ACIT, CHENNAI V. The Nungambakkam Saswatha Dhana Rakshaka Nidhi Ltd., CHENNAI

ITA 1138/CHNY/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68630 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 24-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN JT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI [BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER] I.T.A.NO.1138/MDS/2013 ASSESSMENT YEAR : 2004-05 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI VS M/S THE NUNGAMBAKKAM SASWATHA DHANA RAKSHAKA NIDHI LTD 15, RAMA NAICKEN STREET NUNGAMBAKKA CHENNAI 600 034 [PAN AABCT 7892 F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N. MADHAVAN, JT. CIT RESPONDENT BY : SHRI SAROJ KUMAR PARIDA, ADVOCATE DATE OF HEARING : 22-07-2013 DATE OF PRONOUNCEMENT : 05-08-2013 O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVE NUE AGAINST THE ORDER OF THE LD. CIT(A-1), MADURAI (I/C), DATED 19.2.2013. 2. THE REVENUE HAS TAKEN THREE GROUNDS OF APPEAL IN W HICH THE ONLY ISSUE INVOLVED IS THAT THE LD. CIT(A) ERRE D IN DELETING THE DISALLOWANCE OF ` 26,88,155/- MADE BY THE ASSESSING OFFICER U/S 14A R.W. RULE 8D OF THE I.T.RULES. I.T.A.NO.1138/13 :- 2 -: 3. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE Y EAR UNDER APPEAL THE ASSESSEE RECEIVED DIVIDEND FROM 6.75% T AX FREE BONDS OF ` 8,17,641/- AND DIVIDEND FROM UTI GROWTH AND DIVIDEN D PLANS OF ` 5,05,000/-, TOTALING TO ` 13,22,641/-. BEFORE THE ASSESSING OFFICER THE ASSESSEE SUBMITTED THAT IT HAS NOT INCURRED AN Y EXPENDITURE TOWARDS EARNING OF EXEMPT DIVIDEND INCOME. THE ASS ESSING OFFICER OBSERVED THAT THE TRIBUNAL IN THE CASE OF ITO VS DA GA CAPITAL MANAGEMENT P. LTD, 117 ITD 169, HAS HELD THAT EVEN IF THE ASSESSEE CLAIMS THAT IT HAS NOT INCURRED ANY EXPENDITURE TOW ARDS EARNING THE EXEMPT INCOME, THE ASSESSING OFFICER HAS TO MANDAT ORILY CALCULATE THE EXPENDITURE ON SUCH EXEMPT INCOME. THEREFORE, THE ASSESSING OFFICER DISALLOWED ` 26,88,155/- BY INVOKING THE PROVISIONS OF RULE 8D R.W.S 14A OF THE ACT. 4. ON APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE SUBMI TTED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO. LTD VS DCIT, 328 ITR 81(BOM) HAS HELD THAT RULE 8D APPLIES FROM ASSESSMENT YEAR 2008-09 AS IT WAS NOTIFIED WITH EFF ECT FROM 24.3.2008 AND THEREFORE, THE SAME WAS NOT APPLICABLE FOR EARL IER ASSESSMENT YEARS. THE ASSESSEE ALSO SUBMITTED THAT THE HON'B LE P&H HIGH COURT IN THE CASE OF CIT VS M/S HERO CYCLES LTD, 2009-TIO L-604HC-P&H-IT I.T.A.NO.1138/13 :- 3 -: HAS HELD THAT DISALLOWANCE U/S 14A REQUIRES FINDIN G OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEM PT INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S 14 A CANNOT WITHSTAND. THE ASSESSEE FURTHER SUBMITTED THAT TH E DELHI BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS SUN INVESTMENTS , 8 ITR (TRIB) 33 HAS HELD THAT UNLESS THE ASSESSING OFFICER ESTABLIS HED THAT SPECIFIC EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME THERE CAN BE NO DISALLOWANCE U/S 14A. 5. THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSIONS M ADE BY THE ASSESSEE, RESTRICTED THE DISALLOWANCE TO 2% OF THE EXEMPT DIVIDEND INCOME. WHILE DOING SO, THE LD. CIT(A) HA S HELD AS UNDER: 4.2 I HAVE CONSIDERED THE FACTS PERTAINING TO THE CASE AND THE SUBMISSIONS MADE BY THE ID.A.R. I FIND THAT THE APP ELLANT HAS ENOUGH RESERVE AND SURPLUS AMOUNTS TO RS.2,43,36,23 4/- OUT OF WHICH THE APPELLANT MADE ONLY INVESTMENT AMOUNTING TO RS.1,89,01,299/- IN ONLY TAX FREE BONDS AND UTI GSE C FUND. ALL THE INVESTMENT MADE WERE MADE MANY YEARS AGO AND NO INV ESTMENT WAS MADE IN THE CURRENT YEAR. FURTHER, THE ASSESSIN G OFFICER HAS ALSO NOT DISAPPROVED ANY OF THE ABOVE FACTS WHICH M AKES IT CLEAR THAT THE INVESTMENT HAS MADE ONLY OUT OF INTEREST FREE F UNDS. FURTHERMORE, I AM OF THE OPINION THAT THE ADDITION MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 14A READ WITH RULE 8D IS INCORRECT AS THE NOTIFICATION NO.S.O.547 (E) PRESCRIBING THE METHOD OF DETERMINING THE AMOUNT OF EXPENDITURE, UN DER SUB-SECTION OF (2) OF SECTION 14A READ WITH RULE 80 HAS COME INTO FORCE ONLY FROM 24TH MARCH,2008 IE., FROM ASSESSMENT YEAR 2008-09 AND TH EREFORE IT IS NOT APPLICABLE FOR THE PRESENT ASSESSMENT YEAR 2004-05 UNDER APPEAL. I RELY ON THE MUMBAI HIGH COURT IN CASE OF GODREJ AND BOYCE MFG.CO.LTD V. DCIT REPORTED IN 328 ITR 81 (BOM). WHERE IN THE HON'BLE HIGH COURT HAS HELD THAT RULE 8D WILL APPLY ONLY FROM AY 2008-09. I.T.A.NO.1138/13 :- 4 -: HOWEVER, I FIND THAT TO EARN THE DIVIDEND INCOME THE APPELLANT CERTAINLY WOULD HAVE MADE SOME EXPENDITURE TO EARN THE SAID DIVIDEND INCOME. I BELIEVE A REASONABLE ESTIMATE OF THE EXPENDITURE INCIDENTAL TO EARNING THE DIVIDEND INCOME WOULD BE 2% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE. I RELY ON THE HON'BL E JURISDICTIONAL HIGH COURT IN T.C.(A.) NO. 2621 OF 2006 IN M/S. SIMPSON AND CO. LTD. VS. DCIT DECIDED ON 15.10.2012, WHEREIN IT HAS HELD AS UNDER: 'THIS TAX CASE (APPEAL), FILED AT THE INSTANCE OF THE ASSESSEE AS AGAINST THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL FOR THE ASSESSMENT YEAR 2001-02, WAS ADMITTED ON THE FOLLOW ING SUBSTANTIAL QUESTIONS OF LAW: '1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFIED IN UPHOLDING THE ESTIMAT ED DISALLOWANCE OF 2% OF THE EXPENDITURE, AS BEING INCIDENTAL TO EARNING DIVIDEND INCOME, UNDER SECTION 14-A OF THE ACT ALTHOUGH NO ACTUAL EXPENDITURE WAS INCURRED? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE,THE TRIBUNAL WAS JUSTIFIED IN NOT APPRECIATING THAT AS PER SECTION 14-A ONLY THAT ACTUAL EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME SHA LL BE DISALLOWED? 2. LEARNED COUNSEL APPEARING FOR THE ASSESSEE AS WELL AS LEARNED STANDING COUNSEL APPEARING FOR REVENUE SUBMITS THAT THE ISSUE INVOLVED IN THIS TAX CASE (APPEAL) IS COVERED BY A DECISION OF THIS COURT DATED 08.08.2012 IN T.C.(A) NO. 2287 OF 2006 IN THE CASE OF M/S. EID PARRY (INDIA) LIMITED V. THE JOINT COMMISS IONER OF INCOME TAX, WHEREIN THIS COURT POINTED OUT THAT IN THE ABSENCE OF ANY MATERIALS REGARDING INCURRING OF EXPENDITURE, THE TRIBUNAL WAS JUSTIFIED IN CONFIRMING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE DEDUCTION OF 2% MANAGERIAL EXPENSES HAD TO BE MADE WHILE CALCULATING DEDUCTION UNDER SECTION 80 M. THUS BEING PURE QUESTION OF FACT, THERE BEING NO OTHER MATERIAL IN SUPPORT OF THE CLAIM MADE. THE ORDER OF THE TRIBUNAL WAS CONFIRMED.' 3. APPLYING THE REASONING GIVEN IN THE ABOVE-SAID DECI SION TO THE CASE ON HAND, WHEN THE TRIBUNAL POINTED OUT THAT TH E ASSESSEE HAD NOT FURNISHED THE DETAILS OF EXPENDITURE INCIDENTAL TO THE EARNING OF DIVIDEND INCOME, ESTIMATION WAS MADE ON THE EXPENDITURE ATTRIBUTABLE TO DIVIDEND INCOME AT 2% OF THE GROSS TOTAL INCOME. ACCORDINGLY, THIS TAX CASE (APPEAL) S TANDS DISMISSED. NO COSTS.' I.T.A.NO.1138/13 :- 5 -: IN THE LIGHT OF THE OBSERVATIONS OF THE HON'BLE JUR ISDICTIONAL HIGH COURT, I HOLD THAT IT WOULD BE REASONABLE AND APPROPRIATE IF THE DISALLOWANCE OF THE EXPENDITURE IS RESTRICTED @ 2% OF THE EXEMPT INCOME AS RETURNED BY THE ASSESSEE. WITH THE ABOVE OBSERVATION THE ASSESSING OFFICER IS DIRECTED TO DISALLOW EXPENDITURE EQUIVALENT TO 2% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE. 5. AFTER CONSIDERATION OF ALL THE SUBMISSIONS ON ALL THE GROUNDS, THE APPEAL IS PARTLY ALLOWED. 6. THE LD. DR VERY FAIRLY CONCEDED THAT THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCE OF EXPENDITURE U/S 14A OF EXEMPT INCOME AT 2% OF THE DIVIDEND INCOME BY FOLLOWING THE DECIS ION OF THE HON'BLE MADRAS HIGH COURT. 7. ON THE OTHER HAND, THE LD. A.R OF THE ASSESSEE SUPP ORTED THE ORDER OF THE LD. CIT(A). 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSIN G THE MATERIALS ON RECORD, WE FIND THAT THE UNDISPUTED FA CTS ARE THAT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF ` 13,22,641/- DURING THE YEAR UNDER CONSIDERATION AND CLAIMED THAT IT HAS IN CURRED NO EXPENDITURE FOR EARNING SUCH EXEMPT INCOME. THE A SSESSING OFFICER, BY APPLYING RULE 8D R.W.S 14A, COMPUTED THE DISALLO WANCE OF EXPENDITURE RELATING TO THE EXEMPT DIVIDEND INCOME AT ` 26,88,155/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. I.T.A.NO.1138/13 :- 6 -: 9. ON APPEAL, THE LD. CIT(A) HAS RESTRICTED THE DISALL OWANCE TO 2% OF THE EXEMPT DIVIDEND INCOME. 10. THE LD. DR COULD NOT POINT OUT ANY SPECIFIC ERROR I N THE ABOVE QUOTED ORDER OF THE LD. CIT(A). THEREFORE, WE DO NO T FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) WHICH IS CONFIRMED AND THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 05 TH OF AUGUST, 2013, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER DATED: 05 TH AUGUST, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR