PARAGON PROPERTY ENTERPARISES P. LTD ( FORMERLY KNOWN AS PARAGON TEXTILE MILLS P. LTD), MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 1559/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8924 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 26-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Assessee Lawyers: KISHORE PATEL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH,(AM) ITA NO.1559/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. PARAGON PROPERTY ENTERPRISES PVT. LTD. (FORMERLY KNOWN AS PARAGON TEXTILE MILLS PVT. LTD.) 1-11/12, PARAGON CONDOMINIUM, PANDURANG BUDHKAR MARG, WORLI MUMBAI 400 013. ..( APPELLANT ) P.A. NO: (AAACP 7791 C) VS. DY. COMMISSIONER OF INCOME TAX CIRCLE 7(1), AAYAKAR BHAVAN, M.K. ROAD, CHURCHGATE MUMBAI-400 020 ..( RESPONDENT ) APPELLANT BY : SHR I KISHORE PATEL RESPONDENT BY : SHRI S.K. SINGH O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 27.10.2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF ART SILK FAB RICS AND PROPERTY DEVELOPMENT FILED RETURN DECLARING TOTAL IN COME OF RS.2,32,78,324/-. DURING THE COURSE OF ASSESSMENT PROCEED ING THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PROVISIONS OF SEC. 14A SHOULD NOT BE INVOKED IN RESPECT OF DIVIDEND INCOME OF RS.54,07,112/-. ITA NO.1559/M/10 A.Y:06-07 2 IT WAS SUBMITTED THAT SINCE THE MAIN ACTIVITIES OF THE ASSE SSEE WAS REGULAR MANUFACTURING, TRADING AND INVESTMENT ETC., TH E DIVIDEND INCOME WAS ONLY INCIDENTAL FOR WHICH NO EXPENSE WAS INCURR ED BY IT AND THAT IT HAD NOT INCURRED ANY INTEREST EXPENSES ALSO, AS COULD BE SEEN FROM THE FINANCIAL EXPENSES OF A MEAGER AMOUNT OF RS .1,00,512/. THE ASSESSEE ALSO SUBMITTED THAT IT HAD MADE A SUO MOTO D ISALLOWANCE UNDER SECTION 14A AT 2% OF THE DIVIDEND INCOME AT RS.1, 08,142/-. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEE'S EXPLANATION. ACCORDING TO THE ASSESSING OFFICER SEC.14A D OES NOT RESTRICT THE DISALLOWANCE ONLY TO ANY FINANCIAL EXPENDIT URE BUT IT SPEAKS OF EXPENDITURE INCURRED IN RELATION TO THE EARNIN G OF EXEMPT INCOME. ACCORDINGLY THE ASSESSING OFFICER WORKED OUT SUCH DISALLOWANCE RS.3,31,845/- IN ACCORDANCE WITH RULE 8D OF THE INCOME T AX RULE, 1962 AND AFTER DEDUCTING THE SELF- DISALLOWANCE OF RS.1, 08,142/- MADE BY THE ASSESSEE HE MADE NET DISALLOWANCE OF RS.2,23,703/- U/S.14A. THE ASSESSING OFFICER AFTER MAKING SOME OTHER DISALLOWANCES COMPLETED THE ASSESSMENT AT AN INCOME OF RS.2,84,03,090/ - VIDE ORDER DATED 16.12.2008 PASSED U/S.143(3) OF THE INCOME TAX ACT, 1961(THE ACT). ON APPEAL, THE LD. CIT(A) WHILE OBSER VING THAT THE APPELLANT HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW T HAT INCOME FROM THE FIXED TERM GROWTH OPTION PLANS IS NOT EXE MPT U/S.10(33)/10(34)/10(38) CONFIRMED THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER . 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN BOTH THE GROUNDS THE SUSTENANCE OF DISALLOWANCE OF RS.2,23,703/- MADE BY THE ASSESSING OFFICER U/S.14A READ WITH RULE 8D(2) OF THE INCOME TAX RULES, 1962. ITA NO.1559/M/10 A.Y:06-07 3 4. AT THE TIME OF HEARING BOTH PARTIES HAVE AGREED T HAT THIS ISSUE STANDS COVERED BY THE JUDGMENT OF HON'BLE JURISDICTIONA L HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, THEREFORE, TH E ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. 5. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL P ARTIES AND PERUSING THE MATERIAL AVAILABLE ON RECORD, WE FIND ME RIT IN PLEA OF THE PARTIES THAT THE ISSUE STANDS COVERED BY THE RECENT JUDGM ENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG . CO. LTD. VS. DCIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT P ETITION NO.758 OF 2010 DATED 12.8.2010 SINCE REPORTED IN (2010) 328 ITR 81 (BOM.) WHEREIN THEIR LORDSHIPS AFTER CONSIDERING THE DECISION O F THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. (117 ITD 169 ( MUM)(SB), WHILE HOLDING THAT THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SEC.14A OF THE ACT ARE CONSTITUTIONALLY VALID HAVE HELD VIDE PLA CITUM 88(VI) APPEARING AT PAGE 138 OF THE ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER H AS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMST ANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEN D BACK THE MATTER TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECI DE THE SAME AFRESH IN THE LIGHT OF THE DIRECTIONS OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE ABOVE CITED CASE AFTER PROVIDING REASONABL E OPPORTUNITY OF ITA NO.1559/M/10 A.Y:06-07 4 BEING HEARD TO THE ASSESSEE AND ACCORDINGLY THE GROUND TA KEN BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, ASSESSEE'S APPEAL STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.1.2011. SD/- SD/- (B. RAMAKOTAIAH) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JU DICIAL MEMBER MUMBAI, DATED: 14.1.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.