ACIT, Circle - 3, Kolkata, Kolkata V. M/s. Ramkrishna Forgings Ltd., Kolkata

ITA 1098/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54747 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 17-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PARAMANIK
• Assessee Lawyers: J M THARD A R
• Section: 14A

Judgement Text

, ' , , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA ( ) . . , , , , , , ) [BEFORE SRI S.V. MEHROTRA, A.M. & SRI MAHAVIR SING H, J.M.] ! ! ! ! / I.T.A NO. 1098/KOL/2011 ASSESSMENT YEAR : 2006-2007 ASSISTANT COMMISSIONER OF INCOME TAX, -VS.- M/S. RAMKRISHNA FORGINGS LIMITED, CIRCLE-3, KOLKATA KOLKATA (PAN : AABCR 3285 N ) ( '# /APPELLANT ) ( $%'# / RESPONDENT ) FOR THE APPELLANT ( '# ) : SHRI A.K. PARAMANIK, D.R. FOR THE RESPONDENT ( $%'# ) : SHRI J.M. THARD, A.R. &' ( ) * &' ( ) * &' ( ) * &' ( ) * /DATE OF HEARING : 29.12.2011 +, ) * +, ) * +, ) * +, ) * /DATE OF PRONOUNCEMENT : 29.12.2011 - / ORDER PER SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER/ . . , :- THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER OF LD. COMMISSIONER OF INCOME- TAX (APPEALS)-I, KOLKATA DATED 25.05.2011 FOR THE A SSESSMENT YEAR 2006-07. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-CO MPANY IN THE RELEVANT ASSESSMENT YEAR CARRIED ON THE BUSINESS OF MANUFACTURING OF STEEL P ROJECT. THE ASSESSEE FILED ITS RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS.9,40,20,882/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MADE SUBSTANTIAL INVESTMENT IN MUTUAL FUNDS AND EARNED TAX-FREE DIVIDEND INCOME OF RS.11,04,820/-. AFTER CONSIDERING THE ASSESSEES VARIOUS EXPENSES, ASSESSING OFFICER ATTRIBUTED RS.19,81,310/- TOWARDS EARNING OF TAX-FR EE INCOME AND ACCORDINGLY MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT BY OBSERV ING AS UNDER :- INVESTMENT IN SHARES & OTHER SECURITIES WAS MADE A BOVE 10% OF TOTAL ASSET VALUE OF THE ASSESSEE AND TOTAL ADMINISTRATIV E CHARGES DEBITED BY THE ASSESESE DURING THE YEAR WAS TO THE TUNE OF RS.5,47 ,81,815/-. NOW DEDUCTING EXPENSES LIKE ELECTRIC CHARGES (DOMESTIC) , PRIOR PERIOD EXPENSES, LIQUIDATED DAMAGES, TS-16949-2002-EXPENSE S, SALES TAX, SALE PROMOTION, INSPECTION CHARGES, TENDER FEES, CASH DI SCOUNTS, REPAIRS, COMMISSION, CARRIAGE, EXPORT EXPENSES, CONSIGNMENT EXPENSES, DIFFERENCE ITA NO. 1098/KOL./2011 2 IN FOREIGN EXCHANGE, SUNDRY W/O., LOSS ON SALE OF F IXED ASSETS, FOREIGN TRAVELING ETC, WHICH APPEAR TO BE INTRINSICALLY REL ATED TO THE OTHER ACTIVITIES OF THE ASSESSEE OR, OTHERWISE, DISALLOWE D WERE LEFT WITH ADMINISTRATIVE CHARGES OF RS.1,98,13,089/-. 3. IN APPEAL, LD. CIT(APPEALS) DIRECTED THE ASSESSI NG OFFICER TO RESTRICT THE DISALLOWANCE TO 1% OF DIVIDEND INCOME FOLLOWING THE DECISION DAT ED 28.02.2007 OF ITAT, KOLKATA D BENCH IN THE CASE OF NEERAJ CONSULTANTS LIMITED IN ITA NO. 1759/KOL./2005. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE RECORDS OF THE CASE. THE PRESENT APPEAL IS FOR ASSESSMENT YEAR 200 6-07 AND, THEREFORE, ILN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS.- DCIT [2010] 328 ITR 81 (BOM.), RULE 8D IS NOT APPLICABLE. IN SU CH CIRCUMSTANCES, THE DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF THE DIVIDEND INCOME AS IS CO NSISTENTLY BEEN HELD BY TRIBUNAL IN VARIOUS DECISIONS. THE ASSESSEES COUNSEL HAS FILED FOLLOWI NG DECISION DATED 29.04.2011 OF THIS TRIBUNAL IN THE CASE OF UNIVERSAL CABLES LIMITED V S.- DCIT IN ITA NO. 954/KOL./2010, WHEREIN IT HAS BEEN HELD THAT DISALLOWANCE UNDER SU CH CIRCUMSTANCES IS TO BE RESTRICTED TO 1% OF THE DIVIDEND INCOME. THE RELEVANT PART OF THE DE CISION READS AS UNDER :- 7. AFTER HEARING RIVAL CONTENTIONS AND GOING THRO UGH FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSE E EARNED A SUM OF RS.5,31,095/- AS DIVIDEND INCOME AND CLAIMED THAT I T DID NOT HAVE INCURRED ANY EXPENSE FOR EARNING SUCH DIVIDEND INCOME. THE L OWER AUTHORITIES FOLLOWING THE DECISION OF SPECIAL BENCH, ITAT IN TH E CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) DISALLOWED THE SUM OF RS.15,01,665/- ON ESTIMATE BASIS AS INADMISSIBLE DEDUCTION FROM BUSIN ESS INCOME U/S. 14A OF THE ACT R.W. R 8D OF THE I. T. RULES. WE FIND THAT THE PRINCIPLE LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) AT PAGES 138 & 139 VI DE SUB PARAS (V) TO (VII) ARE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHAL L APPLY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E 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 AD OPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPP ORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D; ITA NO. 1098/KOL./2011 3 (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002- 03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSI NG OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCU RRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIV IDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING TH E APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO T HE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MAT ERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E IN VIEW OF FACTS OF THIS CASE AND THE PRINCIPLE LAI D DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LT D. (SUPRA), THAT RULE 8D IS APPLICABLE FOR AND FROM ASSESSMENT YEAR 2008-09 AND PRIOR TO THAT THE ASSESSING OFFICER CAN MAKE ESTIMATE IN THE GIVEN FA CTS AND CIRCUMSTANCES. HENCE, WE RESTRICT THE DISALLOWANCE TO 1% OF DIVIDE ND INCOME AND DIRECT THE ASSESSING OFFICER TO CALCULATE THE EXPENDITURE ON T HAT BASIS. THIS GROUND OF ASSESSEES APPEAL IS PARTLY ALLOWED. LD. COUNSEL FOR THE ASSESSEE HAS ALSO RELIED ON THE DECISION DATED 19.08.2010 OF THIS TRIBUNAL IN ITA NO. 859/KOL/2010 IN THE CASE OF M/S. CIVIL E NGINEERS ENTERPRISES (P) LTD. VS.- DCIT. THE RELEVANT PORTION OF THE ORDER READS AS UNDER :- 3. AT THE TIME OF HEARING BEFORE US, THE LD. COUN SEL FOR THE ASSESSEE WHILE REITERATING HIS SAME SUBMISSIONS AS SUBMITTED BEFOR E THE LOWER AUTHORITIES FURTHER SUBMITTED THAT THE ASSESSEE HAD RECEIVED DI VIDEND INCOME OF RS.18,00,000/- FROM A SINGLE COMPANY AND FOR EARNIN G THIS DIVIDEND THE ASSESSEE COMPANY HAD NOT INVESTED OR EXPENDED ANY A MOUNT DURING THE YEAR. THE INVESTMENT AMOUNT ON WHICH DIVIDEND WAS RECEIVE D IS COMING FROM EARLIER YEARS. THE AO WITHOUT CONSIDERING THE ASSESEES SUB MISSION ESTIMATED MANAGEMENT EXPENSES OF RS.2,46,937/- U/S. 14A OF TH E I. T. ACT,1961. THE LD. CIT(A) ALSO NOT JUSTIFIED IN CONFIRMING THIS ACTION OF THE AO IN THIS REGARD WITHOUT CONSIDERING THE ASSESSEES SUBMISSION THAT THE ASSESSEE RECEIVED THE DIVIDEND INCOME FROM A SINGLE COMPANY ONLY AND FOR EARNING THIS AMOUNT IT HAD NOT EXPENDED ANY AMOUNT TOWARDS MANAGEMENT EXPE NSES. HE ALSO RELIED ON THE FOLLOWING JUDGMENTS : I) JUBILIANT ENPRO LTD. VS. CIT (2007) 12 SOT 194 ( DEL) AND II) CIT VS. EICHER LTD. (2007) 160 TAXMAN 80 (MAG). HE LASTLY URGED BEFORE THE BENCH TO SET ASIDE THE O RDERS OF THE LOWER AUTHORITIES AND DELETE THE DISALLOWANCE OF RS.2,46,937/-. 4. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW. 5. HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIA L AVAILABLE ON RECORD AND THE CASE LAWS CITED BY THE LD. COUNSEL. WE FIND THA T THE ASSESSEE EARNED DIVIDEND INCOME OF RS.18,00,000/-. THE ASSESSEE DID NOT FILE ANY EVIDENCE IN RESPECT OF ANY EXPENDITURE INCURRED BY HIM TO EARN THE SAID DIVIDEND INCOME BEFORE THE LOWER AUTHORITIES AND ALSO BEFORE THE TR IBUNAL. IN VIEW OF THE ABOVE, AND THE CONSISTENT VIEW TAKEN BY THE TRIBUNAL IN MA NY OTHER CASES ALSO A SUM ITA NO. 1098/KOL./2011 4 OF RS.18,000/- I.E. @ 1% OF THE DIVIDEND INCOME IS TREATED AS EXPENSES RELATED TO DIVIDEND INCOME. THEREFORE, THE DISALLOWANCE COM ES TO RS.18,000/-. THIS GROUND OF THE ASSESSEE IS, THEREFORE, PARTLY ALLOWE D. RESPECTFULLY FOLLOWING THE EARLIER DECISIONS OF THE TRIBUNAL AS NOTED ABOVE (SUPRA), WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(APPEALS) AND REJE CT THE GROUND OF APPEAL TAKEN BY THE REVENUE. 5. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMEN T IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29/ 12 /2011. & . / - 29/12/2011. SD/- SD/- [ MAHAVIR SINGH / ] [S.V. MEHROTRA/ ( . . )] JUDICIAL MEMBER/ ACCOUNTANT MEMBER/ DATED : 29/ 12/ 2011 COPY OF THE ORDER FORWARDED TO: 1. M/S. RAMKRISHNA FORGINGS LIMITED, 16, CAMAC STREET, L&T CHAMBER, 6 TH FLOOR, KOLKATA-17, 2 ACIT, CIRCLE-3, KOLKATA, 8/2, ESPLANADE EAST, DWARL I HOUSE, 2 ND FLOOR, KOLKATA-69 3. COMMISSIONER OF INCOME-TAX (APPEALS)- ,KOLKATA 4. CIT- , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, I.T.A.T., KOLKATA LAHA, SR. P.S.