M/S. FCB-ULKA ADVERTISING PVT. LTD, MUMBAI V. THE DCIT CIR-3(1), MUMBAI

CO 293/MUM/2007

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9608 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 29-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 29-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SUNIL LALA MS SHEETAL JAIN
• Keywords: Earning of tax free income
• Section: 244A; 14A; 131

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F B ENCH, MUMBAI . . , , !'#$ , % & BEFORE SHRI I.P. BANSAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO.5404/MUM/2007 ( ' ' ' ' / ASSESSMENT YEAR :2004-05 THE DCIT, CIRCLE 3(1), AAYAKAR BHAVAN, MUMBAI-400 020 / VS. M/S. FCB ULKA ADVERTISING PVT. LTD., (NOW KNOWN AS DRAFT FCB ULKA ADVERTISING PVT.LTD., NIRMAL, 4 TH FLOOR, NARIMAN POINT, MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 293/MUM/2007 (ARISING OUT OF I.T.A. NO.5404/MUM/2007 ( ' ' ' ' / ASSESSMENT YEAR :2004-05 M/S. FCB ULKA ADVERTISING LTD., (NOW KNOWN AS DRAFT FCB ULKA ADVERTISING PVT.LTD., NIRMAL, 4 TH FLOOR, NARIMAN POINT, MUMBAI-400 021 / VS. THE DCIT, CIRCLE 3(1), AAYAKAR BHAVAN, MUMBAI-400 020 (CROSS OBJECTOR ) (\APPELLANT IN APPEAL) ./ I.T.A. NO.6022/MUM/2008 ( ' ' ' ' / ASSESSMENT YEAR :2005-06 M/S. FCB ULKA ADVERTISING LTD., (NOW KNOWN AS DRAFT FCB ULKA ADVERTISING PVT.LTD., NARIMAN POINT, MUMBAI-400 021 / VS. THE DCIT, CIRCLE 3(1), AAYAKAR BHAVAN, MUMBAI-400 020 ( % ./ )* ./ PAN/GIR NO. : AAACU 0566E ( (+ / APPELLANT ) .. ( ,-(+ / RESPONDENT ) M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 2 (+ . / REVENUE BY: SHRI RAVI PRAKASH ,-(+ / . / ASSESSEE BY: SHRI SUNIL LALA MS. SHEETAL JAIN / 01% / DATE OF HEARING :15.05.2014 23' / 01% / DATE OF PRONOUNCEMENT:21.05.2014 4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL , ITA5404/MUM/2007 , BY THE REVENUE I S DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-XXVIII, MUMBAI DT.3.5.2007 PERTAINING TO A.Y. 2004-05. THE ASSESSEE IS IN CRO SS OBJECTION VIDE C.O. NO. 293/MUM/2007 AGAINST THE VERY SAME ORDER OF THE LD. CIT(A). ITA NO. 6022/M/2008 IS APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-XXVIII, MUMBAI DT. 3.6.2008 FOR A.Y. 2005-06 . BOTH THESE APPEALS AND THE C.O WERE HEARD TOGETHER AND DISPOSE D OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVIT Y. ITA NO. 5404/MUM/2007 A,Y, 2004-05 -REVENUES APP EAL 2. THE REVENUE IS AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ON FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF RS. 1,27,941/- MADE BY THE AO U/S. 14A OF THE I.T. ACT, 1961 BEING EXPENDITURE INCURRED FOR EARNING TAX FRE E DIVIDEND INCOME OF RS. 1,27,941/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITI ON OF M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 3 RS.30,89,952/- ON ACCOUNT OF LEASE RENTALS PAID BY ASSESSEE COMPANY FOR ASSETS TAKEN ON LEASE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ESTIMA TED ADDITION OF RS.10 LAKHS OUT OF TOTAL EXPENDITURE INCURRED WITHOUT APPRECIATING THE FACT THAT ASSESSE E COMPANY HAS NOT SUBMITTED EVIDENCE ON EXPENSES DEBITED TO P&L ACCOUNT AND CONSEQUENTLY IT WAS BINDING UPON THE AO TO ESTIMATE THE SAME. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE AO TO GRANT CREDIT FOR TDS AMOUNTING TO RS. 2,00,87,433/- AGAINST THE PROVISIONS OF SEC. 199 OF THE I.T. ACT, 1961. 3. THE ASSESSEE IS AN ADVERTISING AGENCY WHO FILED ITS RETURN OF INCOME ON 29,10.2004 DECLARING TAXABLE INCOME AT RS . 15,21,70,400/-. THE RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT. A CCORDINGLY, STATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE. 3.1. DURING THE COURSE OF THE SCRUTINY ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EAR NED DIVIDEND AMOUNTING TO RS. 12,79,408/- ON WHICH THE ASSESSEE CLAIMED THAT NO EXPENSES DIRECTLY RELATED TO THE EARNING OF THIS I NCOME HAVE BEEN INCURRED BY THE ASSESSEE. THEREFORE, NO DISALLOWAN CES U/S. 14A ARE CALLED FOR. 3.2. THE AO DISMISSED THE CONTENTION OF THE ASSESSE E HOLDING THAT SEC. 14A PROVIDES FOR DISALLOWANCE OF EXPENSES IN RELATI ON TO THE EXEMPTED INCOME. ACCORDING TO THE AO, THE SECTION DOES NOT REQUIRE A DIRECT NEXUS BETWEEN THE EXPENSES INCURRED AND THE EARNING OF EX EMPTED INCOME. DRAWING SUPPORT FROM THE DECISION OF THE TRIBUNAL, CHENNAI BENCH IN THE M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 4 CASE OF SOUTHERN PETRO CHEMICAL INDUSTRIES VS DCIT 93 TTJ 161 , THE AO CONCLUDED THAT CERTAIN EXPENSES MUST HAVE NECESS ARILY BEEN INCURRED IN EARNING THE DIVIDEND INCOME, THEREFORE THE SAME IS REQUIRED TO BE DISALLOWED UNDER THE PROVISIONS OF SEC. 14A OF THE ACT AND ACCORDINGLY ESTIMATED EXPENDITURE EQUIVALENT TO 10% OF THE EXEM PTED INCOME AND COMPUTED THE DISALLOWANCE AT RS. 1,27,941/-. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED ITS CLAIM AS WAS MADE BEFORE THE AO. AF TER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) DREW SUPP ORT FROM THE DECISION OF HIS PREDECESSOR FOR A.Y. 2002-03 WHEREIN IT WAS HELD THAT NEITHER THE ASSESSEE HAS INCURRED ANY INTEREST EXPENDITURE TOWA RDS THE DIVIDEND INCOME NOR ANY DIRECT MANAGERIAL AND ADMINISTRATIV E EXPENDITURE INCURRED TO EARN THE DIVIDEND INCOME. FOLLOWING TH E FINDINGS GIVEN BY HIS PREDECESSOR FOR A.Y. 2002-03, DISALLOWANCE MADE BY THE AO WAS DELETED. 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. TH E LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTED THE FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS DCIT 328 IT R 81 HAS HELD THAT A REASONABLE DISALLOWANCE NEED TO BE MADE. THE L D. DR PRAYED THAT THE DISALLOWANCE MADE BY THE AO IS REASONABLE AND DESER VE TO BE CONFIRMED. 6. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REI TERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 7. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTH ORITIES BELOW. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS WALFOR T SHARE & STOCK M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 5 BROKERS (P) LTD 326 ITR 01 HAS HELD THAT FOR ATTR ACTING SEC. 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHIC H IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. 7.2. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF R ELIANCE INDUSTRIES LTD 339 ITR 632 HAS CONFIRMED THE FINDINGS OF THE TRIBUNAL WHICH HELD THAT THERE IS NO FACT OF ASSESSEE HAVING INCURRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THE DIVIDEND INCOME. THE DISAL LOWANCE IS MISCONCEIVED AND THE SAME IS DELETED. 7.3. THE HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS HERO CYCLES LTD 323 ITR 518 HAS HELD THAT DISA LLOWANCE U/S. 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INC URRED, DISALLOWANCE U/S. 14A CANNOT STAND. 7.4. IN THE INSTANT CASE, WE FIND THAT THE AO HAS N OT BROUGHT ANYTHING ON RECORD WHICH COULD SUGGEST THAT CERTAIN EXPENDIT URES HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME , DIRECTLY O R INDIRECTLY. HOWEVER, FOLLOWING THE RATIO OF THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE (SUPRA) BY WHICH A REASONABLE DISALL OWANCE HAS TO BE MADE , IN OUR CONSIDERED VIEW, DISALLOWANCE OF 2% OF THE DIVIDEND INCOME WOULD MEET THE ENDS OF JUSTICE. WE, THEREFO RE, DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO 2% OF THE DIVIDEND INC OME. GROUND NO. 1 IS PARTLY ALLOWED. 8. GROUND NO. 2 RELATES TO THE DELETION OF THE ADDI TION OF RS. 30,89,952/- ON ACCOUNT OF LEASE RENTALS PAID BY TH E ASSESSEE FOR ASSETS TAKEN ON LEASE. M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 6 8.1. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE AS SESSEE STATED THAT THIS ISSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASS ESSEE BY THE DECISION OF THE THIRD MEMBER IN THE CASE OF KAIRA CAN COMPANY LTD. VS JCIT IN ITA NO. 6987/M/03. 8.2. THE LD. DEPARTMENTAL REPRESENTATIVE COULD NOT BRING ANY DISTINGUISHING DECISION IN FAVOUR OF THE REVENUE. 9. WE FIND FORCE IN THE CONTENTION OF THE LD. COUNS EL. THE TRIBUNAL IN THE CASE OF KAIRA CAN CO. (SUPRA) HAS DECIDED TH IS ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE FINDINGS OF THE CO ORDINATE BENCH, GROUND NO. 2 IS DISMISSED. 10. GROUND NO. 3 RELATES TO THE DELETION OF THE EST IMATED ADDITION OF RS. 10 LAKHS. 11. DURING THE COURSE OF THE SCRUTINY ASSESSMENT PR OCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS NOT SUBMITTED COMPLE TE EXHAUSTIVE DETAILS OF VARIOUS EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. CONSIDERING THE VOLUME OF THE BUSINESS OF THE ASSESSEE AND THE TYPE OF EXPENSES DEBITED TO P&L ACCOUNT, THE AO DISALLOWED A SUM OF RS. 10 LAKHS ON ADHOC BASIS FROM SUCH EXPENSES. 