DCIT, Circle - 5, Kolkata, Kolkata V. M/s. Birla Eastern Ltd., Kolkata

ITA 15/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54570 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 05-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K ROY
• Assessee Lawyers: A K GUPTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , , , , ,, , IN THE INCOME-TAX APPELLATE TRIBUNAL, B BENCH : KOLKATA [ ( (( ( ) )) ) , , , , , , , , . .. .!' !'!' !'. .. . , , , , #$ #$ #$ #$ ] ]] ] [BEFORE SRI MAHAVIR SINGH, JM & SRI C. D. RAO, A M] ITA NO. 15/KOL/2011 : ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME TAX -VS.- M/S. BIRLA EASTERN LIMITED CIRCLE-5, KOLKATA. KOLKATA. [PAN : AABCB 3 340 C] [ &' &' &' &' /APPELLANT ] ]] ] [ ()&' ()&' ()&' ()&'/ // / RESPONDENT ] ] ] ] &' &' &' &' / FOR THE APPELLANT : SHRI S. K. ROY ()&' ()&' ()&' ()&' / FOR THE RESPONDENT : SHRI A. K. GUPTA +,- . '$ +,- . '$ +,- . '$ +,- . '$ /DATE OF HEARING : 23.09.2011 /0 . '$ /0 . '$ /0 . '$ /0 . '$ /DATE OF PRONOUNCEMENT : 23.09.2011 #1 /ORDER , ,, , PER MAHAVIR SINGH, J. M. THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT(A), VI, KOLKATA IN APPEAL NO.940/CIT(A)-VI/09-10/CIR-V/KOLKATA DATED 22.01.20 10. ASSESSMENT WAS FRAMED BY ACIT, CIR-5, KOLKATA U/S. 143(3) R.W.S 115WE(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007- 08 VIDE HIS ORDER DATED 30.11.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST ORDER OF THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDE R SECTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) AT 1% OF THE DIVIDEND INCOME ON ESTIMATE BASIS. FOR THIS, REVENUE HAS RAI SED FOLLOWING GROUND NO.1: THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANCE OF RS.31,69,635/- U/S. 14 A, HAD BEEN MADE BY THE A.O. FOLLOWING THE PROVISION UNDER RULE 8D, READ WITH SE CTION 14A, AND HAS RESTRICTED THE DISALLOWANCE TO 1% OF THE DIVIDEND INCOME ON ES TIMATED BASIS. THE LD. CIT(A) HAS OBSERVED THAT THE SHARE CAPITAL AND RESE RVES & SURPLUS OF RS.20.62 CRORES IS FAR MORE THAN INVESTMENT OF RS.16.84 CROR ES. DURING THE YEAR ASSESSEE HAS LOAN AMOUNT OF RS.4.74 CRORES AND INVESTMENT OF RS.16.84 CRORES AND ALSO TRANSACTED IN MUTUAL FUND DURING THE YEAR. THE SOUR CES OF WHICH HAS NOT BEEN EXAMINED BY THE LD. CIT(A). [ITA NO. 15/KOL/2011 M/S. BIRLA EASTERN LTD. A.Y. 07-08 ] 2 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONTENTI ON AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. BRIEF FACTS IN THIS CASE ARE THAT ASSESSING OFFICER DISALLOWED INTEREST EXPENSES AND AVERAGE VALUE OF INVESTMENT AT RS.31,6 9,635/- BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES BY F OLLOWING THE DECISION OF I.T.A.T., SPECIAL BENCH, MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL M ANAGEMENT PVT. LIMITED (2009) 312 ITR (AT) 1. CIT(A) RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (B OM.), RESTRICTED THE DISALLOWANCE AT 1% BY STATING THAT DAGA CAPITAL MANAGEMENT PVT. LTD. ( SUPRA) HAS BEEN REVERSED BY HONBLE BOMBAY HIGH COURT AND REASONABLE DISALLOWANCE BE MA DE. ACCORDINGLY, HE RESTRICTED THE DISALLOWANCE AT 1% OF DIVIDEND INCOME. AGGRIEVED RE VENUE CAME IN APPEAL BEFORE US. 4. WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA) HAS ALREADY HELD THAT APPLICABILITY OF RULE 8D OF THE RULES IS PROSPECTIVE AND NOT RETROSPECTIVE W.E.F. ASSESSMENT YEAR 2008-09, WHERE IN HONBLE HIGH COURT HAS ALSO DIRECTED TO RECOMPUTE THE DISALLOWANCE IN CASE THERE IS A NEXUS FOR EXPENSES WITH EXEMPT INCOME BY LAYING DOWN THE PRINCIPLE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH E FFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFF ICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH D OES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING THE APPORTIONM ENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CAS E [ITA NO. 15/KOL/2011 M/S. BIRLA EASTERN LTD. A.Y. 07-08 ] 3 WE FURTHER FIND THAT THE TRIBUNAL, KOLKATA BENCH ON THE SELF SAME FACTS IN THE CASE OF SAGRIKA GOODS & SERVICES PVT. LTD. VS. INCOME-TAX OFFICER, I.T.A NO. 1278/KOL/2010, ASSESSMENT YEAR 2005-06 DATED 24 TH SEPTEMBER, 2010 HAS HELD AS UNDER: 5. HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED ON BY THE LD. AUTHORISED REPRE SENTATIVE OF THE ASSESSEE CITED SUPRA. WE FIND THAT ON THE ISSUE OF DISALLOWANCE U/ S. 14A, THIS BENCH OF THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW THAT THIS DISALLO WANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOLLOWING THE SAME, IN THIS AP PEAL ALSO WE HOLD THAT THE DISALLOWANCE U/S 14A FOR EARNING EXEMPT DIVIDEND IN COME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. THE ASSESSING OFFICER IS AC CORDINGLY DIRECTED TO DO SO AND WORK OUT THE QUANTUM OF DISALLOWANCE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AS DIRECTED ABOVE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF JURISDICTIONAL TRIBUNAL (CITED SUPRA), WE, UPHOLD THE ORDER OF CIT(A), THER EBY HE RESTRICTED THE DISALLOWANCE AT 1% OF DIVIDEND INCOME. 5. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT. SD/- SD/- . !' !'!' !' . #$ , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( '$ '$ '$ '$) )) ) DATED : 23RD SEPTEMBER, 2011 23 ,45 6 JD.(SR.P.S.) #1 . (7 8#709- COPY OF THE ORDER FORWARDED TO: 1 . &' / APPELLANT DCIT, CIRCLE-5, KOLKATA. 2 ()&' / RESPONDENT, M/S. BIRLA EASTERN LTD., 9/1, R. N. M UKHERJEE ROAD, KOL-700 001. 3 . 1, ( )/ THE CIT(A), KOLKATA 4. 1, / CIT, KOLKATA 5 . ?@ (, / DR, KOLKATA BENCHES, KOLKATA )7 (/ TRUE COPY, #1,+/ BY ORDER, 5 /ASSTT. REGISTRAR .