NANAVATI SONS P.LTD, MUMBAI V. DCIT (OSD) 2(2), MUMBAI

ITA 1800/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 101030 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 23-07-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S SENT H IL KUMARAN
• Assessee Lawyers: PANKAJ JAIN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

NAVAVATI SONS PRIVATE LIMITED ITA NO. 1800 /MUM/20 1 1 NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED I TA NO. 1803/MUM/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI ASHWANI TANEJA , ACCOUNTANT MEMBER ITA NO. : 1800 /MUM/20 1 1 ( ASSESSMENT YEAR: 200 7 - 0 8 ) NAVAVATI S ONS PRIVATE LIMITED, 6 TH FLOOR, NANAVATI MAHALAYA, 18, HOMI MODY STREET, FORT, MUMBAI - 400 023 .: PAN: AA BCN 0966 E VS DCIT OSD - 2(2), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 02 3 (APPELLANT) (RESPONDENT) APPELLANT BY : M R PANKAJ JAIN RESPONDENT BY : MR. S SENTHIL KUMARAN ITA NO. : 1803 /MUM/20 11 ( ASSESSMENT YEAR: 2007 - 08 ) NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED, 18, HOMI MODY STREET, FORT, MUMBAI - 400 020 .: PAN : AAACN 3541 Q VS ITO - 2(2)(3), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 023 (APPELLANT) (RESPONDENT) APPELLANT BY : M R PANKAJ JAIN RESPONDENT BY : MR. S SENTHIL KUMARAN /DAT E OF HEARING : 09 - 0 9 - 201 5 / DATE OF PRONOUNCEMENT : 11 - 09 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE AFORESAID APPEAL FILED BY THE TWO DIFFERENT ASSESSEES AGAINST SEPARATE IMPUGNED ORDERS OF EVEN DATE , THAT IS , 14.01.2011, PASSED BY CIT(A) - 5, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3). SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEALS, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. NAVAVATI SONS PRIVATE LIMITED ITA NO. 1800 /MUM/20 1 1 NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED I TA NO. 1803/MUM/2011 2 2. FIRST, WE WILL T AKE ITA NO. 1800/MUM/ 2011 VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED : - THE COMMISSIONER OF INCOME TAX (APPEALS) - 5, MUMBAI [HEREINAFTER REFERRED TO CIT(A)] ERRED IN DIRECTING THE DEPUTY COMMISSIONER OF INCOME TAX OSD 2(2), MUMBAI (HE REINAFTER REFERRED TO AS DCIT) TO RE - COMPUTE THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT IN ACCORDANCE WITH THE DECISION OF THE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT (234 CTR 1) THE APPELLANTS SUBMIT THAT THE PROVISIO NS OF SECTION 14A ARE NOT APPLICABLE TO THE ABOVE YEAR AND PRAY THAT THE DISALLOWANCE, IF ANY MADE UNDER THE SECTION BE DELETED. 3. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MERCHANT EXPORT OF CHEMICALS IN INTERNATIONAL MARK ET. DURING THE YEAR, THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 72,83,734/ - WHICH WAS CLAIMED AS EXEMPT. THE LD. ASSESSING OFFICER HELD THAT IN VIEW OF THE ITAT SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD., DISALLOWANCE HAS T O BE MADE UNDER RULE 8D EVEN FOR ASSESSMENT YEAR S PRIOR TO 2008 - 09 AND ACCORDINGLY , HE COMPUTED THE DISALLOWANCE AT RS. 27,98,986/ - . 4. IN THE FIRST APPEAL T HE LD. CIT(A) HELD THAT SINCE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LT D. VS DCIT , ( REPORTED IN 328 ITR 81 ) HAS HELD THAT RULE 8D WILL APPLY W.E.F. 2008 - 09 AND NOT FOR THE EARLIER ASSESSMENT YEAR , THEREFORE, SAME CANNOT BE HELD APPLICABLE AND SOME REASONABLE BASIS SHOULD BE WORKED OUT. ACCORDINGLY, HE DIRECTED THE ASSESSING O FFICER TO WORK OUT THE DISALLOWANCE BY ADOPTING SOME REASONABLE BASIS. 5. BEFORE US, THE LD. COUNSEL SUBMITTED THAT ASSESSEE HAD GIVEN A WORKING FOR DISALLOWANCE U/S 14A AT RS. 7,64,615/ - WHICH IS MOST APPROPRIATE WORKING , EVEN IF ONE GOES BY THE FORMULA LAID DOWN IN RULE 8D. SUCH A WORKING HAS BEEN GIVEN BEFORE US IN THE PAPER BOOK AT PAGE 1 & 2. ACCORDINGLY, HE SUBMITTED THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE AT RS. 7,64,615/ - SHOULD BE ACCEPTED TO BE A REASONABLE BASIS . NAVAVATI SONS PRIVATE LIMITED ITA NO. 1800 /MUM/20 1 1 NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED I TA NO. 1803/MUM/2011 3 6. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE LD. CIT(A) HAS ALREADY DIRECTED THE ASSESSING OFFICER TO WORK OUT THE REASONABLE BASIS AND THEREFORE, NO INTERFERENCE IS CALLED FOR. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT LD. CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE ON SOME REASONABLE BASIS , S INCE RULE 8D IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. BEFORE US, THE LD. COUNSEL HAS GIVEN A WORKING OF DISALLOWANCE U/S 14A WHICH AS PER HIM IS T HE CORRECT WORKING AS PER RULE 8D . HE AGREED THAT SUCH A FORMULA CANNOT BE HELD APPLICABLE FOR AY 2007 - 08, BUT IT IS MOST APPROPRIATE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. MOREOVER, WHAT THE ASSESSEE HAS OFFERED FOR DISALLOWANCE U/S 14A AT RS. 7,6 4,615/ - , IS MORE THAN 10% OF THE EXEMPT INCOME. UNDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE AT RS. 7,64,615/ - CAN BE SAID TO BE A REASONABLE BASIS FOR ALLOCATING THE EXPENSES FOR EARNING OF EXEMP T INCOME. ACCORDINGLY, THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO RS. 7,64,615/ - . 8 . IN THE RESULT, APPEAL OF THE ASSES S EE IS TREATED AS PARTLY ALLOWED. 9 . IN ITA NO. 1803 OF 2011, THE ASSES S EE HAS CHALLENGED THE SIMILAR DISALLOWANCE U/S 14A MADE B Y THE ASSESSING OFFICER. 1 0 . IN THIS CASE, THE ASSESSEE HAS SHOWN EXEMPT INCOME OF RS. 1,85,077/ - WHICH CONSISTS OF FOLLOWING INCOME : DIVIDEND - RS. 36,571/ - SHARE OF PROFIT FROM FIRM - RS. 77,486/ - LONG - TERM - CAPITAL - GAIN ON SALE OF SHARES - R S. 71,020/ - - RS.1,85,075/ - NAVAVATI SONS PRIVATE LIMITED ITA NO. 1800 /MUM/20 1 1 NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED I TA NO. 1803/MUM/2011 4 1 1 . BEFORE THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE INCURRED FOR EARNING OF TH ESE INCOME WA S RS. 15,000/ - ONLY AS PER THE DETAILS GIVEN AS PER PAGE 2 OF THE ASSESSMENT ORDER. HOWEVER, THE ASSES SING OFFICER MADE THE DISALLOWANCE OF RS. 4,79,385/ - IN ACCORDANCE WITH THE RULE 8D. THE LD. CIT(A) HOWEVER DIRECTED THE ASSESSING OFFICER TO ADOPTED SOME REASONABLE BASIS FOR DISALLOWANCE, BECAUSE RULE 8D CANNOT BE HELD TO BE APPLICABLE FOR THE AY 2007 - 0 8 IN VIEW OF THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA ). 1 2 . BEFORE US, LD. COUNSEL SUBMITTED THAT HERE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS FAR MORE THAN EXEMPT INCOME ITSELF . T HEREFORE, HE AD MITTED THAT IF ANY DISALLOWANCE IS REQUIRED TO BE MADE , THEN SAME SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME ONLY. 1 3 . IN VIEW OF THE AFORESAID ADMISSION BY THE LD. COUNSEL THAT DISALLOWANCE U/S 14A SHOULD BE LIMITED TO EXEMPT INCOME EARNED, THER EFORE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME WHICH IS R S. 1,85,077/ - FOR THE REASON THAT PRIOR TO APPLICABILITY OF RULE 8D, THE DISALLOWANCE HAS TO B E MADE ON SOME REASONABLE BASIS. HERE, THE LD . COUNSEL HIMSELF HAS OFFERED FOR DISALLOWANCE OF EXPENSES TO THE EXTENT OF EXEMPT INCOME, WHICH IS UPHELD. ACCORDINGLY, THE APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 1 4 . IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH SEPTEMBER , 2015. SD/ - SD/ - ( ASHWANI TANEJA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 11 TH SEPTEMBER , 2015 NAVAVATI SONS PRIVATE LIMITED ITA NO. 1800 /MUM/20 1 1 NAVAVATI SPECIALITY CHEMICALS PRIVATE LIMITED I TA NO. 1803/MUM/2011 5 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 5 , MUMBAI. 4 ) THE CIT 2 , MUMBAI. 5 ) , , / THE D.R. G BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS