M/s. Maiden Tradefin Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(4), Ahmedabad

ITA 1077/AHD/2011

• Counselvise Citation: 107720514 RSA 2011
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Retrospective amendment; Rule 8D
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . .!'#$, % & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1077/AHD/2011 ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2004-05) M/S.MAIDEN TRADEFIN PVT.LTD. 508, SHILP BUILDING C.G.ROAD NAVRANGPURA AHMEDABAD ( ( ( ( / VS. THE INCOME TAX OFFICER WARD-4(4) AHMEDABAD * % ./+, ./ PAN/GIR NO. : AACCM 5019L ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : -NONE- ./*- 1 0 / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. (2 1 3% / / / / DATE OF HEARING : 16/12/2011 4') 1 3% / DATE OF PRONOUNCEMENT : 16-12-2011 5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL OF THE ASSESSEE ARISING FROM TH E ORDER OF THE LEARNED CIT(APPEALS)-VIII, AHMEDABAD DATED 21/01/20 11 PASSED FOR ASSESSMENT YEAR 2004-05. NUMBER OF GROUNDS HAVE BE EN RAISED, HOWEVER, THE SUBSTANTIVE ISSUE AS APPEARED FROM THE SEVERAL GROUNDS IS IN RESPECT OF INVOCATION OF PROCEEDINGS U/S.14A OF THE I.T.ACT AND, THEREUPON, MAKING A DISALLOWANCE OF RS.9,92,444/-. ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 254 OF THE I.T. ACT, 1961 DATED 11/12/2009 WERE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND IN THE BUSINESS OF TRADING AND INVESTMENT. EARLIER, AN APPEAL WAS FILED BEFORE THE TRIBUNAL AND VIDE ITAT ORDER DATED 28/12/2009 IN IT A NO.3798/AHD/2007, THE ISSUE WAS RESTORED BACK TO TH E FILE OF THE ASSESSING OFFICER WITH THE DIRECTION FOR DE NOVO ASSESSMENT. ACCORDINGLY, THE PROCEEDINGS WERE MADE AND THE DISA LLOWANCE U/S.14-A WAS REPEATED OF RS.12,08,056/-. THE ASSESSING OFFI CER HAS FOLLOWED THE DECISION OF ITAT MUMBAI PRONOUNCED IN THE CASE OF D AGA CAPITAL MANAGEMENT (P) LTD. [2009] 117 ITD 169 (MUM](SB). THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY AND LE ARNED CIT(APPEALS) HAS ALSO REFERRED THE AFOREMENTIONED DECISION OF THE TR IBUNAL AND CONFIRMED THE ADDITION. ONE MORE FEATURE HAVE COME TO OUR NO TICE THAT NUMBER OF ADJOURNMENTS WERE SOUGHT BY THE ASSESSEE AND FINALL Y DUE TO NON- APPEARANCE THE FIRST APPELLATE AUTHORITY HAS PROCEE DED EX-PARTE WHILE AFFIRMING THE ACTION OF THE ASSESSING OFFICER. 3. WITH THIS FACTUAL BACKGROUND, WE HAVE NOTED THAT TODAY BEFORE US THE APPELLANT HAS MOVED AN ADJOURNMENT PETITION WHI CH WE HAVE REJECTED AND PROCEEDED EX-PARTE QUA THE ASSESSEE, AFTER HEARING THE LD.SR.DR MR.SAMIR TEKRIWAL WHO HAS PLACED RELIANCE ON THE OR DERS OF THE AUTHORITIES BELOW. 4. THE ISSUE RAISED AS PER THE GROUNDS OF APPEAL IN RESPECT OF ADDITION MADE BY INVOKING THE PROVISIONS OF SECTION 14-A OF THE I.T.ACT NOW ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 3 - STOOD RESOLVED BY A LATEST DECISION OF HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/2010 [ NOW REPORTED AS 328 ITR 81(BOM)]. IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HAS ALSO RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQUIRED WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLIS HED BETWEEN THE INVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME IS TO BE DI SALLOWED ONLY IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED BY THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RA THER, THE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CA RRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT TH E PROVISO TO SECTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HON'BL E COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF THE I.T.RU LES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB- SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001, HOWEVER RULE 8D WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULE S, 2008 BY PUBLICATION IN THE GAZETTE DATED 24/03/2008, RELEVA NT FINDINGS ARE REPRODUCED BELOW:- A) THE ITAT HAD RECORDED A FINDING IN THE EARLIE R ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEE N MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT TH ERE IS NO ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 4 - NEXUS BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOWABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME C AN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSES SEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, I N VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDE R COULD BE EFFECTIVELY MADE FROM ASSESSMENT YEAR 2001-2002 ONW ARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLI CABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001-2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLO WANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SUPRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITE NESS IN THE APPROACH OF THE REVENUE WOULD NOT APPLY TO THE FACT S OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. TH ERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOUL D HAVE NO RELEVANCE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002- 2003 IN THE LIGHT OF SECTION 14A OF THE ACT. 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HA VE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTE NT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERE D TO BE RELEVANT ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 5 - AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE ASSESS ING OFFICER FOR A FRESH DETERMINATION. CONCLUSION : 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FALLIN G WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TA X ACT 1961, AS WAS APPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASS ESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A (1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115 O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTR IBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF T HE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DIS CHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT F OR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS T HE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTI ON 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 6 - V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES W HICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE 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 REASON ABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL S TAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. SINCE A VIEW HAS ALREADY BEEN TAKEN THAT THIS MA TTER HAS TO BE DECIDED AFRESH IN THE LIGHT OF THE DIRECTIONS OF TH E HON'BLE BOMBAY HIGH COURT, THEREFORE, ON THE SAME LINES, WE DEEM IT JUS TIFIABLE TO RESTORE THIS ITA NO.1077/AHD /2011 M/S.MAIDEN TRADEFIN PVT.LTD. VS. ITO ASST.YEAR - 2004-05 - 7 - GROUND AS WELL BACK TO THE STAGE OF LEARNED CIT(APP EALS) TO BE DECIDED DE NOVO AS PER THE GUIDELINES. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE MAY BE TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. 5 % 6 ( ! 7 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 1 6 /12/2011 SD/- SD/- ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER 83..(, .(../ T.C. NAIR, SR. PS 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9) 5 1 .9 : 9)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. ; / CONCERNED CIT 4. ;() / THE CIT(A)-VIII, AHMEDABAD 5. 9>! .( , , / DR, ITAT, AHMEDABAD 6. !$ ?2 / GUARD FILE. 5( 5( 5( 5( / BY ORDER, /9 . //TRUE COPY// @ @@ @/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..16.12.11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 16.12.11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 19.12.11. 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.12.11 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER