THE PAPER PRODUCTS LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 1561/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79264 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 23-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 1561/M/2011 ( AY: 200 6 - 20 09 ) THE PAPER PRODUCTS LTD., REGENT CHAMBERS, 13 TH FLOOR, NARIMAN POINT, MUMBAI - 400021. / VS. DCIT - 3(2), AAYAKAR BHAVAN, M.K. ROAD, NEW MARINE LINES, MUMBAI 400 020. ./ PAN : AAACT 0086 E ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI BHADRESH DOSHI / REVENUE BY : SHRI SUMIT KUMAR , DR / DATE OF HEARING : 19 .6.2014 / DATE OF PRONOUNCEMENT : 25 .6.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 23.2.2011 IS AGAINST THE ORDER OF THE CIT (A) - 7, MUMBAI DATED 16.11.2010 FOR THE ASSESSMENT YEAR 2006 - 2007. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF RS. 5,36,442/ - AS AGAINST RS. 2,11,842/ - CALCULATED BY THE TAX AUDITOR IN TAX AUDIT REPORT AND OFFERED IN COMPUTATION OF INCOME BY THE APPELLANT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN CONFIRMING THE ACTION OF AO FOR INVOKING RULE 8D OF IT RULES , WITHOUT APPRECIATING THAT AO HAS NOT RECORDED ANY DISSATISFACTION ON THE CORRECTNESS OF THE CLAIM OF THE APPELLANT AS PER SECTI ON 14A(2) OF THE ACT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN NOT FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO LTD 328 ITR 81 (BOM), WHEREIN IT WAS HELD THAT RULE 8D OF THE INCOME TAX RULES IS ONLY APPLICABLE FROM AY 2008 - 2009. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) FAILED TO APPRECIATE THAT AS PER PROVISIONS OF SECTION 14A OF THE ACT, ONLY THOSE EXPENSES, WHICH ARE DIRECTLY INCURRED FOR EARNING EXEMPT INCOME, CAN BE DISALLOWED. 2 3. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME AND THE AO CONCLUDED THE ASSESSMENT DETERMINING THE ASSESSED INCOME AT RS. 37,88,22,700/ - AGAINST THE RETURNED INCOME OF RS. 36,94,77,900/ - . AO MADE DISALLOWANCE OF RS. 5,36,442/ - BY INVOK ING THE PROVISIONS OF SECTION 14A OF THE ACT. DURING THE ASSESSMENT, AO OBSERVED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 75,71,581/ - . ASSESSEE QUANTIFIED THE EXPENDITURE RELATABLE TO THE EARNING SUCH EXEMPT INCOME OF RS. 2,11,842/ - . AO INVOKED T HE PROVISIONS OF RULE 8D READ WITH SECTION 14A AND QUANTIFIED THE DISALLOWABLE EXPENDITURE AT RS. 5,36,442/ - . AFTER REDUCING THE EXPENDITURE OFFERED BY THE ASSESSEE, AO MADE ADDITION OF RS. 3,24,600/ - . MATTER TRAVELLED TO THE FIRST APPELLATE PROCEEDINGS. 4. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) CONFIRMED THE ADDITION MADE BY THE AO AND THE SAME IS DISCUSSED IN PARA 5 OF THE IMPUGNED ORDER WITHOUT MUCH DISCUSSION. AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUNDS. 5 . AT THE OUTSET, SHRI BHADRESH DOSHI, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ONLY ISSUE EMANATING FROM THE ABOVE GROUNDS IS THE DIS ALLOWANCE OF U/S 14A MADE BY THE AO AND CONFIRMED BY THE CIT (A). IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 AND MENTIONED THAT THE IN VIEW OF THE ABOVE MENTIONED JUDGMENT OF THE, THE ITAT HAS TAKEN THE VIEW THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME. LD COUNSEL ALSO RELIED ON VARIOUS DECISIONS OF THE ITAT, KOL KATA BENCHES IN SUPPORT OF HIS CONTENTION. 6 . ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7 . WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONS IDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREAT ED AS APPLICABLE TO THE A.Y.2006 - 07 UNDER CONSIDERATION , WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS . DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN 3 THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DA TED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSE SSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' 8. CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE ARE OF THE OPINION THAT THE DISALLOWANCE MADE BY THE ASSESSEE AT RS. 2,11,842/ - IS IN ACCORDANCE WITH THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. GODREJ AGROVET (SUPRA) WHICH IS MORE THAN 2% AND THEREFORE, NO ADDITION IS CALL FOR . MOREOVER, BEING THE AY UNDER CONSIDERATION 2006 - 07, THE JU DGMENT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (SUPRA) DOES NOT APPLY AS THE SAME IS APPLICABLE FROM AY 2008 - 09 . ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE SHOULD BE DECIDED IN ITS FAVOUR. WE ORDER ACCORDINGLY. 9. IN THE RESULT, APPEAL FILED BY T HE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 5 T H JUNE, 2014 . S D / - S D / - ( AMIT SHUKLA ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 25.6.2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 4 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI