Madhusudan Industries Ltd., Ahmedabad V. The Income tax Officer, Ward-4(4), Ahmedabad

ITA 1715/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85688 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 27-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: URVASHI SHODAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD , .. ' , #$ # % BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 1715/AHD/2011 [ASSTT. YEAR: 2007-08] MADHUSUDAN INDUSTRIES LTD. MADHUSUDAN HOUSE OPP: NAVRANGPURA TEL.EXCHANGE NAVRANGPURA, AHMEDABAD. PAN : AABCM 0538 M VS ITO, WARD - 4(4) AHMEDABAD. &' / (APPELLANT) )* &' / (RESPONDENT) ASSESSEE(S) BY : MS.URVASHI SHODAN, AR REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 05/02/2015 / DATE OF PRONOUNCEMENT: 13/02/2015 #+/ O R D E R PER N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-VIII, AHMEDABAD DATED 4.4.2011 FOR THE ASSTT.YEAR 2007-08. 2. THE FIRST ISSUE INVOLVED IN THIS APPEAL IS THAT THE CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO IN MAKING DISALLOWAN CE OF INTEREST EXPENDITURE OF RS.2,27,328/- UNDER SECTION 14A OF T HE ACT. THE SECOND ISSUE INVOLVED IN THIS APPEAL IS THAT TH E CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO IN MAKING DISALLO WANCE UNDER SECTION 14A OF THE ACT ON ACCOUNT OF ADMINISTRATIVE EXPENSE S AT THE RATE OF 0.5% WHICH COMES TO RS.76,566/-. ITA NO.1715/AHD/2011 2 3. BRIEF FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT THE ASSESSEE IN THE RETURN OF INCOME HAS SHOWN DIVIDEND INCOME O F RS.33,446/- AND CLAIMED THE SAME AS EXEMPT FROM TAX. HE OBSERVED T HAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF EXPENDITURE INCURR ED FOR EARNING OF EXEMPT DIVIDEND INCOME, AND THEREFORE, BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D MADE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.2,27,328/- AND ADMINISTRATIVE EXP ENSES OF RS.76,566/-. IN THIS WAY, A TOTAL DISALLOWANCE OF RS.3,03,894/-. 4. ON APPEAL, THE CIT(A) FOLLOWING HIS ORDER FOR AS STT.YEAR 2000-01 DIRECTED THE AO TO EXCLUDE THE INTEREST ON TERM LOA N, INTEREST ON PARTLY CONVERTIBLE DEBENTURE AND INTEREST PAID TO CLFI OUT OF THE TOTAL INTEREST EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION, AND OUT OF THE BALANCE INTEREST EXPE NDITURE, DISALLOWANCE ON PRO-RATA BASIS SHOULD BE WORKED OUT. 5. AS REGARDS THE DISALLOWANCE MADE OUT OF ADMINIST RATIVE EXPENSES OF RS.76,566/-, THE CIT(A) HELD IT TO BE FAIR AND R EASONABLE AND CONFIRMED THE SAME. 6. BEFORE US, THE ONLY ARGUMENTS OF THE AR OF THE A SSESSEE WAS THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOUL D NOT EXCEED THE EXEMPT INCOME. ON THE OTHER HAND, DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES, AND MATERIAL AVAILABLE ON RECORD. TH E UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED EXEMPT DIVIDE ND INCOME OF RS.33,445/-. THE AO OBSERVED THAT THE ASSESSEE MUS T HAVE MADE EXPENDITURE FOR EARNING THE EXEMPT INCOME, AND MADE DISALLOWANCE OF RS.2,27,328/- OUT OF TOTAL INTEREST EXPENDITURE CLA IMED BY THE ASSESSEE, AND ALSO MADE DISALLOWANCE OF ADMINISTRATIVE EXPENS ES OF RS.76,566/- ITA NO.1715/AHD/2011 3 THEREBY MAKING A TOTAL DISALLOWANCE OF RS.3,03,894/ - UNDER SECTION 14A OF THE ACT. THIS WAS CONFIRMED IN APPEAL BY THE CI T(A). 8. ONLY CONTENTION OF THE ASSESSEE IS THAT THE DISA LLOWANCE MADE SHOULD NOT EXCEED THE EXEMPT DIVIDEND INCOME OF RS. 33,445/-. 9. WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE. RECENTLY, MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DAGA GLOBAL CH EMICALS P. LTD. VS. DCIT VIDE ITS ORDER DATED 1.1.2015 PASSED IN ITA NO .5592/MUM/2012 HELD THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE. 8D CANNOT EXCEED THE EXEMPT INCOME. RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE ON ACCOUNT OF I NTEREST AND ADMINISTRATIVE EXPENSES TO RS.33,446/-. THUS, THE GROUNDS OF THE APPEAL OF THE ASSESSEE ARE PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON FRIDAY THE 13 TH FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- (MUKUL KR. SHRAWAT) JUDICIAL MEMBER ( N.S. SAINI) ACCOUNTANT MEMBER