The ITO, Ward-5(1), Ahmedabad V. M/s. Nila Infrastructure Ltd., Ahmedabad

ITA 1123/AHD/2011

• Counselvise Citation: 112320514 RSA 2011
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2002-2003
• Appeal Filed On: 15-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: WITH CO NO AHD
• Assessee Lawyers: ASSESSMENT YEAR ITO W
• Keywords: Earning of tax free income
• 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.1123/AHD/2011 (BY REVENUE) WITH CO NO.108/AHD/2011 (BY ASSESSEE) ( ( ) ( ) ( ) ( ) / / / / ASSESSMENT YEAR : 2002-03) THE ITO WARD-5(1) AHMEDABAD ( ( ( ( / VS. M/S.NILA INFRASTRUCTURE LTD. SAMBHAV COMPLEX, NR.OBC BANK JUDGES BUNGALOW ROAD BODAKDEV, AHMEDABAD * % ./+, ./ PAN/GIR NO. : AACN 5059 K ( *- / // / APPELLANT ) .. ( ./*-/ RESPONDENT ) REVENUE BY : SHRI VINOD TANWANI, SR.D.R. ASSESSEE BY : SHRI S.N. SOPARKAR SR.ADV. WITH MS.URVASHI SHODHAN (0 1 2% / / / / DATE OF HEARING : 16/12/2011 3') 1 2% / DATE OF PRONOUNCEMENT : 19.1.2012 4 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WH ICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS)-XI, AHME DABAD DATED 11/02/2011 PASSED FOR A.Y. 2002-03. THE RESPONDEN T ASSESSEE IS IN CROSS OBJECTION. 2. WE SHALL FIRST TAKE UP THE REVENUES APPEAL AND THE SOLITARY GROUND READS AS UNDER:- ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 2 - 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF ADMINIS TRATIVE & OTHER EXPENSES U/S.14A TO ` 60,000/- FROM ` 10,88,777/-. 2.1. THIS APPEAL HAD A CHEQUERED PAST. AN ORIGIN AL RETURN WAS FILED DECLARING AN INCOME OF RS.41,150/-, SINCE THE ASSES SEE-COMPANY IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOP MENT OF RESIDENTIAL/COMMERCIAL COMPLEXES. CERTAIN DISALLOW ANCES WERE MADE AND THE INCOME WAS ASSESSED U/S.143(3) DETERMINING ASSESSED INCOME AT RS.91,346/- DUE TO A DISALLOWANCE OF TRAVELLING EXP ENSES. THEREAFTER, IT WAS NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND I NCOME WHICH WAS FOUND TO BE AN EXEMPTED INCOME, HENCE A DISALLOWANC E U/S.14A WAS PROPOSED. IN CONSEQUENCE THEREOF, CASE WAS REOPENE D U/S.147 OF IT ACT BY ISSUING A NOTICE U/S.148 OF THE ACT. AN ASSESS MENT U/S.143(3) R.W.S.147 WAS PASSED ON 30/07/2007 AND THE TOTAL IN COME WAS DETERMINED AT RS.93,71,080/-. THE DISALLOWANCES WERE MADE AS FOLLOWS:- (I) DISALLOWANCE OF INTEREST U/S.14-A RS.81,90, 944/- (II) DISALLOWANCE OF ADM.& OTHER EXPENSES. RS.10, 88,777/- ------------------ RS.92,79,721/- ------------------ AGAINST THAT ORDER, AN APPEAL WAS FILED BEFORE CI T(A) AND VIDE AN ORDER DATED 16/10/2007 THE ADDITION OF RS.81,90,944 /- WAS DELETED. AS REGARDS DISALLOWANCE OF ADMINISTRATIVE AND OTHER EX PENSES THE DISALLOWANCE OF RS.10,88,777/- WAS RESTRICTED TO RS .60,000/- ONLY. REVENUE HAS PREFERRED AN APPEAL BEFORE RESPECTED IT AT A BENCH AHMEDABAD AND VIDE AN ORDER DATED 30/05/2008 (ITA N O.89/AHD/2008 ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 3 - A.Y. 2002-03) UPHELD THE ORDER OF THE CIT(A) TO THE EXTENT OF DELETION OF RS.81,90,944/-. HOWEVER, AS REGARDS THE DISALLOWAN CE OF ADMINISTRATIVE AND OTHER EXPENSES, THE RESPECTED TRIBUNAL HAS SET ASIDE THE ISSUE TO THE FILE OF THE AO AS PER THE FOLLOWING OBSERVATION:- 12. APROPOS GROUND NO.2, THE ASSESSEE EARNED SING LE DIVIDEND OF RS.4,55,829/- AS AGAINST WHICH, THE A.O, BY AN ESTI MATE, DISALLOWED ALMOST MORE THAN DOUBLE THE AMOUNT OF RS .10,88,777/- AS ADMINISTRATIVE EXPENSES. SIMILAR CONTROVERSY AR OSE IN THE CASE OF ACIT VS CITICORP FINANCE (I) LTD., 300 ITR (AT) 398 (MUM.), WHEREIN THE TRIBUNAL, MUMBAI BENCH, HELD THAT THE A SSESSING AUTHORITIES CANNOT DISALLOW ACCORDING TO THEIR OWN DISCRETION AND THE SAME IS TO BE COMPUTED IN THE MANNER PROVIDED I N SUB-SECTIONS (2) AND (3) OF SECTION 14A, BY FOLLOWING OBSERVATIO NS:- (II) THAT THE PROVISIONS FOR QUANTIFICATION OF D ISALLOWANCE AS CONTAINED IN SUB-SECTIONS (2) AND (3) OF SECTION 14A ARE PROCEDURAL AND THEREFORE APPLY TO ALL PENDING MATTE RS. IT IS NO LONGER OPEN TO THE ASSESSING OFFICER TO MAKE DISALLOWANCE ACCORDING TO HIS OWN DISCRETION OR ON AD HOC BASIS. HE IS STATUTORILY REQUIRED TO COMPUTE THE DISALLOWANCE IN THE MANNER PROVIDED BY SUBSECTIONS (2) AND (3) OF SECTION 14A. THEREFORE THE ORDERS PASSED BY THE COMMISSIONER (APPEALS) AND THE ASSESSING OFFICER W ERE LIABLE TO BE SET ASIDE. THE MATTER WAS RESTORED TO THE ASSESSING OFFICER FOR AFRESH EXAMINATION AND DECISI ON IN THE LIGHT OF THE PROVISIONS OF SECTION 14A INCLUDING SU B-SECTIONS (2) AND (3). 13. RESPECTFULLY FOLLOWING THE AFORESAID DECISIO N OF THE TRIBUNAL, MUMBAI BENCH, WE SET ASIDE THE ISSUE TO THE FILE OF A.O FOR DENOVO ADJUDICATION IN ACCORDANCE WITH LAW AND AFTER PROVI DING ADEQUATE OPPORTUNITY OF BEING HERD TO THE ASSESSEE. 3. SINCE THE MATTER WAS RESTORED BACK FOR DE NOVO A DJUDICATION BEFORE THE AO, THEREFORE THE IMPUGNED ORDER WAS PASSED BY THE AO U/S.143(3) ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 4 - R.W.S.254 DATED 15/12/2009 AND THE SAID ADDITION OF RS.10,88,777/- U/S.14A WAS REPEATED. 4. BEFORE LD.CIT(A), DECISION OF GODREJ & BOYCE MFG . CO.LTD. VS. DY.CIT 234 CTR 01 (BOM.) CITED. THE ASSESSEE HAS ALSO CITED THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF IT RULES. THE CIT(A) HAS REPRODUCED AN EARLIER OBSERVATION OF THE CIT(A) MAD E VIDE AN ORDER DATED 16/10/2007 AND IN IDENTICAL MANNER CONFIRMED THE ALLOWANCE ONLY TO THE EXTENT OF RS.60,000/-, AS IS EVIDENT FROM PA RAGRAPH NO. 3.1; REPRODUCED BELOW:- 3.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICE IN THE ASSESSMENT ORDER. IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT (234 CTR 1)(BOM.), IT WAS HELD THAT SEC. 14A(2) AND (3) ARE APPLICABLE FROM A.Y. 2007-08 AND THAT RULE 8D IS APPLICABLE FROM A.Y. 2008-09. IT WAS HELD FURTHER THAT IN THE EARLIER YEARS, REASONABLE DISALLOWANCE CAN BE MADE U/S.14A. IN THE INSTANT CASE EXEMPT INCOME EA RNED IS RS.4,55,829/-. AFTER CONSIDERING THE FACTS OF THE CASE, IN THE FIRST ROUND OF APPEAL PROCEEDINGS CIT(A) IN ORDER NO.CIT(A)-XI/ 137/2007-08 DATED 16-10-2007 CAME TO THE FOLLOWING FINDING. WITH REGARD TO THE DISALLOWANCE OF RS.10,88,777/- OUT OF ADMINISTRATIVE EXPENSES, IT IS SEEN THAT DURING THE YEAR UNDER CONSIDERATION THE APPELLANT HAS RECEIVED ONLY ONE D IVIDEND WARRANT AMOUNTING TO RS.4,55,829/-. IN THIS REGARD IT IS TO BE MENTIONED THAT IT IS HIGHLY IMPROBABLY AND BEYOND R ATIONAL VIEW THAT IN ORDER TO EARN DIVIDEND OF RS.4,55,829/- NO ONE CAN INCUR ADMINISTRATIVE EXPENSES AMOUNTING TO RS.10,88,777/- . THEREFORE, I AM OF THE VIEW THAT THE A.O. IS NOT JUSTIFIED IN MA KING HEAVY DISALLOWANCE ON THIS ACCOUNT. SINCE THE DISALLOWAN CE MADE BY THE ASSESSING OFFICER IS NO HIGHER SIDE, AND THEREFORE, TO MEET THE ENDS OF JUSTICE, IT IS REASONABLE TO RESTRICT THE DISALL OWANCE TO THE EXTENT ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 5 - OF RS.60,000/-. THE A.O. IS DIRECTED TO MODIFY THE ASSESSMENT ACCORDINGLY. THUS APPEAL IS PARTLY ALLOWED. A.O. HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT ANY HIGHER DISALLOWANCE IS CALLED FOR. HENCE DISALLOWANCE TO THE EXTENT6 OF RS.60,000/- IS CONFIRMED. BALANCE DISALLOWANCE IS DELETED. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 5. IN THE LIGHT OF THE ABOVE PAST HISTORY, WE HAVE HEARD BOTH THE SIDES. AT THE OUTSET, A DECISION OF RESPECTED CO-ORDINATE BENCH C ITAT AHMEDABAD IS REFERRED PRONOUNCED IN THE CASE OF CLP POWER INDIA PVT.LTD. VS. ITO - BEARING ITA NO.499/AHD/2007 & CO NO.85/AHD/2007 (A.Y.2003-04) ORDER DATED 31.10.2011, WHEREIN VIDE PARAGRAPH NOS. 5.1 AND 5.2, IT WAS CONCLUDED AS UNDER:- 5.1. WITH THIS FACTUAL BACKGROUND, WE HAVE ALSO CO NSIDERED FEW CASE LAWS CITED BEFORE US. IN THE CASE OF CIT VS. DHANL AKSHMI BANK LTD. 10 TAXMAN.COM 213 (KER.) A VIEW HAS BEEN EXPRESSED IN RESPECT OF PROPORTIONATE ADJUSTMENT PERTAINING TO ADMINISTRATI VE EXPENSES THAT, QUOTE SO FAR AS THE DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE IS CONCERNED, CONSIDERING THE FACTS OF THE CASE, THAT THERE IS NO PRECISE FORMULA FOR PROPORTIONATE DISALLOWANCE. NO DISALLOW ANCE IS CALLED FOR PROPORTIONATE ADMINISTRATIVE COST ATTRIBUTABLE TO E ARNING OF TAX FREE INCOME UNTIL RULE 8D CAME INTO FORCE. WE, THEREFOR E, DISPOSE OF THE APPEALS BY SETTING ASIDE THE ORDERS OF THE TRIBUNAL AND THAT OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE AND REMAND ALL TH E ASSESSMENTS BACK TO THE ASSESSING OFFICER FOR REWORKING DISALLOWANCE UN DER SECTION 14A IN THE CASE OF EACH ASSESSEE FOR EACH ASSESSMENT YEAR. THE PROPORTIONATE DISALLOWANCE UNDER SECTION 14A SHOULD BE LIMITED TO ONLY INTEREST LIABILITY AND NOT OVERHEADS OR ADMINISTRATIVE EXPEN DITURE, WHICH SHOULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D FROM 2 007-08 ONWARDS. UNQUOTE. 5.2. IN RESPECT OF ADMINISTRATIVE EXPENSES AN ANOTH ER DECISION HAS ALSO BEEN CITED OF HONBLE KERALA HIGH COURT PRONOU NCED IN THE CASE OF CIT VS. CATHOLIC SYRIAN BANK LTD. & ORS. 237 CTR 164 (KER.), WHEREIN AS WELL THE SAME VIEW HAS BEEN EXPRESSED BY THE HONBLE ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 6 - COURT. IN THE LIGHT OF THESE DECISIONS, WE HEREBY CONCLUDE THAT SINCE THE IMPUGNED DIVIDEND WAS RECEIVED BY A SINGLE CHEQUE A ND THAT THE ADMINISTRATIVE EXPENSES IN RESPECT OF PROFESSIONAL CHARGES WERE NOT IN RESPECT OF THE DIVIDEND EARNED DURING THE YEAR UNDE R CONSIDERATION AND THAT THERE WAS NO SUBSTANTIAL CHANGE IN THE INVESTM