KHYATI REALTORS P. LTD, MUMBAI V. ITO 6(2)(4), MUMBAI

ITA 1424/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6225 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 22-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1424/MUM /2010 (ASSESSMENT YEAR: 2006-07) M/S. KHYATI REALTORS PVT. LTD. INCOME TAX OFFICER - 6(2)(4) 301, MANEK BHUVAN AAYAKAR BHAVAN, M.K. ROAD PLOT NO. 68, HINDU COLONY VS. MUMBAI 400020 DADAR, MUMBAI 400019 PAN - AACCK 4422 B APPELLANT RESPONDENT APPELLANT BY: SHRI VIJAY MEHTA RESPONDENT BY: SHRI A.K. NAYAK O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)- XII, MUMBAI DATED 21.10.2009. THE ONLY ISSUE IN THE APPE AL IS WITH REFERENCE TO DISALLOWANCE UNDER SECTION 14A. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE PURCHASED SHA RES OF SUN PHARMACEUTICALS AND EARNED DIVIDEND OF ` 30,00,000/-, WHICH WAS TAX FREE. IT WAS ARGUED BY THE ASSESSEE THAT THERE WAS NO EXPEND ITURE INCURRED BY WAY OF INTEREST WITH REGARD TO INVESTMENT IN SHARES WHI CH YIELDED DIVIDEND. THEREFORE, THERE WAS NO EXPENDITURE TO BE DISALLOWE D UNDER SECTION 14A. THIS DID NOT FIND FAVOUR WITH THE A.O. THE A.O. REL IED ON THE DECISION IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT P. LTD. IN ITA NO. 8057/MUM/2003. THE A.O. APPLIED RULE 8D AND DETERMINED AN AMOUNT O F ` 9,58,810/- AS EXPENDITURE RELATABLE TO EXEMPT INCOME, WHICH WAS D ISALLOWED. 3. BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE C OMPANY HAD CLAIMED EXPENSES TO THE EXTENT OF ` 3,10,295/- AND FINANCE CHARGES OF INTEREST AMOUNTING TO ` 7,88,326/-. THE DISALLOWANCE OF HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENTS IS MADE FOR AN AMOUNT OF ` 9,58,810/- WHICH IS HIGHER THAN THE TOTAL EXPENDITURE DEBITED TO THE P & L ACC OUNT. IT IS FURTHER ARGUED THAT THE A.O. HIMSELF ACCEPTED THAT THE INTEREST EX PENSES ARE INCURRED FOR THE PURPOSE OF BUSINESS AND THEREFORE, DID NOT CONSIDER IT IN WORKING OF THE ITA NO. 1424/MUM/2010 M/S. KHYATI REALTORS PVT. LTD. 2 AMOUNT OF DISALLOWANCE UNDER SECTION 14A. RULE 8D I S GOVERNED BY THE PROVISIONS OF SECTION 14A. THE PROVISIONS OF SECTIO N 14A COULD HAVE NO APPLICATION WHERE THERE IS NO EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME. IN ASSESSEES CASE THERE WAS NO EXPENDITURE INCURRED. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE THE CIT (A) RESTRICTED THE DISALLOWANCE TO AN AMOUNT OF ` 3,10,295/- TOWARDS TOTAL AMOUNT OF EXPENDITURE RENDERED BY THE COMPANY UNDER THE HEAD OPERATIONAL EXPENSES. 4. AT THE OUTSET THE ASSESSEE SUBMITTED THAT THE ISSUE IS TO BE RESTORED TO THE FILE OF THE A.O. CONSEQUENT TO THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V S. DCIT 328 ITR 81. IT IS ALSO FURTHER SUBMITTED THAT DISALLOWANCE OF ENTIRE OPERATIONAL EXPENDITURE CONFIRMED BY THE CIT(A) IS NOT CORRECT AS THE ASSES SEE IS HAVING OTHER BUSINESS ALSO AND THERE WAS ONLY ONE INVESTMENT IN SHARES BY THE ASSESSEE COMPANY DURING YEAR. 5. THE LEARNED D.R. HAS NO OBJECTION IF THE MATTER IS RESTORED TO THE FILE OF THE A.O. 6. WE HAVE CONSIDERED THE ISSUE. SINCE THE HON'BLE BOM BAY HIGH COURT HAS CONSIDERED THE DISALLOWANCE UNDER SECTION 14A A ND PRINCIPLES WERE LAID DOWN, THE ISSUE IS TO BE RE-EXAMINED AND A REASONAB LE AMOUNT HAS TO BE ARRIVED AT BY THE A.O. WITHOUT INVOKING RULE 8D FOR THIS ASSESSMENT YEAR. IT IS ALSO TO BE KEPT IN MIND THE NATURE OF BUSINESS A CTIVITY OF THE ASSESSEE AND THE EXPENDITURE CLAIMED IN VARIOUS ACTIVITIES. SINC E THESE DETAILS ARE NOT AVAILABLE BEFORE US, IN THE INTEREST OF JUSTICE WE RESTORE THE MATER BACK TO THE FILE OF THE A.O. TO EXAMINE THE FACTS AFRESH AND AR RIVE AT THE REASONABLE DISALLOWANCE UNDER SECTION 14A KEEPING IN MIND THE PRINCIPLES ESTABLISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE ABOVE REFER RED CASE. THE ISSUE IS RESTORED TO THE FILE OF THE A.O. 7. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER 2010. SD/- SD/- (R.S. PADVEKAR) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH NOVEMBER 2010 ITA NO. 1424/MUM/2010 M/S. KHYATI REALTORS PVT. LTD. 3 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XII, MUMBAI 4. THE CIT VI, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.