PARLE BISCUIT PRIVATE LIMITED, MUMBAI V. ASST. C.I.T.CENTRAL CIRCLE - 25, MUMBAI

ITA 1785/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5888 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: MADHAV KHANDELWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI R.C SHARMA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1785/MUM/2011 ASSESSMENT YEAR: 2007-08 PARLE BISCUITS PVT. LTD. NORTH LEVEL CROSSING, VILE PARLE (EAST) MUMBAI- 400 057 VS. ACIT CENTRAL CIR-25 MUMBAI. (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAACP 0485 D ASSESSEE BY : SHRI GIRISH DAVE & MADHAV KHANDELWAL REVENUE BY : SHRI O.P. SINGH DATE OF HEARING : 11.03.2014 DATE OF PRONOUNCEMENT : 26.03.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-20, MUMBAI DATED 06.01.2011 FOR THE ASSES SMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS AGITATED THE AC TION OF THE LD.CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.1,45,52,278/- MAD E BY THE AO U/S 14A OF THE INCOME-TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES. 3. BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF BISCUITS ETC., DURING THE YEAR UND ER CONSIDERATION EARNED INTEREST INCOME OF RS.13,25,76,769/- AND DIVIDEND OF RS.5,86 ,05,674/- WHICH WERE CLAIMED EXEMPT U/S 10(15)(IV)(H) AND 10(34) OF THE ACT RESP ECTIVELY. THE ASSESSEE, DURING THE YEAR, APPOINTED PORTFOLIO MANAGEMENT FOR MANAGI NG INVESTMENT OF THE COMPANY ITA NO. 1785/MUM/2011 PARLE BISCUITS PVT. LTD. ASSESSMENT YEAR: 2007-08 2 AND AN AMOUNT OF RS.7994781 WAS PAID FOR THE SERVIC ES RECEIVED FROM THEM. THE ASSESSEE HAD MADE A SELF DISALLOWANCE OF THE SAME W HILE COMPUTING THE TOTAL TAXABLE INCOME. HOWEVER, IN THE ASSESSMENT FRAMED, THE AO BY APPLYING SECTION 14A READ WITH RULE 8D DETERMINED A SUM OF RS.2,25,47,05 9 AS EXPENDITURE ATTRIBUTABLE TO EARNING EXEMPT INCOME. ACCORDINGLY, THE AO ADJUS TED A SUM OF RS.79,94,781 WHICH WAS ALREADY DISALLOWED IN STATEMENT OF COMPUT ATION AND THEREBY ADDED THE BALANCE SUM OF RS.1,45,52,278/- TO THE INCOME OF TH E ASSESSEE. ON APPEAL, THE LD.CIT(A) WHILE STATING THAT THE AO WAS WELL WITHIN HIS RIGHT TO MAKE A REASONABLE ESTIMATE OR SUCH EXPENDITURE, KEEPING IN VIEW THE M ETHOD PRESCRIBED UNDER RULE 8D, CONFIRMED THE ADDITION MADE BY THE AO EVEN THOUGH T HE SAID RULE WAS NOT APPLICABLE TO THE CURRENT YEAR. AGGRIEVED BY THE IMPUGNED ORDE R, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ASSESSEE HAS APPOINTED PORTFOLIO MANAGEMENT FOR MAN AGING INVESTMENT OF THE COMPANY AND AN AMOUNT OF RS.79,94,781/-, BEING THE EXPENSES INCURRED BY THE ASSESSEE, HAS ALREADY BEEN DISALLOWED WHILE COMPUTI NG THE TOTAL TAXABLE INCOME. DIVIDEND/INTEREST INCOME FROM THE SCRIPS HAS DIRECT LY BEEN CREDITED TO THE BANK ACCOUNT OF THE ASSESSEE AND THEREFORE, NO EXPENDITU RE OTHER THAN THE EXPENDITURE IN THE NATURE OF PORTFOLIO MANAGEMENT SERVICES FEES CA N BE ATTRIBUTABLE TO TAX FREE INCOME. FURTHER, NO DISALLOWANCE CAN BE MADE ON EST IMATED BASIS AS PER RULE 8D READ WITH SECTION 14A OF THE INCOME-TAX ACT IN THE FACTS AND CIRCUMSTANCES. IN ADDITION TO THE SAID CONTENTION, THE LD.COUNSEL HAS RELIED ON THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE IN ITA NO. 8199 MUM/2011 FOR THE A.Y. 2008-09 WHEREIN THE DISALLOWANCE HAS BEEN RESTRICTED BY THE TRIBUNAL TO RS. 1 LAKH AGAINST THE DISALLOWANCE OF RS.1,31,92,683/- CONFIRMED/MADE BY THE LD.CIT(A)/AO. ON THE OTHER HAND, THE LD.DR HAS DRAWN OUR ATTENTION TO TH E PROVISIONS OF SECTION 14A (2) TO SUBSTANTIATE THAT RULE 8D HAS BEEN INSERTED W.E. F. MARCH, 2008 AND THE SAID FORMULA CAN BE APPLIED FOR THE A.Y. 2007-08 IN VIEW OF SECTION 14A (2) OF THE ACT. THEREFORE, LD.DR PRAYED THAT THE ORDER OF THE LD.CI T(A) IS JUSTIFIED. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THE QUESTION OF MAKING DIS ALLOWANCE U/S 14A IS NO MORE RES ITA NO. 1785/MUM/2011 PARLE BISCUITS PVT. LTD. ASSESSMENT YEAR: 2007-08 3 INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010) 328 I TR 81 (BOM)] HOLDING THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN CIR CUMSTANCES AS ARE PREVAILING PRESENTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND NOT RULE 8D IN SO FAR AS THE ASSESSMENT YEARS PRIOR TO 2008-09 ARE CONCERNED. PRESENTLY, WE ARE DEALING WITH THE A.Y. 2007-08. IN SUCH YEAR, OBVIOUSLY RULE 8D CANNOT BE APPLIED, BUT THE DISALLOWANCE IS REQUIRED TO BE WORKED OUT ON SOME REASONABLE BASIS. AS THE AUTHORITIES BELOW HAV E COMPUTED THE DISALLOWABLE AMOUNT AS PER RULE 8D, SUCH COMPUTATION CANNOT BE U PHELD. UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE, AS PER THE AFORE-NOTED JUDGMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MARCH, 2014. SD/- SD/- (R.C. SHARMA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 26.03.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.