ENT PATTERN DURING THE YEAR UNDER CONSIDERATION AND THAT THE ASSESSEE S MAJOR SOURCE OF INCOME WAS DIVIDEND INCOME THEREFORE THE PROPORTION ATE DISALLOWANCE AS COMPUTED BY THE AO WAS IN APPROPRIATE THUS DESER VES TO BE OVERRULED. RESULTANTLY, WE HEREBY APPROVE THE VI EW TAKEN BY THE LD.CIT(A). THIS GROUND OF THE REVENUE IS DISMISSE D. 6. IN THE PRESENT APPEAL AS WELL UNDISPUTED FACT IS THAT ONLY ONE DIVIDEND WARRANT OF RS.4,55,829/- WAS RECEIVED BY T HE ASSESSEE. INDEED IT WAS HIGHLY IMPROBABLE AND BEYOND RATIONAL VIEW T HAT IN ORDER TO EARN A DIVIDEND OF RS.4,55,829/-, THAT TOO BY A SINGLE DIV IDEND WARRANT, THE ASSESSEE HAD INCURRED A HUGE ADMINISTRATIVE EXPENSE AS ASSESSED BY THE AO. FURTHER WE HAVE CAREFULLY PERUSED THE DECISIO N OF GODREJ & BOYCE MFG. CO.LTD. VS. DY.CIT (SUPRA) AND HAVE NOTICED TH AT THE HONBLE COURT HAS CATEGORICALLY PRONOUNCED THAT SUB-SECTION (2), (3) WERE INSERTED IN SECTION 14A BY THE FINANCE ACT OF 2006 WITH EFFECT FROM 01/04/2007. THE HONBLE COURT HAS ALSO SAID THAT RULE 8D WAS IN SERTED BY THE INCOME TAX (VTH AMENDMENT) RULES 2008 BY PUBLICATION IN TH E GAZETTE DATED 24/03/2008. ON THAT BASIS, IT WAS HELD THAT THE NE WLY INSERTED SUB- SECTIONS TO SECTION 14A WOULD BE APPLICABLE FROM TH E ASST.YEAR 2007-08 AND RULE 8D SHALL BE EFFECTIVE FROM A.Y. 2008-09 B ECAUSE OF THE TRITE PRINCIPLE OF LAW THAT THE LAW WHICH COULD APPLY TO AN ASSESSMENT YEAR IS THE LAW PREVAILING ON THE 1 ST DAY OF APRIL. SINCE THE RESPECTED LOWER AUTHORITY HAS ADDED ONLY A TRIFLE AMOUNT OF RS.60,0 00/- BY DISALLOWANCE ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 7 - U/S.14A, THEREFORE WITHOUT DISTURBING THE SAME WE H EREBY DISMISS THIS GROUND OF THE REVENUE. 7. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ASSESSEES CO NO.108/AHD/2011 (IN ITA NO.1123/AHD/2 011 8. GROUND NO.1 READS AS UNDER: 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE ADDITION TO THE EXTENT OF RS.60,000/- ON ACCOUN T OF DISALLOWANCE OF ADMINISTRATIVE AND OTHER EXPENSES U /S.14A. 9. AS HELD ABOVE, NO INTERFERENCE IS REQUIRED IN RE SPECT OF THIS GROUND OF THE CROSS OBJECTION, HENCE DISMISSED. 10. IN THE RESULT, REVENUES APPEAL AND CROSS OBJEC TION FILED BY THE ASSESSEE BOTH ARE DISMISSED. SD/- SD/- ( . .!'#$ ) ( ) % ( A.K. GARODIA ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEM BER AHMEDABAD; DATED 19/ 01 /2012 52..(, .(../ T.C. NAIR, SR. PS ITA NO.1123/AHD/2011 (BY REVENUE) & CO NO.108/AHD/2011 (BY ASSESSEE) ITO VS. M/S.NILA INFRASTRUCTURE LTD. ASST.YEAR 2002-03 - 8 - 4 1 .6 7 6) 4 1 .6 7 6) 4 1 .6 7 6) 4 1 .6 7 6)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 8 / CONCERNED CIT 4. 8() / THE CIT(A)-XI, AHMEDABAD 5. 6;! .( , , / LEARNED DEPARTMENTAL REPRESENTATIVE, ITAT, AHMEDABAD 6. !$ <0 / GUARD FILE. 4( 4( 4( 4( / BY ORDER, /6 . //TRUE COPY// = == =/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION..16.1.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 17.1.12 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.19.1.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 19.1.12 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