ACIT, CHENNAI V. M/s. Integrated Enterprises Ltd., CHENNAI

ITA 1840/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61330 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Earning of tax free income; Retrospective amendment; Revenue expenditure
• Section: 14A; 10; 2

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 1840/MDS/2011 ASSESSMENT YEAR : 2006 07 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, III(3), NO. 121, UTHAMAR GANDHI SALAI, CHENNAI 600 034. VS. M/S. INTEGRATED ENTERPRISES LTD., NO. 5-A, KENCES TOWERS, NO. 1, RAMAKRISHNA STREET, T. NAGAR, CHENNAI 600 017. [PAN: AAACI1509F] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY : SHRI S. SRIDHAR, ADVOCATE DATE OF HEARING : 11.07.2012 DATE OF PRONOUNCEMENT : 20.07.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI D ATED 26.08.2011 IN ITA NO. 551/08-09/A.III FOR THE ASSESSMENT YEAR 2006-07 . SHRI SHAJI P. JACOB, ADDL. CIT REPRESENTED ON BEHALF OF THE REVENUE AND SHRI S. SRIDHAR, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN RESTR ICTING THE DISALLOWANCE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 18 88 84 44 40 00 0/M/ /M/ /M/ /M/11 1111 11 2 MADE UNDER SECTION 14A READ WITH RULE 8D TO 2% OF D IVIDEND INCOME EARNED BY THE ASSESSEE. 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT DISALLOWED ` .29,64,635/- TOWARDS EXPENDITURE ATTRIBUTABLE TO IN COME CLAIMED AS EXEMPT UNDER SECTION 10 OF THE ACT. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) RESTRICTED THE DISALLOWANCE TO ` .1,83,256/- BEING 2% OF INCOME OF ` .91,62,800/-, WHICH IS THE INCOME CLAIMED AS EXEMPT UNDER SECTION 10 OF TH E ACT. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 5. THE COUNSEL FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN MAKING DISALLOWANCE OF ` .29,64,635/- UNDER SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. 6. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE P ROVISIONS OF RULE 8D READ WITH SECTION 14A HAVE NO APPLICATION FOR THE A SSESSMENT YEAR 2006-07 IN VIEW OF THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. PVT. LTD. V. DCIT [328 ITR 1]. THE COUNSEL SUBMITS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) RIGHTLY RESTRICTED THE DISALLOWANCE TO 2% OF INCOME EXEMPT UNDER SECTION 10 OF THE ACT AND THEREFORE PLEADED FOR SUSTAINING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 18 88 84 44 40 00 0/M/ /M/ /M/ /M/11 1111 11 3 7. WE HAVE HEARD BOTH SIDES, PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. PVT. LTD. V. DCIT (SUPRA) HELD THAT THE PROVISIONS OF RULE 8D HAVE NO APPLICATION FOR THE A SSESSMENT YEAR 2006-07 AS THE SAID RULE HAS BEEN NOTIFIED WITH EFFECT FROM 24.03.2008 AND SHALL APPLY ONLY FROM THE ASSESSMENT YEAR 2008-09. THE CO MMISSIONER OF INCOME TAX (APPEALS), HOWEVER, CONSIDERING THE FACT THAT M ONITORING OF INVESTMENT AND TRADING OF SHARES, ETC. REQUIRES INVOLVEMENT OF SOME MANPOWER AND INVOLVEMENT OF TREASURY DEPARTMENT, ESTIMATED THE E XPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AT 2% OF SUCH EXEMPT IN COME. IN THE CASE OF M/S. SOWDAMBIKA FINANCE & INVESTMENTS PVT. LTD., IN I.T.A. NO. 2436/MDS/2006 FOR THE ASSESSMENT YEAR 2001-02 DATED 13.05.2008 AND IN I.T.A. NO. 884/MDS/2008 FOR THE ASSESSMENT YEAR 200 0-01 DATED 06.07.2012 AND IN THE CASE OF ACIT VS. INDIA NIPPON ELECTRICAL LTD. IN I.T.A. NO. 2022/MDS/11 FOR THE ASSESSMENT YEAR 2001-02 DATED 1 0.07.2012, THE COORDINATE BENCH OF THIS TRIBUNAL HELD AS UNDER: GROUND NO. 3 3.1. THE LEARNED CIT(A) ERRED IN HOLDING THAT 2% O F DIVIDEND INCOME OF RS.3,01,253, I.E. ` .6,024 IS THE REASONABLE EXPENDITURE ATTRIBUTABLE T O THE EARNING OF DIVIDEND INCOME AND ACCORDINGLY, ` .6,024 IS DISALLOWABLE U/S 14A OF THE INCOME TAX ACT. 3.2. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT WH EN THE ASSESSING OFFICER HAS HELD THAT THE ENTIRE EXPENDITURE IS REVENUE IN CHAR ACTER, THERE IS NO NEED FOR ESTIMATING ANY PERCENTAGE OF INCOME VIS-A-VIS DISAL LOWANCE AND THAT THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 18 88 84 44 40 00 0/M/ /M/ /M/ /M/11 1111 11 4 EXPENDITURE WAS NOT ALLOWED ONLY BECAUSE OF THE PRO VISIONS OF SECTION 14A READ WITH SECTION 10(33) OF THE I.T. ACT. 6. IN THIS GROUND, IT HAS BEEN CONTENDED ON BEHALF OF THE DEPARTMENT THAT THE CIT(A) ERRED IN HOLDING THAT 2% OF THE DIVIDEND INC OME OF ` .3,01,523 I.E. ` .6,024 WAS THE REASONABLE EXPENDITURE ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME U/S 14A OF THE ACT. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF MATERIAL ON RECORD AND THE PRECEDENT CITED. IT IS SEEN THAT THE CIT(A) HAS RESTRICTED THE DISALLOWANCE U/S 14A TO 2% OF THE DIVIDEND INCOME FOR THE REASON S GIVEN IN PARAGRAPH 4.2.1. OF HIS ORDER AS UNDER. '4.2.1. ------- THE APPELLANT'S CLAIM THAT NO PART OF THE EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOME IS ALSO NOT AC CEPTABLE. A PART OF THE TOTAL CLAIM OF REVENUE EXPENDITURE MUST HAVE BE EN EXPENDED BY THE APPELLANT IN THE COURSE OF EARNING OF DIVIDEND. THE HON'BLE ITAT, CHENNAI BENCH VIDE ITS ORDER DATED 30.09.2005 IN ITA NOS. 25(MDS)/1993 & 2020(MDS)/2000 HAS RECENTLY HELD IN THE CASE OF M/S. SUNDARAM FINANCE LTD. THAT 2% OF DIVIDEND INCOME CA N REASONABLY BE HELD TO BE ATTRIBUTABLE TO THE EARNING OF DIVIDEND. BY RESPECTFULLY FOLLOWING THE SAID JUDGMENT OF THE HON'BLE ITAT CHE NNAI BENCH, I HOLD THAT 2% OF THE DIVIDEND INCOME OF ` .3,0L,253, I.E., 6,024 IS THE REASONABLE EXPENDITURE ATTRIBUTABLE TO THE EARNING OF DIVIDEND INCOME BY THE APPELLANT COMPANY AND ACCORDINGLY THE SUM OF ` .6,024 IS DIRECTED TO BE DISALLOWED U/S 14A OF THE IT ACT. TH E BALANCE EXPENDITURE, I.E. ` .36,94,179 IS DIRECTED TO BE ALLOWED AS THE REVENUE EXPENSE, THUS THE GROUND OF APPEAL OF THE APPELLANT IN THIS REGARD SUCCEEDS PARTIALLY. 8. WE FIND THAT THE APPLICABILITY OF THE PROVISION S OF SECTION 14A, INTRODUCED WITH RETROSPECTIVE EFFECT FROM 01.04.1962, WAS DISC USSED IN GREAT DETAIL BY THE ITAT DELHI IN THE CASE OF ACIT V EICHER LTD. (2006) 101 TTJ (DEL) 369. THE TRIBUNAL REFERRED TO AND DISCUSSED JUDGMENTS OF VARIOUS HIGH COURTS IN THE FOLLOWING CASES. I) CIT V. NATIONAL AND GRINDLAYS BANK LTD. [1993] 202 ITR 559 (CAL.) II) CIT V. UNITED COLLIERIES LTD. [1993]203 ITR 85 7 (CAL.) III) CIT V. ENEMOUR INVESTMENTS LTD. [1994] 72 TAX MAN 370 (CAL.) IV) STATE BANK OF INDORE V. CIT (2005) 193 CTR (MP ) 62 V) MARULI UDYOG LTD. V. DCIT (2005) 92 ITD 119 (DE LHI) 9. THE LEGAL POSITION THAT EMERGES FROM THE ORDER OF THE TRIBUNAL IN THE CASE OF EICHER LTD. (SUPRA) IS THAT SECTION 14A CON FERS POWERS / AUTHORITY UPON THE AO TO DISALLOW SUCH EXPENDITURE AS SATISFI ES THE REQUIREMENTS OF THE SECTION, THAT THE LANGUAGE EMPLOYED IN SECTION 14A IS VERY WIDE TO INCLUDE EVERY EXPENDITURE IRRESPECTIVE OF THE HEAD UNDER WH ICH IT IS CLAIMED. THAT THE SECTION DOES NOT RELIEVE THE AO OF THE BURDEN OF PR OVING, ON THE BASIS OF I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 18 88 84 44 40 00 0/M/ /M/ /M/ /M/11 1111 11 5 EVIDENCE OR MATERIAL ON RECORD, THAT THE ASSESSEE H AD IN FACT INCURRED EXPENDITURE WHICH HAD RELATION TO THE EXEMPTED INCO ME, THAT THE ONUS IS ON THE AO TO PROVE THAT THE EXPENDITURE INCURRED BY TH E ASSESSEE RELATED TO THE EXEMPTED INCOME, THAT THE AO CANNOT ESTIMATE AND DI SALLOW ANY NOTIONAL, OR AD HOC EXPENDITURE TO REDUCE THE EXEMPTED INCOME, T HAT ONLY THE ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING THE EXEMPTED INCOME CAN BE DISALLOWED BY THE AO U/S 14A. 10. IN THE PRESENT CASE THERE IS NO EVIDENCE OR MA TERIAL ON RECORD TO SUPPORT THE DISALLOWANCE MADE BY THE AO. THEREFORE, THE ORDER OF THE CIT(A) RESTRICT ING THE DISALLOWANCE U/S 14A TO 2%, ON ESTIMATE BASIS, COUL D NOT BE FOUND FAULT WITH. THE GROUND NO. 3 IS ACCORDINGLY REJECTED. 08. RESPECTFULLY FOLLOWING THE ORDER OF COORDINATE BENCH OF THIS TRIBUNAL IN I.T.A. NO. 2436/MDS/2006 DATED 13.05.2008 AND IN I. T.A. NO. 884/MDS/2008 DATED 06.07.2012 AS WELL AS IN THE CASE OF ACIT VS. INDIA NIPPON ELECTRICAL LTD. IN I.T.A. NO. 2022/MDS/11 (SUPRA), WE UPHOLD T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14A TO 2% OF THE EXEMPT INCOME. THE GROUNDS OF APPEAL OF THE REVENUE ARE DISMISSED. 09. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF JULY, 2012 AT CHENNAI. SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 20.07.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.