Maharashtra Scooters Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1322/PUN/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5203 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-09-2018
• Assessment Year: 2011-2012
• Appeal Filed On: 15-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRI
• Keywords: Capital asset; Principle of natural justice; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 / ASSESSMENT YEARS : 2008-09 TO 2011-12 MAHARASHTRA SCOOTERS LIMITED, C/O. BALAJI AUTO LTD., AKURDI, PUNE 411 035 PAN : AABCM1799E /APPELLANT VS. ACIT, CIRCLE-9, PUNE . / RESPONDENT / APPELLANT BY : SHRI KISHOR PHADKE / RESPONDENT BY : SHRI PANKAJ GARG / DATE OF HEARING : 25.09.2018 / DATE OF PRONOUNCEMENT: 12.10.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE FOUR APPEALS FILED BY THE ASSESSEE AGAINST THE SEPARATE ORDERS OF CIT(A)-6,9 PUNE, DATED 14-03-2016 AND 29-09-2016 RESP ECTIVELY INVOLVING ASSESSMENT YEARS 2008-09 TO 2011-12. 2. THE ISSUES ARE IDENTICAL IN ALL THESE APPEALS AND IT RELAT ES TO DISALLOWANCE U/S.14A R.W.R. 8D OF THE I.T. RULES, 1962. FOR T HE SAKE OF STANDARD, THE GROUNDS RELEVANT FOR A.Y. 2008-09 ARE EXTRACTED HER E AS UNDER : THE APPELLANT APPEALS AGAINST THE IMPUGNED ORDER DA TED 9 TH MARCH, 2016 (RECEIVED ON 18 TH APRIL, 2016) PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-6, PUNE, 411044, BY UPHOLDING CERTAIN DIS ALLOWANCES ON THE FOLLOWING AMONGST OTHER GROUNDS, EACH OF WHICH ARE IN THE ALT ERNATIVE AND WITHOUT PREJUDICE TO ANY OTHERS. ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 2 1. THE COMMISSIONER OF INCOME TAX (APPEALS), OUGHT TO HAVE HELD THAT THE DISALLOWANCE, IF ANY, UNDER SECTION 14A OF THE I T ACT, COULD NOT EXCEED THE AMOUNT OF RS.3004/ -. THE CIT(A) ERRED IN UPHOLDING AN ADHOC DISALLOWA NCE OF RS.97, 76,658/ - UNDER SECTION 14A @0.5% OF AVERAGE VALUE OF INVES TMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR. 2. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT THOUGH NOTIFICATION NO.SO 547(E) [NO 45/2008 (F.NO.134/09/2007-TPL)J DLD.21/3 2008 HAS BEEN BEEN EFFECTIVE SINCE ASST. YEAR: 2008-09, THE FACTS OF T HE APPELLANT REMAIN THE SAME AND THERE IS NO CASE FOR HIGHER DISALLOWANCE. 3. THE CIT(A) OUGHT TO HAVE HELD THAT THE APPELLANT HAD ALREADY DISALLOWED RS.3004/ - AS BEING ALLOCABLE UNDER SECTION 14A AND NO FURTH ER EXPENDITURE BY WAY OF ADDITIONAL EXPENDITURE COULD NOT BE THE SUBJ ECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, DELETE OR SUBSTITUTE ANY OTHER GROUNDS OF APPEAL. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURE, THE SALE OF SCOOT ERS AND PARTS THEREOF, SALE OF DIES FOR PRESSURE DIE-CASTING ETC. ASSESS EE FILED THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS.4,82,06,688/-. DURING THE IMP UGNED ASSESSMENT YEAR, ASSESSEE RECEIVED DIVIDEND INCOME OF RS.1 4,11,50,600/- AND CLAIMED TAX EXEMPTION OF THE SAME U/S.10(34) OF THE I.T. AC T, 1961. IN THE SCRUTINY ASSESSMENT, AO INVOKING THE PROVISIONS OF SECTION U/S.14A READ WITH RULE 8D(2)(III) OF THE RULES, 1962. AO REJECTED THE ASSESSEES SUBMISSIONS THAT THE EXPENDITURE INCURRED FOR EARNING OF THE EXEMPT INCOME IS RS.3,004/- FOR THE A.Y. 2008-09. EVENTUALLY, AO MADE ADDITION OF RS.97,7 6,658/- (0.5% OF THE AVERAGE VALUE OF INVESTMENT OF RS.195,53,31,585/- FOR THE A.Y. 200 8-09. 3.1 SIMILARLY, THE AO MADE ADDITION OF RS.1,00,19,428/- FOR THE A.Y. 2009- 10, RS.54,04,368/- FOR THE A.Y. 2010-11 AND RS.52,99,291/-. T HE AO INVOKED THE PROVISIONS OF SECTION U/S.14A READ WITH RULE 8D(2)(III) OF THE RULES, 1962 FOR ALL THESE YEARS TOO. ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 3 3.2 THERE IS DISPUTE ON THE FACT THAT ASSESSEE RECEIVED DIVIDEND INCOME OF RS.14,11,50,600/- FOR THE YEAR UNDER CONSIDERATION. THE DIV IDEND INCOME EARED FOR OTHER ASSESSMENT YEARS ARE RS.11,59,28,128/- FO R THE A.Y.RS 2009- 10 AND 2019-11 AND RS.25,11,90,376/- FOR THE A.Y. 2011-12 RESPECTIVE LY. 4. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO U/S.14A R.W. RULE 8D(2)(III) OF THE I.T.RULES, 1962. ASSESSEE SUBMITTED THE DISALLOWANCES IS TOO EXCES SIVE AND UNREASONABLE. CIT() REJECTED THE SUBMISSIONS OF THE ASSESSEE. 5. AGGRIEVED WITH THE ORDER OF CIT(A) THE ASSESSEE IS IN A PPEAL BEFORE US WITH THE AFORESAID GROUNDS. 6. BEFORE US, ON THE ISSUE OF ADDITION US/.14A OF THE ACT, LD. COUNSEL FOR THE ASSESSEE FILED THE FOLLOWING ADDITIONAL GROUND : THE LD. AO AND THE CIT(A) -6, ERRED IN LAW AND ON FACTS IN MAKING & SUSTAINING ADDITION OF RS.97,76,658/- U/S.14A OF THE I.T. ACT, 1961; WITHOUT REACHING ANY SATISFACTION AS TO INCORRECT WORKING OF THE 14A DI SALLOWANCE OF RS.3,004/- AS SO CLAIMED BY THE APPELLANT. LD. AO OUGHT TO HAVE SAT ISFIED HIMSELF ABOUT CORRECTNESS OR OTHERWISE OF THE DISALLOWANCE OF RS. 3,004/- AS SO CLAIMED BY THE APPELLANT DURING ASSESSMENT PROCEEDINGS U/S.143(3) VIDE LETTER DATED 10-12- 2010. FROM THE ABOVE GROUNDS AND ADDITIONAL GROUND, IT IS EVIDE NT THAT THE ASSESSEE QUESTIONS THE DISALLOWANCE ON THE GROUND OF LACK OF SATISFA CTION OF THE AO BEFORE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES, 1962 ARE PRESSED INTO SERVICE. FURTHER, ON MERITS, THE ASSESS EE QUESTIONS THAT THE ASSESSEE DID NOT INCUR RS.97,76,658/- FOR EARNING OF THE EXEMPT INCOME RS.3,004/- WAS THE EXPENDITURE FIT FOR DISALLOWANCE U/S.14A R .W.R 8D OF THE I.T. RULES, 1962. ON THE ISSUE OF SATISFACTION, LD. COUNSEL FOR THE ASSESSEE DREW PARALLEL WITH THE FACTS RELATING TO THE DECISION OF TRIBU NAL IN THE CASE OF POONAWALLA INVESTMENT & INDUSTRIES PVT. LTD. VS. DCIT IN I TA NOS. 245 TO 250/PUN/2016, DATED 28-02-2018 AND IN THE CASE OF S ERUM INSTITUTE OF INDIA ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 4 LTD. VS. DCIT IN ITA NOS. 1184 AND 1538/PUN/2015, DATED 08-06-2018 AND SUBMITTED THAT THE RELIEF WAS GIVEN IN THOSE CASES ON THE GROUND OF LACK OF SUSTAINABLE SATISFACTION RECORDED BY THE AO BEFORE THE S AID PROVISIONS ARE INVOKED. 7. WHEN THE BENCH POINTS OUT THE FACT THAT ASSESSEE H IMSELF WENT ON RECORD IN STATING INCURRING OF EXPENDITURE OF RS.3,004/- WH ICH ARE SUO MOTO OFFERED BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDIN GS QUA THE EXISTENCE OF SATISFACTION ABOUT THE BASIC REQUIREMENT OF MAKING DISALLOW ANCE U/S.8D(2)(III) OF THE I.T. RULES, 1962, LD. COUNSEL FOR THE ASSES SEE HAS NO ANSWER TO REPLY ON THIS SPECIFIC ISSUE. THEREFORE, ON HEA RING BOTH THE SIDES ON THE ISSUE OF SATISFACTION, WE DECIDE THE SAME AGAINST T HE ASSESSEE AND HOLD THAT THE AO HAS RIGHTLY ASSUMED JURISDICTION U/S.14A R.W . RULE 8D(2)(III) OF THE I.T. RULES, 1962. THUS, THE ASSESSEES ATTEMPT TO R EQUEST TO TAKE SHELTER UNDER THE UMBRELLA OF THE ORDERS OF THE TRIBUNAL IN THE CA SE OF IS OF NO USE. THEREFORE, THIS PART OF THE ADDITIONAL GROUND IS ADMITTED AN D DISMISSED AFTER DUE CONSIDERATION. 