Appeal details
Counselvise Citation
191819914 RSA 2011
Assessee PAN
Bench
Appeal Number
Duration Of Justice
3 year(s) 6 month(s) 11 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
18-09-2014
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
G
Next Hearing Date
18-09-2014
Assessment Year
2006-2007
Appeal Filed On
08-03-2011
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO. 1775 & 1776/MUM/2011 (ASSESSMENT YEARS: 2006-07 & 2007-08) ACIT, CIRCLE 6(1) VS. BRAHMDEV HOLDING & TRADING LTD. ROOM NO. 406, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 403/A, STEEL CHAMBER BROACH STREET, MASJID BUNDER MUMBAI 400009 PAN - AAACB1648L APPELLANT RESPONDENT ITA NO. 1918 & 1919/MUM/2011 (ASSESSMENT YEARS: 2006-07 & 2007-08) BRAHMDEV HOLDING & TRADING LTD. VS. ITO/ACIT - 6(1) 403/A, STEEL CHAMBER BROACH STREET, MASJID BUNDER MUMBAI 400009 ROOM NO. 406, 5TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400020 PAN - AAACB1648L APPELLANT RESPONDENT REVENUE BY: SHRI N. PADMANABAN ASSESSEE BY: SHRI NISHIT GANDHI DATE OF HEARING: 18.09.2014 DATE OF PRONOUNCEMENT: 18.09.2014 O R D E R PER D. MANMOHAN, V.P. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDERS DATED 21.12.2010 PASSED BY THE CIT(A)-14, MUMBAI AND THEY PERTAIN TO ASSESSMENT YEARS 2006-07 AND 2007-08. THE ISSUE INVOLVED IN ALL THES E APPEALS BEING COMMON, WE PROCEED TO DISPOSE OF THESE APPEALS BY A COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ONLY GROUND URGED BY REVENUE IN THEIR APPEALS R EADS AS UNDER: - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE U/S 14A ON A REASONABLE BASIS RELYING ON THE ITA NO. 1775,1776,1918&1919/MUM/2011 BRAHMDEV HOLDING & TRADING LTD. 2 JUDGEMENT OF BOMBAY HIGH COURT IN THE CASE OF GODRE J & BOYCE MFG. LTD. WITHOUT APPRECIATING THE FACT THAT THE JU DGMENT OF BOMBAY HIGH COURT HAS NOT BEEN ACCEPTED BY THE REVE NUE AND SLP HAS BEEN PROPOSED. IN THE APPEALS FILED BY THE ASSESSEE IT WAS CONTEND ED THAT THE CIT(A) ERRED IN DIRECTING THE AO TO RECOMPUTE THE DISALLOWANCE UNDE R SECTION 14A AND HE FAILED TO APPRECIATE THAT NO EXPENDITURE WAS INCURR ED TOWARDS EARNING OF DIVIDEND INCOME AND HENCE THE ASSESSEE DOES NOT FAL L WITHIN THE PURVIEW OF SECTION 14A. 3. IT DESERVES TO BE NOTICED THAT THE ASSESSEE IS ENGA GED IN THE BUSINESS OF FINANCE, INVESTMENT IN SHARES AND UNDERTAKING JO B WORK. DURING THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS UND ER CONSIDERATION ASSESSEE DECLARED INCOME TAX REFUND, DIVIDEND, INTE REST FROM LOANS, LABOUR HIRE CHARGES, ETC. THOUGH THE ASSESSEE EARNED EXEMP T INCOME COMPRISING OF DIVIDEND AND SALE OF INVESTMENTS, NO EXPENDITURE HA S BEEN APPORTIONED TOWARDS EXEMPT INCOME IN THE RETURN FILED FOR AY 20 06-07. SIMILARLY, FOR AY 2007-08 ASSESSEE EARNED EXEMPT INCOME BUT NO EXPEND ITURE WAS CLAIMED FOR EARNING SUCH EXEMPT INCOME. WHEN CALLED UPON TO EXP LAIN, IT WAS SUBMITTED THAT THE ASSESSEE INVESTED IN SHARES WITH AN INTENT ION TO RETAIN CONTROLLING INTEREST AND NOT TO EARN DIVIDEND AND NONE OF THE E XPENDITURE INCURRED BY THE COMPANY IS IN RELATION TO EARNING DIVIDEND INCO ME. 4. THE AO REJECTED THE CONTENTION OF THE ASSESSEE. HE EXAMINED THE OPENING AND CLOSING BALANCE OF INVESTMENT, DIVIDEND EARNED AND EXPENDITURE INCURRED IN THE FORM OF INTEREST PAID ON LOANS TAKE N, ETC. TO COME TO THE CONCLUSION THAT THOUGH THE ASSESSEE HAS SHARE CAPIT AL, RESERVES AND SURPLUS, THE FUNDS APPLIED TOWARDS INVESTMENTS, LOA NS AND ADVANCES IS NOT DETERMINATE. IN OTHER WORDS, THE FUNDS ARE MIXED UP AND HENCE IT CANNOT BE SAID THAT INVESTMENTS ARE FULLY MADE OUT OF OWN CAP ITAL. IN THE ABSENCE OF NEXUS BETWEEN THE BORROWED FUNDS AND OWN CAPITAL, P ROVISIONS OF SECTION 14A COME INTO PLAY. HE ALSO OBSERVED THAT RULE 8D I S APPLICABLE FROM 2008. SINCE IT PROVIDES FOR A MECHANISM FOR WORKING OUT T HE DISALLOWANCE UNDER SECTION 14A, THE RULE CAN BE MADE APPLICABLE RETROS PECTIVELY. IN THIS REGARD ITA NO. 1775,1776,1918&1919/MUM/2011 BRAHMDEV HOLDING & TRADING LTD. 3 THE AO APPLIED THE DECISION OF THE ITAT SPECIAL BEN CH IN THE CASE OF ITO V/S DAGA CAPITAL MANAGEMENT P. LTD. (2008) 119 TTJ (MUM .) 289 (SB). 5. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE CIT(A) THA T THE ENTIRE BUSINESS EXPENDITURE WAS INCURRED IN THE NORMAL COU RSE OF BUSINESS AND NO EXPENDITURE CAN BE SAID TO HAVE ANY DIRECT OR INDIR ECT CONNECTION WITH THE INCOME EARNED BY THE ASSESSEE AND CLAIMED AS EXEMPT . DURING THE COURSE OF HEARING IT WAS BROUGHT TO THE NOTICE OF THE CIT(A) THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. REVERSED THE DECISION OF THE ITAT SPECIAL BENCH, MU MBAI BY HOLDING THAT RULE 8D IS PROSPECTIVE IN NATURE. IT WAS ALSO SUBMI TTED THAT SECTION 14A IS NOT APPLICABLE SINCE NO EXPENDITURE WAS INCURRED DU RING THE YEAR UNDER CONSIDERATION, FOR EARNING TAX FREE INCOME. 6. THE LEARNED CIT(A) AGREED WITH THE VIEW TAKEN BY TH E ASSESSEE ON THE ISSUE OF APPLICABILITY OF RULE 8D TO THE YEARS UNDE R CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 081, THE LEARNED CIT(A) OBSERVED THAT RULE 8D I S NOT APPLICABLE AND THE AO HAS TO COMPUTE THE DISALLOWANCE, IF ANY, BY ADOP TING A REASONABLE BASIS BY TAKING INTO CONSIDERATION THE RELEVANT FACTS AND CIRCUMSTANCES AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY TO PLA CE ALL THE GERMANE MATERIAL ON RECORD. 7. IN THE OPINION OF THE AO RULE 8D CAN BE APPLIED RET ROSPECTIVELY AND HENCE THE REVENUE PREFERRED APPEALS BEFORE THE APPE LLATE TRIBUNAL. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT IN THE ABSENCE OF EXPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME THE QUESTION OF APPLICATION OF RULE 8D DOES NOT ARISE; IN THE ALTERNATIVE, INTEREST INCOME EARNED SHOULD BE NETTED AGAINST INTEREST EXPENDITURE IN THE EVENT OF PROVIN G THAT INTEREST EXPENDITURE WAS ALSO DIRECTLY OR INDIRECTLY RELATABLE TO EARNIN G OF EXEMPT INCOME. 8. WE HAVE HEARD THE LEARNED D.R. AS WELL AS THE LEARN ED COUNSEL FOR THE ASSESSEE IN THIS REGARD AND CAREFULLY PERUSED THE R ECORD. AS COULD BE NOTICED FROM THE FINDINGS OF THE LEARNED CIT(A), THE MATTER WAS MERELY SET ASIDE FOR READJUDICATION AFTER GIVING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING ITA NO. 1775,1776,1918&1919/MUM/2011 BRAHMDEV HOLDING & TRADING LTD. 4 HEARD. THE LEARNED CIT(A) HAVING OBSERVED THAT RULE 8D IS PROSPECTIVE IN NATURE, IN LINE WITH THE VIEW TAKEN BY THE HON'BLE BOMBAY HIGH COURT, WE DO NOT FIND ANY INFIRMITY IN THE ORDERS PASSED BY T HE CIT(A) AND THEREFORE THE APPEALS FILED BY THE REVENUE HAVE NO LEGS TO STAND. SIMILARLY, THE APPEALS FILED BY THE ASSESSEE ALSO DESERVE TO BE DISMISSED SINCE THE LEARNED CIT(A) HAS MERELY SET ASIDE THE MATTER TO THE FILE OF THE AO KEEPING THE MATTER OPEN TO THE ASSESSEE TO PUT FORTH THE FACTS AND CIRCUMST ANCES AND TO RAISE ALL THE ARGUMENTS IN SUPPORT OF ITS CONTENTION THAT A PARTI CULAR EXPENDITURE CANNOT BE APPORTIONED OR EVEN UNDER SECTION 14A THERE IS N O CASE MADE OUT BY THE AO. SINCE THE ENTIRE MATTER IS OPEN BEFORE THE AO, NO PREJUDICE IS CAUSED TO THE ASSESSEE. UNDER THESE CIRCUMSTANCES THE APPEALS FILED BY THE ASSESSEE ARE DISMISSED. 9. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AND THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2014. SD/- SD/- (D. KARUNAKARA RAO) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 18 TH SEPTEMBER, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 14, MUMBAI 4. THE CIT 6, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.
