MRINALINI TRADING CO. P.LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 1211/MUM/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9806 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 24-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Earning of tax free income; Question of law
• Section: 142(1); 14A; 115JB; 11

Judgement Text

1 ITA1211/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE D.T. GARASIA (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.1211/MUM/2014 (ASSESSMENT YEAR 2010-11) MRINALINI TRADING CO PVT LTD 711, EMBASSY CENTRE, NARIMAN POINT, MUMBAI-21 PAN : AAACM2684F VS DCIT, CIR. 3(2),MUMBAI APPELLANT RESPONDENT APPELLANT BY ANUJ KISNADWALA RESPONDENT BY SHRI SUMAN KUMAR DATE OF HEARING 22 -06-2017 DATE OF PRONOUNCEMENT 26- 07-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-4, MUMBAI DATED 28-12-2013 AND IT PERTAINS TO AY 2010 -11. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- THE APPELLANT OBJECTS TO THE ORDER DATED 18/12/2013 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-4, MUMBAI (HEREINAFTER REFERRED TO AS 'CI T(A)' FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING AMONG OTHER GROUNDS 1. THE ORDER PASSED BY THE LEARNED CIT (A) IS ILLEGAL, BAD IN LAW, ULTRA VIRES AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS OF THE CASE AND WITHOUT APPRECIATING THE FACT S OF THE CASE IN THEIR PROPER PERSPECTIVE 2 ITA1211/MUM/2014 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2 ,80240/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A REA D WITH RULE 8D 3. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNE D CIT(A) BE CANCELLED AND DIRECTION BE ISSUED TO ALLOW THE A PPEAL ON THE GROUNDS RAISED BEFORE HIM 4. EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS WITHOUT PREJUDICE TO THE OTHER. 2. THE ASSESSEE FILED A PETITION FOR ADMISSION OF ADDI TIONAL GROUND , VIDE APPLICATION FILED ON 20-08-2015 RAISING ADDITIONAL GROUND ON THE ISSUE OF ADJUSTMENT TO THE PROVISIONS OF BOOK PROFIT U/S 115 JB OF THE ACT ON ACCOUNT OF DISALLOWANCE U/S 14A R.W.R. 8D, WHICH READS AS UNDE R:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) GROSSLY ER RED IN CONFIRMING THE ACTION OF THE LEARNED AO OF ADDING A SUM OF RS. 2,80,240 U/S 14A R.W.R. 8D TO THE BOOK PROFITS UNDE R MAT PROVISIONS OF SECTION 115JB OF THE ACT. THE APPELLA NT PRAYS THAT THE SAID ADDITION IS UNJUSTIFIED AND MAY PLEASE BE DELETED. 3. THE ASSESSEE SUBMITTED THAT THE ADDITIONAL GROUND O F APPEAL RAISED IS PURELY A QUESTION OF LAW AND NO NEW FACTS ARE REQUI RED TO BE BROUGHT ON RECORD. THEREFORE, IT WAS PRAYED THAT THE ADDITION AL GROUND OF APPEAL FILED BY THE ASSESSEE MAY BE ADMITTED AND ADJUDICATED IN THE INTEREST OF JUSTICE. IN THIS REGARD ASSESSEE ALSO RELIED UPON THE JUDGMENT OF HO NBLE SUPREME COURT IN THE CASE OF NTPC VS CIT 229 ITR 383 (SC). 