form part of the total income, especially in view of the fact that in a consolidated business generating taxable and tax-free incomes, the presumption is that funds have been borrowed for the purpose of business. The ld. CIT did not bring any material on record to suggest that funds were actually borrowed for investment which yielded income not to be included in the total income. The revisionary order in this case was passed on 22-12-2004 and, therefore, one has to see the state of law as on that date, as held by Hon'ble Supreme Court in the case of Max India Ltd. (supra). In the case of Motor & General Finance Ltd. (supra), the Tribunal held that the position of capital and free reserve had to be examined for this purpose in a case of mixed fund. No such exercise has been done by the ld. CIT. In the case of Tin Box Co. (supra), it was held that in absence of pointing towards any specific interest-bearing funds borrowed by the assessee, which were diverted to the sister concern, no part of the interest paid by the assessee could be disallowed in computing the total income particularly when interest-free unsecured loans exceeded interest-free advances. Being the decision of jurisdictional High Court, it is binding in nature. The ratio of the decision in the case of Munjal Sales Corpn. (supra) is also applicable because no disallowance was made in the earlier years under aforesaid clause (f), leading to the presumption that funds were borrowed for the purpose of business. Thus, the position which emerges is that there is no evidence on record to show that the borrowed funds were deployed in the investments, the income from which was not to be included in the total income. It was also the case of the learned counsel that after making investments, no expenditure was incurred for earning dividend income and the same could not be estimated by working out certain formula. We tend to agree with this argument also. Thus, it is held that there was no expenditure incurred by the assessee which could be related to the dividend income. In any case, on the facts of the case, two views are possible. The Assessing Officer chose one course of action, which was permissible under the law. Therefore, his order cannot be said to be prejudicial to the interest of the revenue because it did not find favour with the ld. CIT. In this view of the matter, these grounds are allowed.

5. Various parts of ground No. 9 are in relation to disallowance of the expenditure of Rs. 183.63 lakhs in computing the total income, holding it to be the expenditure incurred for earning the dividend income. The case of both the parties in this matter was same as in respect of ground Nos. 6 to 8 regarding computation of adjusted book profit. The learned DR heavily relied on the order of Special Bench of Mumbai Tribunal in the case of Daga Capital Management (P.) Ltd. (supra), in which it was held that provisions contained in sub-section (2) of section 14A and rule 8D of Income-tax Rules, 1962, operate retrospectively. The expenditure to be disallowed under rule 8D far exceeds the expenditure disallowed by the ld. CIT. We have already seen that the provisions of clause (f) of the Explanation to section 115JA are analogous to the provisions contained in sub-section (1) of section 14A. Therefore, on the basis of our order in respect of ground Nos. 6 to 8, it is held that the provision contained in sub-section (1) by itself could not have led to the aforesaid disallowance. The order in the case of Daga Capital Management (P.) Ltd. (supra) was rendered on 20-10-2008, while the revisionary order was passed on 22-12-2004. Thus, that order was not available before the ld. CIT and obviously it could not have referred to by her in the order. It has been fairly admitted by the ld. DR that the position of law has to be seen on the date of passing the revisionary order. On that date, considerable controversy existed as to whether disallowance could be made under sub-section (1) merely on estimates, and there was a unanimity of decision that it will be for the revenue to show that expenditure was actually incurred in earning tax-free income before making the disallowance. The same cannot be made by resorting to estimate. Further, there is a subsisting controversy even now as to rule 8D inserted in the rules by Income-tax (5th Amendment) Rules, 2008, with effect from 24-3-2008. One of the views is that the rule is substantive in nature as it affects the liability of the assessee and, therefore, it is applicable to assessment year 2008-09 and onwards. It is no doubt true that the order of the Special Bench, Mumbai is in favour of the revenue. However, the order of the Mumbai Tribunal is not of a binding nature on the revenue authorities in Delhi. The reason being that the Tribunal in Delhi and the Tribunal in Mumbai act under the jurisdiction of Hon'ble Delhi High Court and Hon'ble Mumbai High Court, which can differ in their views on any issue of law, leading to a situation where the decisions of the two High Courts are different on the same issue of law. Therefore, there is a considerable debate and discussion as to whether provisions of rule 8D could be invoked for making assessment for assessment year 2000-01. In other words, the view adopted by the Assessing Officer is also one of the permissible view under the law. In such a situation, the order is not amenable to revisionary jurisdiction because his view did not find favour with the CIT. Accordingly, it is held that the ld. CIT was not entitled to revise the order of the Assessing Officer in this matter also. Thus, these grounds are also allowed.

6. Ground No. 10, regarding initiation of penalty under section 271(1)(c) was not argued by the ld. counsel. Therefore, the same is dismissed. Ground No. 11 merely states that each ground is independent and without prejudice to other grounds raised therein. In absence of any argument, this ground is also dismissed.

ITA No. 1031 (Delhi)/2007 - Appeal of the revenue

7. The appeal was withdrawn by the learned DR by mentioning that the ld. CIT (Appeals) passed another order subsequently, in the light of which this appeal has become infructuous. Therefore, this, appeal is dismissed as withdrawn.

8. In the result, the appeal of the assessee is allowed as indicated above, and the appeal of the revenue is dismissed.