8. REGARDING THE GROUNDS RAISED ON MERITS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF EXPENDITURE QUANTIFIED ME CHANICALLY APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2)(III) OF TH E I.T. RULES, 1962, IS NOT SUSTAINABLE UNIVERSALLY. REFERRING TO THE JUR ISDICTIONAL HIGH COURT JUDGMENT IN THE CASE OF PR. CIT VS. RELIANCE CAPITAL ASSET MANAGEMENT LTD. REPORTED IN 400 ITR 217 (BOMBAY), LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FORMULA ENVISAGED IN THE SAID RULE NEE D NOT BE FOLLOWED UNIVERSALLY IN ALL CASES. HE ALSO MENTIONED THAT IN CERTAIN CASES THE FORMALA NEED NOT BE APPLIED. BRINGING OUR ATTENTION TO THE CONT ENTS OF PARA NO.22 OF THE SAID JUDGMENT, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT MAKING ADHOC DISALLOWANCE HAVING REGARD TO THE NUMBER OF DIVIDEND TRANS ACTIONS CAN ALSO ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 5 BE A SUSTAINABLE OPTION AVAILABLE BY THE AO FOR THE A.Y. 200 8-09, I.E. POST AMENDED PERIOD OF RULE 8D OF I.T. RULES, 1962. 9. LD. DR RELIED HEAVILY ON THE ORDERS OF THE AO AND T HE CIT(A). HE SUBMITTED THAT THE YEAR UNDER CONSIDERATION A.Y. 2008-09 SINCE BELONGING TO THE POST AMENDED PERIOD, APPLYING FORMULA, I.E. 0.5% OF THE A VERAGE OF THE VALUE OF INVESTMENTS, BECOMES RELEVANT. REPLYING TO THE L D. COUNSELS RELIANCE ON THE JUDGMENT OF RELIANCE CAPITAL ASSET MANAGEM ENT LTD. (SUPRA), LD. DR FOR THE REVENUE SUBMITTED THAT THIS ASPECT OF AD- HOC DISALLOWANCE LINKED TO THE NUMBER OF TRANSACTIONS, WAS NEVER PUT SC RUTINY BEFORE THE REVENUE AUTHORITIES. THEREFORE, THE OPINION OF THE AO/CIT(A) IS REQUIRED TO BE OBTAINED. EMPHASIZING ON THE NEED FOR REMANDING FOR THIS PURPOSE AND FOR APPLYING THE RATIO OF THE SAID JUDGMENT, LD. DR ARGUED FOR REMANDING THIS ISSUE FOR THE FILE OF AO FOR FRESH ADJUDICATION. 10. ON HEARING BOTH THE SIDES ON THE MERITS OF DISALLOWANC ES, QUANTIFICATION OF EXPENDITURE, IN APPLICATION OF THE SAID JURISDICTIONAL JUDGME NT, WE FIND THERE IS NO DISPUTE THAT THE SAID JUDGMENT WAS DELIVERED IN THE CONTEXT OF THE A.Y. 2007-08 AND 2008-09. A.Y. 2008-09 IS THE FIRST YEAR O F AMENDMENT TO RULE 8D OF THE I.T. RULES, 1962. WE FIND IT RELEVANT TO EXT RACT THE RATIO OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIA NCE CAPITAL ASSET MANAGEMENT LTD. (SUPRA) AND THE SAME READS AS UNDER : HELD : WHERE ASSESSEE, AN ASSET MANAGEMENT COMPANY OF RELIANCE MUTUAL FUND, INVESTED ITS OWN FUNDS IN RELIANCE MUTUAL FUN D AND CLAIMED DIVIDEND INCOME AND LONG-TERM CAPITAL GAINS AS EXEMPT, RULE 8D(2)(III) NOT APPLICABLE TO WORK OUT DISALLOWANCE U/S.14A. 10.1 FURTHER, WE ALSO PERUSED THE CONTENTS OF PARA NO.22 OF THE JUDGMENT AND THE SAME READS AS UNDER : 22. THEREFORE, THESE TRANSACTIONS WERE ANALYSED AN D IN THE BACKDROP OF THE BUSINESS OF THE ASSESSEE, THE TRIBUNAL CONCLUDED TH AT THERE WAS NO NECESSITY ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 6 TO APPLY THE FORMULA PRESCRIBED IN RULE 8D(2)(III) OF THE RULES . WE ARE, THEREFORE, NOT IN AGREEMENT WITH MR. SURESH KUMAR T HAT RULE 8D(2)(III) HAS BEEN OVERLOOKED OR IGNORED BY THE TRIBUNAL COMPLETELY. I N THE PECULIAR FACTS AND CIRCUMSTANCES OF THE ASSESSEE'S CASE AND THE NATURE OF ITS INVESTMENTS MADE, THE TRIBUNAL CONCLUDED THAT THE DISALLOWANCE WORKED OUT BY THE ASSESSEE SHOULD HAVE BEEN ACCEPTED. HOWEVER, IT DID NOT ACCE PT THE FIGURE OF DISALLOWANCE WORKED OUT BY THE ASSESSEE. THAT ALTHO UGH THE TRIBUNAL, IN ONE LINE OR SENTENCE IN PARA 8, SAYS THAT THE DISALLOWA NCE TO BE MADE UNDER RULE 8D IS DETERMINED AT RS.3,50,000/-, WE ARE NOT IN AGREE MENT WITH MR. SURESH KUMAR THAT THE TRIBUNAL HAS ACCEPTED THE APPLICABILITY OF THIS RULE/SUB-RULE/CLAUSE. THIS ONE SENTENCE OR ONE LINE CANNOT BE READ IN ISO LATION AND OUT OF CONTEXT. ONCE THE FORMULA PRESCRIBED IN RULE 8D(2)(III) OF T HE RULES COULD NOT HAVE BEEN APPLIED IS THE ESSENTIAL CONCLUSION , THEN, MERELY BECAUSE THE TRIBUNAL DID NOT ACCEPT THE WORKING OF DISALLOWANCE BY THE A SSESSEE IN ITS ENTIRETY, DOES NOT MEAN THAT THE APPEAL RAISES A SUBSTANTIAL QUEST ION OF LAW. WE DO NOT THINK THAT THE TRIBUNAL'S EXERCISE CAN BE TERMED AS TOTAL LY ERRONEOUS OR ILLEGAL. IT IS NEITHER PERVERSE. THE TRIBUNAL'S ORDER CANNOT BE SAID TO BE VITIATED BY AN ERROR OF LAW APPARENT ON THE FACE OF THE RECORD. WE DO NOT THINK THAT THE WORKING BY THE TRIBUNAL OR THE DETERMINATI ON OF THE DISALLOWANCE AT RS.3,50,000/- DOES NOT MEET THE ENDS OF JUSTICE. IT IS RESTRICTED BEARING IN MIND THE FACTS AND PECULIAR TO THE ASSESSEE'S CASE. PART LY THE ASSESSEE'S ARGUMENTS HAVE BEEN ACCEPTED AND THE APPEAL ALLOWED BY SETTIN G ASIDE THE ORDER OF THE ASSESSING OFFICER AND THAT OF THE COMMISSIONER OF I NCOME TAX (APPEALS). WE DO NOT THINK THAT THE QUESTION PROPOSED BY MR. SURESH KUMAR IS A SUBSTANTIAL QUESTION OF LAW. FROM THE ABOVE, IT IS EVIDENT THAT THERE IS NEED FOR SCRU TINIZING THE FACTS OF THE PRESENT CASE QUA THE BINDING OF THE JUDGMENT IN THE CAS E OF RELIANCE CAPITAL ASSET MANAGEMENT LTD. (SUPRA) FOR THE PURPOSE OF EXCLUSIO N OF THE PRESENT CASE FROM THE APPLICABILITY OF THE FORMULA LAID DOWN IN RULE 8D(2)(III) OF THE I.T. RULES, 1962. THEREFORE, AGREEING WITH THE LD. DR, THE ISSUE STANDS REMANDED TO THE FILE OF AO FOR FRESH ADJUDICATION AND FOR WANT OF A S PEAKING ORDER. NEEDLESS TO SAY, THE AO SHALL AFFORD REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE IN ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES . 11. SINCE THE ISSUE IS IDENTICAL IN ALL THE THREE YEARS, OUR FINDING GIVEN IN A.Y. 2008-09 REMANDING THE ISSUE TO THE FILE OF AO FOR FRESH ADJUDICATION AND PASS A SPEAKING ORDER IS APPLICABLE TO THE OTHER ASSESSM ENT YEARS TOO, I.E. A.YRS. 2009-10 TO 2011-12. ITA NOS.1321, 2666, 2667 & 1322/PUN/2016 MAHARASHTRA SCOOTERS LTD., 7 12. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 12 TH DAY OF OCTOBER, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 12 TH OCTOBER , 2018 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT (APPEALS)-6,9 PUNE. 4. / THE PR. CIT-5, 9,PUNE. 5. , , / DR B, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, / TRUE COPY // SENIOR PRIVATE SECRETARY , / ITAT, PUNE.