DCIT, Circle - 5, Kolkata, Kolkata V. M/s. Pilani Investment & Industries Corpn. Ltd., Kolkata

ITA 17/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54571 (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; 260A

Judgement Text

, , , , , ,, , IN THE INCOME-TAX APPELLATE TRIBUNAL, B BENCH : KOLKATA [ ( (( ( ) )) ) , , , , , , , , . .. .!' !'!' !'. .. . , , , , #$ #$ #$ #$ ] ]] ] [BEFORE SRI MAHAVIR SINGH, JM & SRI C. D. RAO, A M] ITA NO. 17/KOL/2011 : ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME TAX -VS.- M/S. PI LANI INVESTMENT & INDUSTRIES CORPN. CIRCLE-5, KOLKATA. LTD., KOLKATA. [PAN : AABCP 7642 R] [ &' &' &' &' /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.959/CIT(A)-VI/2009-10/CIR-5/KOL DATED 22.10.2010 . ASSESSMENT WAS FRAMED BY ACIT, CIR-5, KOLKATA U/S. 143(3) R.W.S 115WE(3) OF THE IN COME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE H IS ORDER DATED 29.12.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT READ WITH RULE 8D OF INCOME TAX RULES, 1962 AT RS.2,63,82,171/- OF TH E DIVIDEND INCOME ON ESTIMATE BASIS. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUNDS NOS.1 & 2 OF THE APPEAL :- 1. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON F ACTS, IN DELETING THE ADDITION U/S. 14A AND NOT RESTRICTING IT TO CERTAIN AMOUNT APPLYING THE PROVISION OF RULE 8D, IN VIEW OF THE DECISION OF TH E ITAT, SPECIAL BENCH, MUMBAI, PRONOUNCED IN THE CASE OF DAGA CAPIT AL MANAGEMENT LTD. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW IN RESTRICTING THE DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPTED DIVIDEND INCOME OF RS.41,49,079/- WITHOUT CONSIDERING THE FACT THAT DEPARTMENT HAS FILED APPEAL U/S. 260A AGA INST THE ORDERS PASSED BY HONBLE ITAT KOLKATA IN ASSESSEES OWN CA SE FOR A.YRS. ITA NO. 17/KOL/2011 M/S. PILANI INV. & IND. CORPN. LTD. A.Y 07-08 2 2002-03 & 2004-05 PASSED ON 04.04.2008 ON WHICH LD. CIT(A) RELIED UPON IN GIVING HIS DECISION IN FAVOUR OF THE ASSESS EE. 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 THE ASSESSING OFFICER DISALLOWED INTEREST EXPENSES AND AVERAGE VALUE OF INVESTMENT A T RS.2,63,82,171/- BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF INC OME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) BY FOLLOWING THE DECISION OF ITA T SPECIAL BENCH, MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT PVT. LIMITED (2009) 312 ITR (AT) 1. CIT(A) RELYING ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.), RESTRICTED THE DISAL LOWANCE AT RS.41,49,079/- BY STATING THAT ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) H AS BEEN REVERSED BY HONBLE BOMBAY HIGH COURT AND REASONABLE DISALLOWANCE BE MADE. ACC ORDINGLY, HE RESTRICTED THE DISALLOWANCE AT RS.41,49,079/- 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 APPLICABILITY OF RULE 8 D OF THE RULES AS PROSPECTIVE AND NOT RETROSPECTIVE W.E.F. ASSESSMENT YEAR 2008-09, WHERE IN HONBLE HIGH COURT 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 APP LY WITH EFFECT 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 OFFICER 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 OPP ORTUNITY 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 ASSESSI NG OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDI TURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUND S WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING TH E APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SH ALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMST ANCES OF THE CASE ITA NO. 17/KOL/2011 M/S. PILANI INV. & IND. CORPN. 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 THI S DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOLLOWING THE SAME, IN THIS APPEAL ALSO WE HOLD THAT THE DISALLOWANCE U/S 14A FOR EARNING EXEM PT DIVIDEND INCOME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DO SO AND WORK OUT THE QUANTUM OF DISAL LOWANCE. 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), THEREBY 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. PILANI INVESTMENT & INDUSTRIES C ORPN. LTD., 9/1, R. N. MUKHERJEE ROAD, KOLKATA-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 .