AKSHATA MERCANTILE P.LTD, MUMBAI V. DCIT 3(1), MUMBAI

ITA 1682/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 3048 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 07-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J G ARORA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI RAMLAL NEGI, JUDICIAL MEMBER ITA NO. 1682/MUM/2013 (ASSESSMENT YEAR : 2009-10) AKSHATA MERCANTILE PVT.LTD., RAHEJA CENTRE, GROUND FLOOR, OFFICE NO.4, 214, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021 PAN: AADCA 8265D .... APPELLANT VS. THE DCIT 3(1), ROOM NO.603/623, 6 TH FLOOR, AAYKAR BHAVAN, MKI ROAD, MUMBAI 400 020 .... RESPONDENT ITA NO. 3019/MUM/2013 (ASSESSMENT YEAR : 2009-10) THE DCIT 3(1), ROOM NO.603/623, 6 TH FLOOR, AAYKAR BHAVAN, MKI ROAD, MUMBAI 400 020 .... APPELLANT VS. AKSHATA MERCANTILE PVT.LTD., RAHEJA CENTRE, GROUND FLOOR, OFFICE NO.4, 214, FREE PRESS JOURNAL MARG, NARIMAN POINT, MUMBAI 400 021 PAN: AADCA 8265D .... RESPONDENT ASSESSEE BY : SHRI J.G.ARORA REVENUE BY : SHRI MANJUNATH KARKIHA LLI 2 ITA NO. 1682&3019/MUM/2013 (ASSESSMENT YEAR : 2009-10) DATE OF HEARING : 07/10/2015 DATE OF PRONOUNCEMENT : 16/10/2015 ORDER PER G.S. PANNU,AM: THE CAPTIONED ARE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE, ARE DIRECTED AGAINST THE ORDER OF THE CI T(A)-5, MUMBAI DATED 31/01/2013 PERTAINING TO THE ASSESSMENT YEAR 2009- 10, WHICH IN TURN, HAS ARISEN FROM AN ORDER PASSED BY THE ASSESSIN G OFFICER DATED 28/12/2011 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN BOTH THE APPEALS, THE DISPUTE PERTAINS TO D ISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT BY APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 . 3. BRIEFLY PUT, THE RELEVANT FACTS ARE AS FOLLOWS. THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956 AND IS, INTER-ALIA, ENGAGED IN THE BUSINESS OF TRAD ING AND IMPORTERS OF IRON & STEEL AND ALLIED PRODUCTS. FOR THE YEAR UND ER CONSIDERATION, IT FILED A RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.4,98,07,510/-, WHICH WAS SUBJECT TO A SCRUTINY ASSESSMENT, WHEREBY THE TOTAL INCOME HAS BEEN ASSESSED AT RS.5,39,71,400/-. ONE OF THE ADDITIONS MADE TO THE RETURNED INCOME WAS ON ACCOUNT OF APPLICATION OF SECTION 14A OF THE ACT AMOUNTING TO RS.38,55,744/-. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD MADE INVESTMENTS IN SHARES AND MU TUAL FUNDS, WHICH GIVE RISE TO EXEMPT INCOME AND, THEREFORE, HE SHOW CAUSED THE 3 ITA NO. 1682&3019/MUM/2013 (ASSESSMENT YEAR : 2009-10) ASSESSEE AS TO WHY EXPENDITURE RELATABLE TO SUCH IN VESTMENT MAY NOT BE DISALLOWED UNDER SECTION 14A OF THE ACT. 3.1 IN RESPONSE, THE ASSESSEE COMPANY MADE A PRELIM INARY CONTENTION, WHICH WAS TO THE EFFECT, THAT SINCE THE RE WAS NO EXEMPT INCOME, THE PROVISIONS OF SECTION 14A OF THE ACT WO ULD NOT BE APPLICABLE. WITHOUT PREJUDICE TO THE AFORESAID, AS SESSEE ALSO CONTENDED THAT NO DISALLOWANCE WAS REQUIRED TO BE M ADE BY APPLYING PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSIN G OFFICER DISAGREED WITH THE ASSESSEE AND OBSERVED THAT EVEN IF THERE I S NO DIVIDEND INCOME DURING A PARTICULAR YEAR, THE EXPENDITURE RELATABLE TO THE INVESTMENT IN SHARES/MUTUAL FUNDS, WHICH WOULD GIVE RISE TO EXEMP T DIVIDEND INCOME IN FUTURE, IS DISALLOWABLE UNDER SECTION 14A OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER APPLIED THE FORMULA LAID DOWN IN RULE 8D(2) OF THE RULES AND COMPUTED THE DISALLOWANCE OF RS.38,55,744 /- 3.2 IN APPEAL BEFORE THE CIT(A), ASSESSEE COMPANY REITERATED ITS PLEA THAT IN THE ABSENCE OF ANY EXEMPT INCOME, DISA LLOWANCE UNDER SECTION 14A OF THE ACT WAS NOT MERITED AT ALL. APA RT THEREFROM, ASSESSEE ALSO ASSAILED THE COMPUTATION OF DISALLOWA NCE UNDER SECTION 14A OF THE ACT AT RS.38,55,744/-. THE CIT(A) ALLOW ED PARTIAL RELIEF AND SCALED DOWN THE DISALLOWANCE TO RS.29,32,955/- THER EBY RESULTING IN A RELIEF OF RS.9,22,789/- TO THE ASSESSEE. AGAINST T HE AFORESAID, THE ASSESSEES AS WELL AS THE REVENUE ARE IN CROSS-APPEA LS. 4. BEFORE US, THE LD. REPRESENTATIVE FOR THE ASSESS EE HAS REITERATED THE PRELIMINARY PLEA RAISED BEFORE THE LOWER AUTHOR ITIES, WHICH IS TO THE EFFECT THAT IN THE ABSENCE OF ACTUAL RECEIPT OF EXE MPT INCOME DURING THE YEAR UNDER CONSIDERATION, NO DISALLOWANCE UNDER SEC TION 14A OF THE ACT 4 ITA NO. 1682&3019/MUM/2013 (ASSESSMENT YEAR : 2009-10) WAS MERITED. IN SUPPORT, RELIANCE HAS BEEN PLACED ON THE FOLLOWING JUDGMENTS:- (I) HONBLE DELHI HIGH COURT DECISION IN THE CASE OF CHEMINVEST LIMITED VS. CIT, ITA 749/2014 ORDER DATED 02.09.2015; (II) HONBLE GUJARAT HIGH COURT DECISION IN THE CA SE OF CIT VS. CORRTECH ENERGY P. LTD., 372 ITR 97 (GUJ); AND, (III) HONBLE BOMBAY HIGH COURT DECISION CIT VS. D ELITE ENTERPRISES, ITA NO.110 OF 2009 DATED 26/02/2009 5. ON THIS PRELIMINARY ASPECT, LD. DEPARTMENTAL RE PRESENTATIVE APPEARING FOR THE REVENUE HAS MERELY REITERATED THE STAND OF THE LOWER AUTHORITIES WITHOUT CONTROVERTING THE LEGAL POSITIO N SOUGHT TO BE CANVASSED BY THE ASSESSEE ON THE BASIS OF THE AFORE STATED JUDGMENTS. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. SECTION 14A OF THE ACT PERMITS THE ASSESSING OFFICER TO DISALLO W AN EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME. IN THE PRESENT CASE, A PERTINENT POINT RAISED BY TH E ASSESSEE IS THAT DURING THE YEAR UNDER CONSIDERATION NO EXEMPT INCOM E HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE AND, THEREFORE, THE PROVISIONS OF SECTION 14A OF THE ACT ARE INAPPLICABLE FOR THE YEA R UNDER CONSIDERATION. WE FIND THAT THE AFORESAID PLEA OF THE ASSESSEE IS DIRECTLY SUPPORTED BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED (SUPRA). AS PER THE HONBLE DELHI HIGH COU RT, SECTION 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEI PT OF EXEMPT INCOME BEFORE ANY EXPENDITURE IN RELATION TO SUCH INCOME C AN BE DISALLOWED BY 5 ITA NO. 1682&3019/MUM/2013 (ASSESSMENT YEAR : 2009-10) INVOKING SECTION 14A OF THE ACT. IN THE ABSENCE OF ANY DECISION TO THE CONTRARY BROUGHT OUT BY THE LD. DEPARTMENTAL REPRE SENTATIVE, WE UPHOLD THE PLEA OF THE ASSESSEE, WHICH IS SUPPORTED BY THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINV EST LIMITED (SUPRA) AS WELL AS BY THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY P. LTD., (SUPRA). ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELE TE THE ENTIRE DISALLOWANCE OF RS.38,55,744/- MADE BY THE ASSESS ING OFFICER BY INVOKING SECTION 14A OF THE ACT. 7. RESULTANTLY, WHEREAS THE APPEAL OF THE ASSESSEE IS ALLOWED, AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/10/2015 SD/- SD/- (RAMLAL NEGI) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT ME MBER MUMBAI, DATED 16/10/2015 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT , 2. THE RESPONDENT. 3. THE CIT(A)- 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI VM , SR. PS