M.PALLANJI CO. P.LTD, MUMBAI V. ADDL CIT RG 2(2), MUMBAI

ITA 1893/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79283 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 12-05-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 07-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEERAJA PRADHAN
• Assessee Lawyers: J D MISTRI NIRAJ SHETH
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A; 2

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ./I.T.A. NO. 1893/M/2011 ( AY: 2007 - 2008 ) M. PALLANJI CO P. LTD., 46/A, CAWASJI PATEL STREET, FORT, MUMBAI - 400001. / VS. ADDL CIT - RANGE 2(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. ./ PAN : AAACM3525B ( / APPELLANT) .. ( / RESPONDENT ) / A PPELLANT BY : SHRI J.D. MISTRI, NIRAJ SHETH / RESPONDENT BY : MRS. NEERAJA PRADHAN, DR / DATE OF HEARING :30 .6.2014 / DATE OF PRONOUNCEMENT :30 .6.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 7.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 5, MUMBAI DATED 16.12.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, THE ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1.1. THE CIT (A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO MAKE REASONABLE DISALLOWANCE U/S 14A OF THE ACT IN ACCORDANCE WITH THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT (2010) 234 CTR 1. 1.2. THE APPELLANT SUBMITS THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING ON THE SUBJECT THE APPELLANT HAVING SUO - MOTO DISALLOWED A SUM OF RS. 2,11,525/ - U/S 14A OF THE ACT, NO FURTHER DIRECT OR INDIRECT EXPENDITURE HAVING BEEN INCURRED BY IT TO EARN THE EXEMPT INCOME AND THE CIT (A) OUGHT TO HAVE HELD AS SUCH. 1.3. THE APPELLANT SUBMITS THAT THE AO BE DIRECTED TO DELETE THE ADDITIONAL DISALLOWANCE SO MADE BY HIM AND RECOMPUTED ITS TOTAL INCOME ACCORDINGLY. 2.1 THE CIT (A) HAS ER RED IN UPHOLDING THE ACTION OF THE AO OF ADDITION A SUMOF RS. 86,71,763/ - TO THE APPELLANTS TOTAL INCOME FOR THE YEAR UNDER CONSIDERATION BY ERRONEOUSLY APPLYING THE PROVISIONS OF SECTION 145A OF THE ACT. 2.2. THE APPELLANT SUBMITS THAT CONSIDERING THE FA CTS AND CIRCUMSTANCES OF ITS CASE AND THE LAW PREVAILING TO THE SUBJECT NO ADJUSTMENT / ADDITION WHATSOEVER IS CALLED FOR U/S 145A AND THE CIT (A) OUGHT TO HAVE HELD AS SUCH. 2.3. THE APPELLANT SUBMITS THAT THE AO BE DIRECTED TO DELETE THE ADDITION SO MADE BY HIM AND TO RECOMPUTE ITS TOTAL INCOME ACCORDINGLY. WITHOUT PREJUDICE TO THE FOREGOING: 2.4. THE CIT (A) HAS WHILE ACCEPTING THE APPELLANTS ALTERNATIVE CONTENTION OF ALLOWING THE SERVICE TAX LIABILITY AS AN EXPENSE IN TERMS OF SECTION 43B OF THE ACT E RRED IN STATING THAT NO DETAILS AND EVIDENCE WERE PRODUCED TO SHOW HOW MUCH OF THE SERVICE TAX LIABILITY HAD BEEN PAID IN TERMS OF SECTION 43B OF THE ACT. 2.5. THE APPELLANT SUBMITS THAT COMPLETE DETAILS OF THE AMOUNT OF SERVICE TAX PAID BY THE APPELLANT E VEN AFTER THE END OF THE RELEVANT PREVIOUS YEAR TILL THE DUE DATE OF FILING THE RETURN OF INCOME WERE FILED BY THE APPELLANTS AUTHORIZED REPRESENTATIVES BEFORE THE CIT (A) DURING THE COURSE OF APPELLANT HEARING ON 9 TH DECEMBER, 2010 AND THE OBSERVATION OF THE CIT (A) ARE WITHOUT ANY BASIS WHATSOEVER. 2.6. APPELLANT SUBMITS THAT THE AO BE DIRECTED TO APPLY THE PROVISIONS OF SECTION 43B OF THE ACT TO THE SERVICE TAX AND TO RECOMPUTE THE TOTAL INCOME ACCORDINGLY. 3. AT THE OUTSET, SHRI J.D. MISTRI, NIRAJ SHETH, LD COUNSELS FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE GROUNDS AND MENTIONED THAT GROUND NO.1 RELATES TO THE DISALLOWANCE U/S 14A R.W.R 8D AND GROUND NO.2 RELATES TO THE ADDITION MADE U/S 145A OF THE ACT . BRIEFLY STATED RELEVANT FACTS IN T HIS REGARD ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 51,54,75,956/ - . ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT DETERMINING THE TOTAL INCOME OF RS.53,58,76,910/ - . IN THE ASSESSMENT, AO MADE CERTAIN ADDITIONS I .E, (I) U/S 14A AN AMOUNT OF RS. 1,00,10,231/ - WAS DISALLOWED AND (II) AN ADDITION WAS MADE AMOUNTING TO RS. 86,71,763/ - U/S 145A OF THE ACT QUA THE SERVICE TAX RECEIPTS / PAYMENTS . AGGRIEVED WITH THE DECISION OF THE AO, ASSESSEE FIELD AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4. DURING T HE FIRST APPELLATE AUTHORITY, WITH REGARD TO DISALLOWANCE U/S 14A, IT WAS SUBMITTED BEFORE THE CIT (A) THAT THE ASSESSEE DECLARED DIVIDEND INCOME OF RS. 12,70,858/ - FROM INDIAN COMPANIES AND CLAIMED THIS INCOME EXEMPT U/S 10(34). FURTHER, INCOME OF RS. 3, 09,10,346 FROM MUTUAL FUNDS WAS ALSO CLAIMED EXEMPT U/S 10(35) OF THE ACT. IT WAS CONTENDED THAT THE SAID INCOME OF RS. 1,08,67,171/ - WAS GENERATED FROM THESE BONDS WHICH HAD BEEN CLAIMED EXEMPT U/S 10(15) OF THE ACT AND AN EXPENDITURE OF RS. 2,11,525/ - U /S 14A R.W. RULE 8D BEING EXPENSES FOR INVESTMENT IN SHARES, MANAGEMENT AND CONSULTANCY FEES AND PORTFOLIO MANAGEMENT SERVICES HAD BEEN SUO - MOTO DISALLOWED BY THE ASSESSEE. FOR THE SAID SUO - MOTO DISALLOWANCE OF RS. 2,11,525/ - ASSESSEE PLACED RELIANCE ON T HE JUDGMENT OF THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD VS. DCIT. CIT (A) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND DIRECTED THE AO TO WORK OUT THE DISALLOWANCE IN TERMS OF THE FORGOING DIRECTION OF THE HONBLE B OMBAY HIGH COURT. PARA 2.3 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD. AGGRIEVED, ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND NO.1. 5. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE REI TERATED THE SUBMISSIONS MADE BEFORE US THE LOWER AUTHORITIES AND ARGUED THAT THE SUO - MOTO DISALLOWANCE RS. 2,11,525/ - MADE BY THE ASSESSEE IS CORRECT AND NO FURTHER DISALLOWANCE IS CALLED FOR. 6. ON THE OTHER HAND, LD DR DUTIFULLY RELIED ON THE ORDER OF TH E AO. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES IN GENERAL AND PARA 2.3 OF THE CIT (A)S ORDER IN PARTICULAR. ON PERUSAL OF THE SAID PARA, WE FIND THE SAME IS RELEVANT HERE AND THE SAME READS AS UNDER: 2.3. I HAV E CONSIDERED THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. AS I FIND, THE ISSUES ARISING OUT OF APPLICATION OF SECTION 14A AND RULE 8D NOW STAND ELUCIDATED BY THE HONBLE BOMBAY HIGH COURT IN ITS DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO . LTD VS. DCIT . AS MAY BE NOTED, IN THIS DECISION, THE HONBLE BOMBAY HIGH COURT HAS SPECIFICALLY HELD THAT SUB - SECTION 2 & 3 OF 14A ARE CONSTITUTIONALLY VALID AND FURTHER THAT THE RULE 8D IS NOT ULTRA VIRES TO SECTION 14A . HOWEVER, IN THIS CONTEXT, THE FACT THE HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF RULE 8D SHALL APPLY W.E.F AY 2008 - 2009, PRIOR TO WHICH THE AO HAS TO ENFORCE THE PROVISIONS OF SECTION 14A(1) BY ADOPTING THE REASONABLE BASIS ON METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. IN THIS BACKDROP, I FIND THAT THE DISALLOWANCE U/S 14A IN THE APPELLANTS CASE BEING RELATABLE TO AY 2007 - 08 HAS TO BE WORKED OUT ON A R EASONABLE BASIS. RESPECTFULLY FOLLOWING THE DECISION, THE APPEAL BEING RELATED TO AY 2007 - 08 I.E., PRIOR TO AY 2008 - 2009, I DIRECT THE AO TO WORK OUT THE DISALLOWANCE IN TERMS OF THE FORGOING DIRECTIONS OF THE HONBLE BOMBAY HIGH COURT . 8. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE DIRECTION GIVEN BY THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 RAISED BY THE ASSESSEE IS DISMISSED. 9. REFERRING TO GROUND NO.2 RELATING TO THE ADDITION ON ACCOUNT OF SERVICE TAX BY APPLYING THE PROVIS IONS OF SECTION 145A OF THE ACT, LD COUNSEL MENTIONED THAT AN IDENTICAL ISSUE WAS DECIDED BY THE TRIBUNAL IN THE CASE OF M/S. KNIGHT FRANK (INDIA) PVT LTD VS. ADDL CIT VIDE ITA NO.2021/M/2011 (AY 2007 - 08), DATED 10.7.2013 (PARA 9 IS RELEVANT IN THIS REGARD) AND ALSO IN THE CASE OF PHARMA SEARCH VS. ACIT [2012] 53 SOT 1. 10. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 11. ON HEARING BOTH THE PARTIES AND ON PERUSA L OF THE SAID ORDER OF THE TRIBUNAL DATED 10.7.2013, WE FIND THE PARA 9 TO 11 ARE RELEVANT TO THE ISSUE UNDER CONSIDERATION AND THE SAME READ AS UNDER: 9. WE HAVE HEARD THE ARGUMENTS AND HAVE PERUSED THE ORDERS OF THE REVENUE AUTHORITIES. THE FACT IS THAT THE ASSESSEE IS A SERVICE PROVIDER COMPANY AND PATENTLY, PROVISIONS OF SECTION 145A CANNOT BE MADE APPLICABLE, BECAUSE THE PROVISION WAS SPECIFICALLY INTR ODUCED FOR THE PURPOSES OF MANUFACTURE SEGMENT OF BUSINESS BECAUSE SECTION 145A(A)(II) SUBMITTED BEFORE THE CIT (A) MENTIONS .BY THE ASSESSEE BEING GOODS TO BE PLACE OF LOCATION & CONDITIONS AS ON THE DATE OF VALUATION ARE REQUIRED TO BE INCLUDED. 10 . IN ANY CASE, THE ISSUE IS NOW COVERED BY THE DECISIONS RELIED UPON BY THE ASSESSEE. 11. RESPECTFULLY FOLLOWING THE DECISIONS, WE SET ASIDE THE ORDER OF THE CIT (A) AND DIRECT THE AO TO DELETE THE ADDITION . 12. CONSIDERING THE ABOVE SETTLED NATURE OF TH E ISSUE, WE ARE OF THE OPINION THAT THE DECISION TAKEN BY THE CIT (A) IS REQUIRED TO BE REVERSED. ACCORDINGLY, GROUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED. 13. ALL THE REMAINING GROUNDS RAISED BY ASSESSEE ARE EITHER CONSEQUENTIAL OR ACADEMIC AND NO SPECI FIC ADJUDICATION IS REQUIRED. CONSIDERING THE ACADEMIC NATURE OF THE REMAINING GROUNDS ARE DISMISSED AS ACADEMIC . 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE, 2014. SD/ - SD/ - (SANJAY GARG ) (D. KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 30/06/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI