DCIT 2(1), MUMBAI V. ARCHWAY INVESTMENT CO. LTD, MUMBAI

ITA 1418/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3287 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 09-03-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -ABENCH MUMB AI BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND AMIT SHUKLA,JUDICIAL MEMBER . / I.T.A. NO.1418/MUM/2014 / ASSESSMENT YEAR: 2006-07 DCIT, CIRCLE-2(1) AAYAKAR BHAVAN MUMBAI-400 006. VS. M/S. ARCHWAY INVESTMENT CO. LTD. 4 TH FLOOR, NEVILLE HOUSE, J.N.HEREDIA MARG, BALLARD ESTATE MUMBAI-400 001. PAN:AAACH 5507 H ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI SANDEEP GOEL A SSESSEE BY: SHRI YOGESH THAR / DATE OF HEARING:09.03.2016 / DATE OF PRONOUNCEMENT: 16.03.2016 ,1961 254(1) ! ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) $'% &' PER RAJENDRA, AM - CHALLENGING THE ORDER OF THE CIT (A)-4,MUMBAI, DATE D 11/12/2013,THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL.THE EFFECTIVE GRO UND OF APPEAL IS ABOUT DISALLOWANCE TO BE MADE U/S.14A OF THE ACT. BRIEF-BACKGROUND: 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF INVESTM ENT IN SHARES AND STOCK,FILED ITS RETURN OF INCOME ON 18/11/2006,DECLARING LOSS OF RS. 14.85 LAKHS.THE AO COMPLETED THE ASSESSMENT U/S. 143(3) OF THE ACT,ON 30/12/2008,DETERMINING IT S INCOME AT RS. 22.67 LAKHS. THE MATTER TRAVELLED UP TO THE TRIBUNAL. VIDE ITS ORDER,DATED 17/03/2011,IT RESTORED THE MATTER BACK TO THE FILE OF THE AO FOR RE-COMPUTING THE DISALLOWANCE UN DER SECTION 14A IN THE LIGHT OF LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. THE ASSESSEE APPEARED BE FORE THE AO AND MADE SUBMISSIONS REQUESTING HIM TO RESTRICT THE DISALLOWANCE UP TO 1 %/2% OF THE EXEMPT INCOME.HOWEVER,THE AO IN HIS ONE-LINE ORDER STATED THAT SUBMISSION MAD E BY THE ASSESSEE WERE NOT SATISFACTORY AND HENCE COULD NOT BE ACCEPTED.HE MADE AN ADDITION OF RS. 30.32 LAKHS TO THE INCOME OF THE ASSESSEE VIDE HIS ORDER DATED 26/12/ 2012. 3. AGGREIVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT MADE THE SAME ARGUMENT THAT WERE PART OF THE SUBMISSIONS MADE BEFORE THE AO. IT WAS CONTENDED THAT THE COMPA NY HAD UTILISED ITS OWN FUNDS/INTEREST FREE FUNDS FOR MAKING INVESTMENT, THAT QUESTION OF DISALLOWANCE OF DIRECT/INDIRECT EXPENSES DID NOT ARISE, IT HAD NOT MADE ANY NEW INVESTMENT D URING THE YEAR UNDER CONSIDERATION, THAT IT HAD EARNED AVERAGE INTEREST AT THE RATE OF 8.87% ON LENDING AND HAD PAID LESS INTEREST ON BORROWINGS, THAT THE INTEREST EXPENDITURE HAD NO DI RECT/INDIRECT NEXUS WITH THE EXEMPT INCOME, THAT THE AO DID NOT FOLLOW THE SPECIFIC DIR ECTION OF THE TRIBUNAL. 1418/M/14-ARCHWAY 2 3.1 AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE,TH E FIRST APPELLATE AUTHORITY (FAA) HELD THAT THE AO WAS NOT JUSTIFIED IN APPLYING RULE 8D O F THE INCOME-TAX RULES,1962 (RULES), THAT TRIBUNAL HAD SPECIFICALLY HELD THAT PROVISIONS OF S AID RULE WERE NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION,THAT THE AO HAD IGNORED THE INS TRUCTIONS OF THE TRIBUNAL, THAT A REASONABLE DISALLOWANCE FOR EXPENSES COULD BE MADE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT.FOLLOWING THE DECISION OF THE TRIBUNAL, DEL IVERED IN THE CASE OF VIP INDUSTRIES LTD (ITA/7242/M/2008),HE HELD THAT DISALLOWANCE AT THE RATE OF 5% OF THE EXEMPT INCOME WAS JUSTIFIABLE. 4. BEFORE US THE DEPARTMENTAL REPRESENTATIVE (DR) STAT ED THAT MATTER COULD BE DECIDED ON MERITS. THE AUTHORISED REPRESENTATIVE(AR) STATED TH AT IN OTHER CASES TRIBUNAL HAD RESTRICTED THE DISALLOWANCE UP TO 1 OR 2% OF THE EXEMPT INCOME . 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE TRIBUNAL HAD SPECIFICALLY DIRECTED THE AO NOT TO IN VOKE THE PROVISIONS OF RULE 8D OF THE RULES, THAT EVEN THEN HE MADE THE DISALLOWANCE AS P ER THE SAID RULES,THAT THE FAA HAD RESTRICTED THE DISALLOWANCE TO 5% OF THE EXEMPT INC OME EARNED BY THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. WE FIND THAT T HE ASSESSEE ITSELF HAD AGREED FOR CERTAIN DISALLOWANCE THAT COULD BE MADE AS PER THE PROVISIO NS OF SSECTION 14 A OF THE ACT. THEREFORE,WE ARE OF THE OPINION THAT ORDER OF THE F AA NEEDS NO INTERFERENCE FROM OUR SIDE. CONFIRMING HIS ORDER,WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPEA L FILED BY THE AO STANDS DISMISSED. . ORDER PRONOUNCED I N THE OPEN COURT ON 16 TH MARCH, 2016. 16 ! , 2016 SD/- SD/- ( / AMIT SHUKLA ) ( / RAJENDRA ) ! / JUDICIAL MEMBER ! / ACCOUNTANT MEMBER MUMBAI, DATE: 16.03.2016 . . . .. . JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR D BENCH, ITAT, MUMBAI / , A , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.