MUKUND LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 1882/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79187 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 08-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: KIRIT R KAMDAR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , ! BEFORE SHRI SANJAY ARORA, AM AND DR. S. T. M. PAVA LAN, JM ' # I.T.A. NO. 1882/MUM/2013 ( / ASSESSMENT YEAR: 2008-09) MUKAND LIMITED BAJAJ BHAVAN, 3 RD FLOOR, 226 NARIMAN POINT, MUMBAI-400 021 # VS. DY. CIT-3(2), AAYKAR BHAVAN, M. K. ROAD, NEW MARINE LINES, MUMBAI-400 020 $ #'%' ./PAN/GIR NO. AAACM 5008 R ( $& /APPELLANT ) : ( '($& / RESPONDENT ) $&)* / APPELLANT BY : SHRI KIRIT R. KAMDAR '($&)* / RESPONDENT BY : SHRI PITAMBAR DAS + ,)- / DATE OF HEARING : 10.06.2014 DATE OF ORDER : 17.06.2014 '.# O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI (CIT(A) FOR SHO RT) DATED 06.12.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2008-09 VIDE ORDER DATED 28.12.2011. 2 ITA NO. 1882/MUM/2013 (A.Y. 2008-09) MUKAND LTD. VS. DY. CIT 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE DISALLOWANCE U/S.14A, EFFECTED BY THE REVENUE AT RS. 30,65,140/-, FOLLOWING THE PR ESCRIPTION OF RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES HEREINAFTER), AS AGAIN ST RS.18,696/- DISALLOWED SUO MOTU BY THE ASSESSEE, I.E., IN RESPECT OF DIVIDEND INCOME O F RS.12,46,419/- ARISING TO IT FOR THE RELEVANT YEAR, SO THAT THE DIFFERENCE OF RS.30,46,4 44/- IS THE SUBJECT MATTER OF DISPUTE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 WHILE THE BASIS OF THE ASSESSEES DISALLOWANCE IS 1.5% OF THE DIVIDEND INCOME, I.E., AS IN THE PAST, THAT OF THE REVENUE IS RULE 8D, MAN DATORY FROM CURRENT YEAR ONWARDS. THE ASSESSEE OBJECTS TO THE SAME ON THE GROUND THAT ALM OST THE ENTIRE INVESTMENT (ABOUT 97%) IN SHARES IS IN THE SUBSIDIARY AND GROUP COMPANIES, SO THAT THE INVESTMENT DECISION IN ITS RESPECT IS ALMOST AUTOMATIC OR AS A MATTER OF COURS E, NOT INVOLVING ANY INVESTMENT ANALYSIS, RESEARCH AND STUDY OF THE MARKET, AS WOUL D NORMALLY PRECEDE AN INVESTMENT DECISION IN AN UNRELATED PARTY SECURITY, ENTAILING THUS A MUCH LOWER LEVEL OF INDIRECT EXPENDITURE. THERE IS ALSO NO OCCASION TO INFER INV ESTMENT OF BORROWED FUNDS INASMUCH AS THE SAME IS WITH A VIEW TO BUILD UP CAPITAL (OF THE GROUP COMPANY) WITH THE AVAILABLE FREE RESERVES OF THE INVESTING COMPANY. FURTHER, THE REV ENUE HAS ALSO NOT FOLLOWED THE PROCEDURE AS PRESCRIBED U/S. 14A(2). 3.2 IN OUR VIEW, THERE IS SOME MERIT IN THE CASE OF BOTH THE PARTIES BEFORE US. EXPENDITURE HAS NO DIRECT RELATIONSHIP WITH THE INC OME THAT MAY ARISE ON ITS INCURRING OR FROM INVESTMENT, SO THAT ESTIMATING THE EXPENDITURE THAT STANDS INCURRED IN RELATION THERETO WITH REFERENCE TO INCOME ARISING THERE-FROM IS WITHOUT BASIS, BOTH ON FACTS AS WELL AS IN LAW, EVEN AS OBSERVED BY US DURING HEARING. R EFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISIONS INTER ALIA IN THE CASE OF CIT VS . RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC); AND CHEMINVEST LTD. VS. ITO [2009] 121 ITD 318 (DEL) (SB). FURTHER, THE INITIAL ONUS TO DEMONSTRATE, AND WITH REFERENCE TO ITS ACCOUNTS, THAT NO EXPENDITURE OR A LOWER EXPENDITURE (THAN THAT STANDS TO BE STATUTORI LY ESTIMATED PER RULE 8D) HAS IN FACT BEEN INCURRED, WOULD ONLY BE ON THE ASSESSEE. IT IS ONLY WHEN THE ASSESSEE FAILS TO DO SO THAT THE A.O. IS ENABLED TO PROCEED TO EFFECT A DIS ALLOWANCE U/S.14A, WHICH, IT NEEDS TO BE 3 ITA NO. 1882/MUM/2013 (A.Y. 2008-09) MUKAND LTD. VS. DY. CIT APPRECIATED, IS A STATUTORY DISALLOWANCE, IN TERMS OF R.8D. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM), BESIDES BY THE TRIBUNAL, AS IN TH E CASE OF AFL P. LTD. VS. ASST. CIT [2013] 28 ITR (TRIB) 263 (MUM) AND KUNAL CORPORATION VS. ASST. CIT [2013] 28 ITR (TRIB) 277 (MUM). AT THE SAME TIME, THE REVENUE ALS O MUST BEAR IN MIND THAT THE DISALLOWANCE U/S.14A IS ONLY OF THE EXPENDITURE ACT UALLY INCURRED, SO THAT THE ASSESSEES CLAIM OF HAVING IN FACT NOT INCURRED ANY EXPENDITUR E OR A LOWER EXPENDITURE WOULD NEED TO BE EXAMINED ON MERITS, AND THE ESTIMATION PER RU LE 8D MADE, HAVING REGARD TO THE COMMON EXPENDITURE ACTUALLY INCURRED, I.E., ON ACTIVITIES YIELDING TAXABLE INC OME AND INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WHICH WOULD THEREFORE NEED TO BE APPORTIONED, AND TOWARD WHICH R. 8D STANDS PRESCRIBED BY LAW. FOR EXAMPLE, THE ENTIRE INTEREST EXPENDITURE HAS BEEN T REATED AS INDIRECT, WHICH IS IMPROBABLE INASMUCH AS BUSINESSES NORMALLY HAVE DEDICATED FINA NCING FOR DIFFERENT ACTIVITIES/ASSETS, SO THAT, WHERE SO, AN INFERENCE TO THE CONTRARY MUS T BE PRECEDED BY SOME FINDING OF FACT. 3.3 THE MATTER, WE MAY EMPHASIZE, IS PRIMARILY FACT UAL, AND WOULD STAND TO BE FACTUALLY DETERMINED; THE LAW IN THE MATTER HAVING BEEN EXPLICITLY EXPLAINED BY A HOST OF DECISIONS BY THE HONBLE HIGH COURTS, LEADING BEING GODREJ & BOYCE MFG. CO. LTD. (SUPRA), AND FOLLOWING IT, BY THE TRIBUNAL CITED SU PRA (ALSO REFER: DY. CIT V. DAMANI ESTATES & FINANCE (P.) LTD . [2013] 25 ITR (TRIB) 683 (MUM)). UNDER THE CIRCUM STANCES, WE ONLY CONSIDER IT FIT AND PROPER THAT THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O. TO DETERMINE THE ISSUE AFRESH IN ACCORDANCE WITH THE L AW PER A SPEAKING ORDER AND WHICH IS ALSO THE IMPORT OF S. 14A(2), TO WHICH THE ASSESSEE ADVERTS, AFTER ALLOWING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE IN THE MATTER. THE APPREHENSION EXPRESSED BY THE LD. AUTHORIZED REPRESENTATIVE (AR) DURING HE ARING THAT THE DISALLOWANCE IN THE SET ASIDE PROCEEDINGS MAY NOT EXCEED THAT EFFECTED IN T HE FIRST INSTANCE IS MISPLACED IN-AS- MUCH AS THE REVENUE HAS ONLY APPLIED RULE 8D; HAVIN G IN FACT NOT MADE ANY DISALLOWANCE QUA DIRECT EXPENDITURE, SO THAT THE DISALLOWANCE, BEIN G STATUTORILY MANDATED AT THE PRESCRIBED LEVEL, CANNOT EXCEED THE SAME. WE DECIDE ACCORDINGLY. 4 ITA NO. 1882/MUM/2013 (A.Y. 2008-09) MUKAND LTD. VS. DY. CIT 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. /0 -12 3/-) 4)5678 9 -) -:;! ORDER PRONOUNCED IN THE OPEN COURT ON JUNE 10, 2014 AT THE CONCLUSION OF THE HEARING ITSELF. SD/- SD/- (DR. S. T. M. PAVALAN) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER + <, MUMBAI; = DATED : 17.06.2014 # ROSHANI , SR. PS ! ' #$%& ' &$ # COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT 3. '' + >- ? @ / THE CIT(A) 4. '' + >- / CIT - CONCERNED 5. AB C'-D2 ' D20 + <, / DR, ITAT, MUMBAI 6. C 3E , # GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , + <, / ITAT, MUMBAI