4. HAVING HEARD BOTH SIDES AND CONSIDERING MATERIAL AV AILABLE ON RECORD WE 3 ITA1211/MUM/2014 FIND THAT THE ADDITIONAL GROUND RAISED BY THE ASSES SEE CHALLENGING THE VALIDITY OF ADJUSTMENTS MADE UNDER CLAUSE (F) TO SECTION 115 JB OF THE INCOME-TAX ACT,1961 TOWARDS DISALLOWANCE MADE U/S 14A R.W.R. 8 D IS PURELY A QUESTION OF LAW AND NO NEW FACTS OR MATERIAL ARE REQUIRED, THER EFORE, WE DEEM IT APPROPRIATE TO ADMIT ADDITIONAL GROUND RAISED BY TH E ASSESSEE AND PROCEED TO DISPOSE OF THE APPEAL FILED BY THE ASSESSEE. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES , FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 17-09-2010 DECLA RING TOTAL INCOME OF RS.57,00,600 AND BOOK PROFIT OF RS.1,80,90,729. TH E CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S 143(2) AN 142(1) OF THE AC T WERE ISSUED. IN RESPONSE TO NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSES SEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS, AS CALLED FOR. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS E ARNED DIVIDEND INCOME FROM ITS INVESTMENT AND CLAIMED THE SAME AS EXEMPT U/S 10(34), HOWEVER, MADE ADHOC DISALLOWANCE OF A SUM OF RS.25,000 TOWAR DS EXPENDITURE INCURRED TO EARN EXEMPT INCOME U/S 14A OF THE ACT WITHOUT RE SORTING TO THE PROVISIONS PROVIDED U/S 14A R.W.R. 8D OF THE INCOME-TAX RULES, 1962. HE, THEREFORE, ISSUED A SHOW CAUSE NOTICE AND ASKED THE ASSESSEE TO EXPLA IN WHY EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME SHALL NOT BE DISALLOWED UNDER THE 4 ITA1211/MUM/2014 PROVISIONS OF SECTION 14A R.W.R.8D. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE ASSESSEE, VIDE ITS REPLY DATED 26-11-2012 SUBMITTED THAT THE COMPANY HAS EARNED DIVIDEND INCOME AMOUNTING TO RS.4,22,747 AS AGAINST WHICH ASSESSEE DISALLOWED A SUM OF RS.25,000 TOWARDS EXPENDITURE I NCURRED TO EARN EXEMPT INCOME U/S 14A CONSIDERING THE SAME AS REASONABLE E STIMATE TOWARDS EARNING EXEMPT DIVIDEND INCOME. THE ASSESSEE FURTHER SUBMI TTED THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE TO EARN EXEMPT IN COME, THEREFORE, MADE A SUO MOTO ADHOC DISALLOWANCE OF RS.25,000 TOWARDS AD MINISTRATIVE AND STATUTORY EXPENSES. THEREFORE, FURTHER DISALLOWANC E UNDER THE PROVISIONS OF SECTION 14A R.W.R.8D DOES NOT REQUIRE. THE AO, AFT ER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO BY RELYING UPO N THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG C O LTD VS DCIT 328 ITR 81 (BOM) OBSERVED THAT DISALLOWANCE OF EXPENDITURE INC URRED FOR EARNING EXEMPT INCOME SHOULD BE MADE AS PER THE SPECIFIC PROVISION S PROVIDE UNDER SECTION 14A R.W.R.8D WITH EFFECT FROM AY 2008-09 ONWARDS. WITH THESE OBSERVATIONS, THE AO DISALLOWED A SUM OF RS.2,55,240 TOWARDS EXPE NDITURE INCURRED TO EARN EXEMPT INCOME BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. A SIMILAR ADJUSTMENT HAS BEEN MADE TO THE BOOK PROFIT DECLARE D BY THE ASSESSEE U/S 115JB OF THE INCOME-TAX ACT, 1961. AGGRIEVED BY TH E ASSESSMENT ORDER, THE ASSESSEE FILED APPEAL BEFORE CIT(A). 5 ITA1211/MUM/2014 6. BEFORE CIT(A) THE ASSESSEE REITERATED ITS SUBMISSIO NS MADE BEFORE THE AO. THE ASSESSEE FURTHER SUBMITTED THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE TO EARN EXEMPT INCOME. HOWEVER, DISALL OWED ON ITS OWN A SUM OF RS.25,000 OUT OF ADMINISTRATIVE AND OTHER EXPENSES. THEREFORE, THE AO WAS INCORRECT IN INVOKING THE PROVISIONS OF SECTION 14A R.W.R.8D WITHOUT SPECIFYING HOW THE DISALLOWANCE MADE BY THE ASSESSEE WAS INCOR RECT. IN SUPPORT OF HIS ARGUMENTS, THE ASSESSEE RELIED UPON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD (2011) 339 I TR 632 (BOM). THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE A ND ALSO BY RELYING UPON CERTAIN JUDICIAL PRECEDENTS INCLUDING THE DECISION OF HONBLE BOMBAY HIGH COURT IN GODREJ BOYCE MFG CO LTD (SUPRA) HELD THAT THE DI SALLOWANCE U/S 14A R.W.S. 8D SHOULD BE IN ACCORDANCE WITH THE SPECIFIC PROVISION S PROVIDED THEREUNDER FOR THE ASSESSMENT YEAR 2008-09 ONWARDS. THE AO HAS WO RKED OUT THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R.8D AND HENCE UPHELD THE ADDITIONS MADE BY THE AO. AGGRIEVED BY THE CIT(A)S ORDER THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE LD.CI T(A) ERRED IN CONFIRMING THE ADDITIONS MADE BY THE AO TOWARDS DIS ALLOWANCE OF EXPENDITURE U/S 14A FOR EARNING EXEMPT INCOME WITHOUT APPRECIAT ING THE FACT THAT THE ASSESSEE HAS NOT INCURRED ANY SPECIFIC EXPENDITURE TO EARN EXEMPT INCOME. 6 ITA1211/MUM/2014 THE LD.AR FURTHER SUBMITTED THAT THE AO CANNOT INVO KE THE PROVISIONS OF SECTION 14A R.W.R.8DWITHOUT RECORDING HIS SATISFACT ION TO THE CORRECTNESS OF DISALLOWANCE MADE BY THE ASSESSEE. IN SUPPORT OF H IS ARGUMENT, HE RELIED UPON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS UK PAINTS INDIA PVT LTD (ITA NO.781 OF 2016 DATED 06-12-2016). THE LD. AR REFERRING TO ADDITIONAL GROUND OF APPEAL RAISED TO CHALLENGE THE ADJUSTMENT MADE TO THE BOOK PROFIT COMPUTED U/S 115JB OF THE ACT SUBMITTED THAT THE AS SESSEE IS LIABLE TO PAY TAX AS PER THE PROVISIONS OF SECTION 115JB AND AS PER T HE PROVISIONS OF SECTION 115JB ONLY CERTAIN ITEMS CAN BE ADDED BACK TO THE B OOK PROFIT AS LISTED IN THE EXPLANATION 1 TO SECTION 115JB OF THE ACT. SINCE D ISALLOWANCE U/S 14A R.W.R. 8D IS NOT COVERED IN THE SAID EXPLANATION 1, THE LD.CI T(A) GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A R.W.R. 8D UNDER MAT PROVISIONS OF SECTION 115JB OF THE ACT. 8. ON THE OTHER HAND, THE LD.DR STRONGLY SUPPORTED THE ORDER OF LD.CIT(A). 9. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED THE M ATERIAL AVAILABLE ON RECORD. THE FACTUAL MATRIX WHICH LEADS TO THE IMPU GNED ADDITION ARE THAT THE ASSESSEE HAD EARNED EXEMPT INCOME; HOWEVER, MADE AD HOC DISALLOWANCE OF A SUM OF RS.25,000 TOWARDS EXPENDITURE INCURRED TO EA RN EXEMPT INCOME. THE AO INVOKED PROVISIONS OF SECTION 14A R.W.R.8D AND C OMPUTED DISALLOWANCE @0.5% OF AVERAGE VALUE OF INVESTMENTS. ACCORDING T O THE AO, DISALLOWANCE U/S 7 ITA1211/MUM/2014 14A HAS TO BE MADE AS PER THE SPECIFIC PROVISIONS P ROVIDED U/R 8D OF IT RULES, 1962. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS NOT INCURRED ANY SPECIFIC EXPENDITURE TO EARN EXEMPT INCOME, BUT MADE ADHOC D ISALLOWANCE OF RS.25,000 TOWARDS ADMINISTRATIVE AND OTHER EXPENSES . THE ASSESSEE FURTHER CONTENDED THAT THE AO CANNOT INVOKE THE PROVISIONS OF SECTION 14A UNLESS SPECIFICALLY POINTED OUT HOW THE DISALLOWANCE COMPU TED BY THE ASSESSEE IS INCORRECT. WE DO NOT FIND ANY MERIT IN THE ARGUMEN T OF THE ASSESSEE FOR THE REASON THAT ONCE THE AO INVOKED THE PROVISIONS OF S ECTION 14A TO COMPUTE DISALLOWANCE OF EXPENDITURE INCURRED TO EARN EXEMPT INCOME, IT IS A JUSTIFIABLE COMPLIANCE OF SAID PROVISION, AND HE NEED NOT TO RE CORD SEPARATE SATISFACTION. IN THIS CASE, THE AO HAS APPLIED THE PROVISIONS PRO VIDED U/R 8D AND WORKED OUT THE DISALLOWANCE AS AGAINST ADHOC DISALLOWANCE MADE BY THE ASSESSEE, WHICH IS SUPPORTED BY THE DECISION OF JURISDICTIONAL HIGH CO URT IN THE CASE OF GODREJ BOYCE MFG CO LTD (SUPRA) WHEREIN IT HAS BEEN HELD T HAT DISALLOWANCE U/S 14A HAS TO BE COMPUTED AS PER THE PROVISIONS PROVIDED U /R8D WITH EFFECT FROM AY 2008-09 ONWARDS. THEREFORE, WE ARE OF THE VIEW THA T THE AO HAS RIGHTLY COMPUTED DISALLOWANCE TOWARDS EXPENDITURE U/S 14A O F THE ACT. THE CIT(A), AFTER CONSIDERING RELEVANT PROVISIONS OF THE ACT, H AS RIGHTLY UPHELD THE ADDITIONS MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE OR DER OF CIT(A). HENCE, WE ARE INCLINED TO UPHOLD THE ORDER OF CIT(A) AND REJE CT THE GROUND RAISED BY THE 8 ITA1211/MUM/2014 ASSESSEE. 10. COMING TO THE ADDITIONAL GROUND RAISED BY THE ASSES SEE CHALLENGING THE ADJUSTMENT MADE TOWARDS BOOK PROFIT COMPUTED U/S 11 5JB OF THE INCOME-TAX ACT, 1961. THE ASSESSEE CONTENDS THAT NO ADJUSTMEN T CAN BE MADE TOWARDS BOOK PROFIT COMPUTED U/S 115JB FOR ANY DISALLOWANCE MADE UNDER SECTION 14A R.W.R.8D. THE ASSESSEE FURTHER CONTENDED THAT THE BOOK PROFIT UNDER THE PROVISIONS OF SECTION 115JB HAS TO BE COMPUTED AS P ER EXPLANATION 1 WHICH PERMITS ADD BACK OF ONLY CERTAIN ITEMS TO THE BOOK PROFIT AS LISTED OUT IN THE EXPLANATION 1. SINCE DISALLOWANCE U/S 14A R.W.R. 8 D IS NOT COVERED U/S 115JB, NO ADJUSTMENT CAN BE MADE TOWARDS DISALLOWANCE MADE U/S 14A. WE FIND MERITS IN THE ARGUMENTS OF THE ASSESSEE FOR THE REA SON THAT THE ITAT, SPECIAL BENCH IN THE CASE OF ACIT VS VIREET INVESTMENTS PVT LTD (2017) 82 TAXMANN.COM 415 (DEL TRIB)(SB) HAS CONSIDERED SIMILAR ISSUE AN D AFTER CONSIDERING THE PROVISIONS OF SECTION 115JB(2) OBSERVED THAT COMPUT ATION OF BOOK PROFIT IN TERMS OF CLAUSE (F) OF EXPLANATION 1 TO SECTION 11 5JB(2) IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED U/S 14A R. W.R.8D. THEREFORE, CONSIDERING THE FACTS OF THE CASE AND ALSO FOLLOWIN G THE DECISION OF ITAT, DELHI SPECIAL BENCH, WE ARE OF THE VIEW THAT NO ADJUSTMEN TS CAN BE MADE TOWARDS BOOK PROFIT COMPUTED U/S 115JB ON ACCOUNT OF DISALL OWANCE MADE U/S 14A FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S 115JB OF INCOME-TAX ACT, 1961. 9 ITA1211/MUM/2014 11. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH JULY, 2017. SD/- SD/- (D.T.GARASIA) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 26 TH JUL, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI