Fenner (India) Limited, Kolkata V. ITO, Ward - 11(1), Kolkata, Kolkata

ITA 1636/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5574 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2010
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-08-2010
• Court: TRIBUNAL
• Department Lawyers: A K BEHARA
• Assessee Lawyers: R SALARPURIA
• Section: 14A

Judgement Text

1 , , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE , , , , , SMT. DIVA SINGH, JUDICIAL MEMBER. /AND . .. .!' !'!' !'. .. . , #$ C.D. RAO, ACCOUNTANT MEMBER % % % % / ITA NO . 1636/KOL/2010 &' () / ASSESSMENT YEAR : 2007-08 (+, / APPELLANT ) FENNER (INDIA) LIMITED, FORMERLY KNOWN AS REDICAL RESEARCH LTD. (PAN: AAACJ 7230N) - VERSUS- (-.+,/ RESPONDENT ) ITO, WARD-11(1), KOLKATA +, / 0 #/ FOR THE APPELLANT: SHRI R. SALARPURIA -.+, / 0 # / FOR THE RESPONDENT: SHRI A.K.BEHARA #1 / ORDER ( . .. .!' !'!' !'. .. . ) #$ PER SHRI C.D.RAO, A.M . THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER OF THE C.I.T.(A)-XII, KOLKATA DATED 30.04.2010 FOR THE ASSESSMENT YEAR 20 07-08. 2. IN THIS APPEAL, THE ONLY EFFECTIVE ISSUE RAISED BY THE ASSESSEE IS RELATING TO UPHOLDING THE DISALLOWANCE OF EXPENDITURE OF RS.4,3 0,95,362/- AS AGAINST RS.1,50,538/- OFFERED IN THE COMPUTATION OF INCOME WITHOUT APPREC IATING THAT NO EXPENSES WERE INCURRED IN RELATION TO EARNING EXEMPT DIVIDEND INC OME. 3. BRIEF FACTS OF THE CASE ARE THAT WHILE DOING THE SCRUTINY ASSESSMENT, THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOM E OF RS.1,67,30,490/- WHICH IS EXEMPT FROM TAX. ACCORDINGLY, THE AO INVOKED THE PR OVISIONS OF SECTION 14A READ WITH RULE 8D AND WORKED OUT THE AMOUNT TO BE DISALLOWED UNDER SECTION 14A AT RS.4,30,95,362/-. 2 4. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE SAME BY OBSERVING THAT THE APPELLANT ALSO PLACED RELIANCE ON CERTAIN CASE LAWS . ON PERUSAL OF THESE CASE LAWS I FIND THAT THE CASE LAWS ARE RELEVANT BEFORE INTRODUCTION OF SECTION 14A AND RULE 8D. THESE CASE LAWS ARE MAINLY ON THE POINT OF PROVING NEXUS BETWEEN EXPENDITURE AND EXEMPTED INCOME, ACTUAL EXPENDITURE AND NOT NOTIONAL EXPENDI TURE TO BE CONSIDERED FOR DISALLOWANCE ETC. IN ORDER TO OVERCOME THE PRACTICA L PROBLEMS LIKE APPORTIONMENT OF INDIRECT EXPENSES ETC. RULE 8D HAS BEEN BROUGHT INT O STATUE WHERE BY A METHODOLOGY PRESCRIBED TO ARRIVE AT SUCH EXPENDITURE ATTRIBUTAB LE TO EARNING OF EXEMPTED INCOME. AS THIS RULE 8D IS APPLICABLE RETROSPECTIVELY, THE A.O NEED TO FOLLOW THESE MANDATORY PROVISIONS TO ARRIVE AT THE DISALLOWABLE EXPENDITUR E ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME. 5. AGGRIEVED BY THIS, NOW THE ASSESSEE IS IN APPEAL BEFORE US. 6. AT THE TIME OF HEARING BEFORE US, THE LD. COUNSE L, APPEARING ON BEHALF OF THE ASSESSEE, HAS SUBMITTED THAT THE HONBLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD.-VS- DCIT IN IT APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 HAS REVERSED THE JUDGMENT O F DAGA CAPITAL MANAGEMENT PVT. LTD. ON WHICH THE LD. CIT(A) HAS PLACED RELIANCE. T HEREFORE, HE REQUESTED THAT THE ACTION OF THE REVENUE IS NOT JUSTIFIABLE. HE FURTHE R RELIED ON THE ORDERS OF THE TRIBUNAL WHICH WAS PASSED SUBSEQUENTLY TO THE DECISION OF TH E BOMBAY HIGH COURT WHEREIN THE TRIBUNAL HAS TAKEN THE EXPENDITURE ATTRIBUTABLE TO EARNING OF DIVIDEND AT 1% OF THE DIVIDEND INCOME. HE FILED THE COPIES OF THE TRIBUNA L ORDERS (I) IN ITA 859/KOL/2010 M/S. CIVIL ENGINEERS ENTERPRISES (P) LTD. VS- DCIT AND (II) ITA NO.123/KOL/2010 ITO VS- M/S. B.P.S. SECURITIES PVT. LTD. 7. ON THE OTHER HAND, THE LD. DR, APPEARING ON BEHA LF OF THE REVENUE, RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED ALL THE MATERIALS AVAILABLE ON RECORD AND THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE CITED ( SUPRA ) BY THE LD. COUNSEL. SINCE THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS 3 OF RULE 8D OF THE INCOME TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09 AND THE ASSESSMENT YEAR INVOLVED IN THIS CASE IS 2007-08, THE DECISION OF DAGA CAPITAL MANAGEMENT PVT. LTD., RELIED ON BY THE LD. CIT(A), IS NOT APPLICABL E TO THE FACTS OF THE CASE. KEEPING IN VIEW OF THE ABOVE DECISION OF THE HONBLE BOMBAY HI GH COURT AND RESPECTFULLY FOLLOWING THE DECISIONS OF THE ITAT CITED ( SUPRA ), WE SET ASIDE THE ORDERS OF THE REVENUE AUTHORITIES ON THIS ISSUE AND REMIT BACK TH E SAME TO THE FILE OF THE AO TO RESTRICT THE DISALLOWANCE TO 1% OF THE DIVIDEND INC OME. IT IS ALSO OBSERVED THAT THE ASSESSEES MAIN BUSINESS IS RELATING TO MANUFACTURI NG AND SELLING OF V & FAN BELTS, OIL SEALS O RINGS AND MOULDED RUBBER PRODUCTS, ETC. A ND THE DIVIDEND INCOME IS RELATING TO THE SMALL PORTION OF THE INCOME AND THE AO HIMSE LF HAS RECORDED THAT THE EXPENDITURE DIRECTLY RELATED TO THIS DIVIDEND INCOM E IS NIL. 9 IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. #1 2 3& 4 5 THIS ORDER PRONOUNCED IN THE OPEN COURT ON 26.10.20 10. SD/- SD/- , , , , , DIVA SINGH, JUDICIAL MEMBER. . .. .!' !'!' !'. .. . , #$ C.D. RAO, ACCOUNTANT MEMBER ( (( ('$ '$ '$ '$) )) ) DATE: 26.10.2010 MST(SR.P.S.) #1 / -6 7#6(8- COPY OF THE ORDER FORWARDED TO: 1. FENNER (INDIA) LIMITED, FORMERLY KNOWN AS REDICAL R ESEARCH LTD., 7, COUNCIL HOUSE STREET, KOLKATA 700 001. 2 ITO, WARD-11(1), KOLKATA 3. THE CIT, 4. THE CIT(A), 5. DR, KOLKATA BENCHES, KOLKATA .6 -/ TRUE COPY, #1&3/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES 4