12. THE LD. CIT(A) HAS CONSIDERED THIS DISALLOWANCE QUA GROUND NO. 6 BEFORE HIM. BEFORE THE LD. CIT(A), IT WAS CONTEND ED THAT THE ASSESSEE HAD FILED ALL THE DETAILS AND EXPLANATIONS CALLED F OR BY THE AO. IT WAS POINTED OUT THAT THE DETAILS SUBMITTED IN THE COURS E OF ASSESSMENT PROCEEDINGS RUN INTO ABOUT 550 PAGES. IT WAS ALSO POINTED OUT THAT THE M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 7 AO HAS NEITHER GIVEN ANY SPECIFIC REASON NOR GIVEN THE SPECIFIC NATURE OF EXPENSES WHICH HAVE BEEN DISALLOWED. AFTER CONSIDE RING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE A O HAD ALL POWERS UNDER THE ACT INCLUDING POWER OF SUMMONING TO RECOR D U/S. 131 THEREFORE WITHOUT MAKING ANY ENQUIRY AND WITHOUT SPECIFYING N ATURE OF DISALLOWANCE, SUCH DISALLOWANCES CANNOT BE SUSTAINE D. THE LD. CIT(A) FURTHER OBSERVED THAT THE FINDING OF THE AO WERE NO T PLACED ON SOME COGENT MATERIAL AND IS PURELY ON SUSPICION. THE LD. CIT(A) ACCORDINGLY DELETED THE DISALLOWANCE OF RS. 10 LAKHS . 13. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. T HE LD. DR RELIED UPON THE FINDINGS OF THE AO. 14. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHA T HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 15. THE ASSESSEES ACCOUNTS ARE AUDITED. THE REQUI SITE DETAILS WERE FILED BEFORE THE AO. THE AO HAS NOT POINTED OUT AN Y SPECIFIC EXPENDITURE WHICH ACCORDING TO HIM WAS NOT PROPERLY SUPPORTED BY BILLS/ VOUCHERS NOR THERE IS ANY SPECIFIC FINDING THAT ANY EXPENDITURE HAVE BEEN INCURRED NOT FOR THE PURPOSE OF BUSINESS. IT IS NO T IN DISPUTE THAT THE ADDITION HAS BEEN MADE ON ADHOC BASIS. CONSIDERING THESE FACTS IN TOTALITY, WE DO NOT FIND ANY REASON TO INTERFERE WI TH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 3 IS ACCORDINGLY DISMISSED. 16. GROUND NO. 4 RELATES TO THE DIRECTION GIVEN T O THE AO BY THE LD. CIT(A) TO GRANT CREDIT FOR TDS AMOUNTING TO RS. 2,0 0,87,433/-. M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 8 16.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE ASSESSEE WAS ASKED TO SUBMIT THE RECONCILIATION OF AMOUNTS CREDI TED TO ITS P&L ACCOUNT AND THE AMOUNTS RECEIVED AS PER TDS CERTIFICATES FO R WHICH TDS CREDIT HAVE BEEN CLAIMED. ON RECEIVING NO SUCH DETAILS FR OM THE ASSESSEE, THE AO DENIED THE CLAIM OF CREDIT FOR TDS. 17. THE LD. CIT(A) HAS CONSIDERED THIS GRIEVANCE Q UA GROUND NO. 8 BEFORE HIM. IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ON 26.12.2006, THE ASSESSEE HAS DULY FURNISHED BEFORE THE AO A STATEMENT OF RECONCILIATI ON OF GROSS AMOUNTS IN THE BOOKS OF ACCOUNT ALONGWITH THE GROSS AMOUNTS AS PER TDS CERTIFICATES WHICH HAS BEEN COMPLETELY IGNORED BY THE AO. THE SAME DETAILS WERE FURNISHED BEFORE THE LD. CIT(A). THE LD. CIT(A) OB SERVED THAT ON THE EXAMINATION OF THE DETAILS, THE ASSESSEE HAS CLAIME D TDS AMOUNTING TO RS. 2,00,87,433/- OUT OF WHICH THE AMOUNT OF TDS FO R WHICH THE INCOME HAS BEEN OFFERED IN OTHER YEARS IS ONLY RS. 23,14,9 39/-. ACCORDING TO THE LD. CIT(A), THE ASSESSEE HAS DISCLOSED INCOME IN RE SPECT OF TDS CERTIFICATE OF RS. 1,77,72,494/- AS RECEIPT DURING THE YEAR ITSELF. THE LD. CIT(A) FURTHER OBSERVED THAT SIMILAR CLAIM OF TDS WAS ALLOWED IN THE EARLIER YEAR. THE LD. CIT(A) ALSO CONSIDERED THE D ECISION OF THE TRIBUNAL IN THE CASE OF TOYO ENGINEERING INDIA LTD VS JCIT 1 00 TTJ 373 AND DRAWING SUPPORT FROM THE SAID DECISION OF THE TRIBU NAL DIRECTED THE AO TO ALLOW CREDIT OF TDS OF RS. 2,00,87,433/-. 18. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. T HE LD. DR STRONGLY SUPPORTED THE FINDINGS OF THE AO. IT IS THE SAY OF THE LD. DR THAT IT IS THE DUTY OF THE ASSESSEE TO RECONCILE THE TDS CLAIM VIS --VIS THE AMOUNT OF INCOME OFFERED FOR TAXATION DURING THE YEAR UNDER C ONSIDERATION. THE LD. DR FURTHER STATED THAT CREDIT FOR THE TDS IS ALLOWE D ONLY WHEN THE M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 9 INCOME IS OFFERED FOR TAXATION AND SINCE THE ASSESS EE HAS NOT FILED ANY RECONCILIATION, THE CREDIT OF TDS WAS CORRECTLY DEN IED BY THE AO. 19. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RE ITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. 20. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUT HORITIES BELOW. WE FIND THAT THE LD. CIT(A) HAS EXAMINED THE RECONCILI ATION STATEMENT AND ON HIS EXAMINATION THE LD. CIT(A) HAS GIVEN A CATEGORI CAL FINDING THAT THE ASSESSEE IS ENTITLED FOR THE CREDIT OF THE TDS. AS NO DISTINGUISHING FACT HAS BEEN BROUGHT ON RECORD, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GROUND NO. 4 IS ACCORDINGLY DISMIS SED. 20.1. IN THE RESULT, THE APPEAL FILED BY THE REVENU E IS PARTLY ALLOWED. C.O. NO. 293/MUM/07- A.Y. 2004-05 21. GROUND NO. 1 BECOME OTIOSE BECAUSE OF OUR FINDI NG FOR GROUND NO. 1 IN REVENUES APPEAL IN ITA NO. 5404/M/07 22. GROUND NO. 2 BECOMES OTIOSE AS PER OUR FINDING FOR GROUND NO. 2 IN REVENUES APPEAL. 23. GROUND NO. 3 RELATES TO UPHOLDING OF THE ADHOC DISALLOWANCE OF RS. 5 LAKHS OUT OF ENTERTAINMENT EXPENDITURE. 23.1. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE AO HAS DISALLOWED A SUM OF RS. 5 LAKHS BASED ON THE FINDIN GS GIVEN IN THE ORDER FOR A.Y. 2003-04. WE FIND THAT THE TRIBUNAL IN A.Y 2003-04 IN ITA NOS. M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 10 6655 & 6656/M/06 HAS CONSIDERED A SIMILAR ISSUED VI DE PARA-7 OF ITS ORDER AND AT PARA-13 RELYING ON THE DECISION OF TH E BOMBAY HIGH COURT IN THE CASE OF CIT VS SHAH NANGI NAGSI 116 ITR 292 DELETED THE ADHOC DISALLOWANCE MADE BY THE AO. 24. IN THE CASE IN HAND, AS MENTIONED ELSEWHERE, TH E AO HAS MADE THE DISALLOWANCE BASED ON THE FINDINGS OF A.Y 2003-04 WHICH THE TRIBUNAL HAS DELETED. DRAWING SUPPORT FROM THE DECISION OF THE CO ORDINATE BENCH, WE DIRECT THE AO TO DELETE THE DISALLOWANCE OF RS. 5 LAKHS. C.O. NO. 3 IS ACCORDINGLY ALLOWED. 25. GROUND NO. 4 BECOMES OTIOSE AS PER OUR FINDING FOR GROUND NO. 3 IN REVENUES APPEAL. 26. THE ASSESSEE HAS NOT PRESSED GROUND NO. 5. THE REFORE IT IS DISMISSED AS NOT PRESSED. 27. C.O. NO. 6 RELATES TO LEVY OF INTEREST U/S. 234 B AND 234D. CHARGING OF INTEREST IS MANDATORY THOUGH CONSEQUEN TIAL. WE DIRECT THE AO TO LEVY INTEREST AS PER THE PROVISIONS OF LAW AF TER GIVING APPEAL EFFECT TO OUR ORDER. 28. IN THE RESULT, THE C.O. FILED BY THE ASSESSEE I S PARTLY ALLOWED. ITA NO. 6022/M/08 A.Y. 2005-06 ASSESSEES APPEA L 29. THE ASSESSEE HAS RAISED 7 SUBSTANTIAL GROUNDS O F APPEAL. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSESSEE STATE D THAT HE IS NOT PRESSING M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 11 GROUND NO. 4, 5 & 6. THESE GROUNDS ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 30. GROUND NO. 1 RELATES TO THE DISALLOWANCE OF RS. 17,74,857/- U/S. 14A OF THE ACT. 30.1. DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS, THE AO NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND AMOUNTING TO RS. 3,10,10,434/-. OUT OF THIS DIVIDEND OF RS. 3,08,05,600/- HAS BEEN RECEIVED FROM SUBSIDIARY COMPANY. IT WAS CLAIMED THAT NO EXPENSE S HAVE BEEN INCURRED FOR EARNING THIS DIVIDEND INCOME. THE AO DID NOT A CCEPT THE CONTENTION OF THE ASSESSEE WHO WAS OF THE FIRM BELIEF THAT CER TAIN EXPENSES MUST HAVE NECESSARILY BEEN INCURRED IN EARNING THE DIVIDEND I NCOME. THE AO WENT ON TO COMPUTE THE DISALLOWANCE U/S. 14A AND COMPUTE D THE SAME AT RS. 17,74,857/-. 31. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 32. WE HAVE CONSIDERED A SIMILAR ISSUE VIDE GROUND NO. 1 IN REVENUES APPEAL IN ITA NO. 5404/M/07. FOR THE ELA BORATE REASONS DISCUSSED THEREIN AND FOLLOWING THE ORDER OF THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCEE (SUPRA), WE HAVE HELD THAT A DISALLOWANCE OF 2% OF THE DIVIDEND INCOME WOULD MEE T THE ENDS OF JUSTICE. FACTS AND ISSUE BEING IDENTICAL, WE DIREC T THE AO TO RESTRICT THE DISALLOWANCE TO 2% OF THE DIVIDEND INCOME. THE ASS ESSEE WILL GET PART RELIEF. GROUND NO. 1 IS PARTLY ALLOWED. M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 12 33. GROUND NO. 2 BECOMES OTIOSE QUA OUR FINDINGS GI VEN IN GROUND NO. 1 IN REVENUES APPEAL. 34. GROUND NO. 3 RELATES TO THE ADHOC DISALLOWANCE OF RS. 5 LAKHS MADE BY THE AO TOWARDS ENTERTAINMENT EXPENSES. 35. SIMILAR ISSUE IS ALSO BEEN CONSIDERED BY US IN ASSESSEES CROSS OBJECTION NO. 293/M/08 QUA OBJECTION NO. 3. FOR SI MILAR REASON, WE DIRECT THE AO TO DELETE THE ADDITION OF RS. 5 LAKHS . 36. GROUND NO. 7 RELATES TO CLAIM OF INTEREST U/S. 244A OF THE ACT. 37. THIS ISSUE BECOMES CONSEQUENTIAL. THE AO IS DI RECTED TO DECIDE THIS ISSUE AFRESH AFTER GIVING APPEAL EFFECT IN THE LIGHT OF THE PROVISIONS OF LAW. 38. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E AND THE REVENUE AND THE C.O FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MAY,2014 . 4 / 3' % 5 67 21.5.2014 3 / 8 SD/- SD/- (I.P. BANSAL ) (N.K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 6 DATED 21.5.2014 . . ./ RJ , SR. PS M/S. DRAFT FCB ULKA ADVERTISING PVT. LTD. 13 4 4 4 4 / // / ,0! ,0! ,0! ,0! 9!'0 9!'0 9!'0 9!'0 / COPY OF THE ORDER FORWARDED TO : 1. (+ / THE APPELLANT 2. ,-(+ / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. !;8 ,0 , , / DR, ITAT, MUMBAI 6. 8< / GUARD FILE. 4 4 4 4 / BY ORDER, -!0 ,0 //TRUE COPY// = == = / > > > > ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI