VOLTAS LTD, MUMBAI V. ADDL CIT RG 7(3), MUMBAI

ITA 198/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3793 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 05-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 09-01-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PERCY J PARDIWALLA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , ! '# , '$ ! BEFORESHRI VIJAY PAL RAO, JM & SHRI RAJENDRA, AM ./ I.T.A. NO. 198/MUM/2012 ( % & % & % & % & / ASSESSMENT YEAR : 2007-08) VOLTAS LTD VOLTAS HOUSE A DR BABASHEB, MUMBAI 400 001 % % % % / VS. THE ADDL COMMR OF INCOME TAX RANGE 7(3), MUMBAI !' '$ ./ ( ./ PAN/GIR NO. : AACCM1561D ( ') / APPELLANT ) .. ( *+') / RESPONDENT ) ') ') ') ') , , , , ' '' ' / APPELLANT BY : SHRI PERCY J PARDIWALLA *+') *+') *+') *+') - -- - , , , , ' '' ' /RESPONDENT BY : SH OM PRAKASH MEENA % % % % - -- - .$ .$ .$ .$ / DT. OF HEARING : 9 TH MAY 2013 /0& /0& /0& /0& - -- -.$ .$ .$ .$ / DT.OFPRONOUNCEMENT: 15 TH MAY 2013 '1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 21.10,2011 OF THE COMMISSIONER OF INCOME TAX(APPEAL S) FOR THE ASSESSMENT YEAR 2007-08. 2 THE ONLY ISSUE ARISES IN THIS APPEAL FOR OUR CONS IDERATION AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUMSTAN CES OF THE CASE THE COMMISSIONER OF INCOME TAX(APPEALS) IS JUSTIFIED IN PART CONFIRMATION OF THE DISALLOWANCE OF ADMINISTRATIVE AND GENERAL EXPE NSES ATTRIBUTABLE TOWARDS EARNING OF EXEMPT DIVIDEND INCOME U/S 14A B Y APPLYING THE FORMULA AS PROVIDED UNDER THE RULE 8D OF THE IT RUL ES. ITA NO. 198/M/2012 . 2 3 THE ASSESSEE RECEIVED DIVIDEND INCOME OF ` 22,39, 65,640/- ON ITS INVESTMENTS AND CLAIMED AS EXEMPT INCOME. THE ASSES SING OFFICER ASKED THE ASSESSEE TO FURNISH THE DETAILS OF ITS EXPENSE INCURRED FOR EARNING THE DIVIDEND INCOME. IN RESPONSE THE ASSESSEE EXPLAINE D AND SUBMITTED THAT THE COMPANY HAD NOT INCURRED ANY INTEREST COST ON B ORROWINGS FOR INVESTMENT PURPOSES. IT WAS FURTHER STATED THAT TH E INVESTMENT PORTFOLIO IS HANDLED BY ITS MIS DEPARTMENT, WHICH PRIMARILY ATTE NDS TO THE ACCOUNTS AND BANKING OPERATIONS AND OUT OF STAFF COST, OPERA TING AND ADMINISTRATIVE EXPENSE AND ESTABLISHMENT/GENERAL EXPENSE AMOUNTING TO ` 49,85,000/-, THE ASSESSEE HAS APPORTIONED ` 7 LACS AS THE EXPENS ES ATTRIBUTABLE TOWARDS EXEMPT DIVIDEND INCOME. THE ASSESSING OFFI CER APPLIED RULE 8D FOR THE PURPOSE OF DISALLOWANCE OF THE ADMINISTRATI VE EXPENSE ATTRIBUTABLE TO THE DIVIDEND INCOME AND ACCORDINGLY DISALLOWED A SUM OF ` 49,61,022/-. 3.1 THE ASSESSEE CHALLENGED THE ACTION OF THE ASSES SING OFFICER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND CONTEN DED THAT RULE 8D IS NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSID ERATION. THE COMMISSIONER OF INCOME TAX(APPEALS), THOUGH ACCEPTE D THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION; HO WEVER, AFTER EXCLUDING THE INVESTMENT IN THE FOREIGN COMPANIES AS WELL AS THE INVESTMENTS IN THE FIXED MATURITY PLANS OF MUTUAL FUNDS HAS TAKEN 0.5% OF THE AVERAGE VALUE OF THE INVESTMENTS FOR DISALLOWANCE OF EXPENSES ATT RIBUTABLE TO THE EXEMPT INCOME. ITA NO. 198/M/2012 . 3 4 BEFORE US, THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THOUGH IN PRINCIPLE THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ACCEPTED THAT RULE 8D IS NOT APPLICABLE FOR THE YEA R UNDER CONSIDERATION; HOWEVER, WHILE DECIDING THE ISSUE, HE HAS TAKEN THE AVERAGE VALUE OF THE INVESTMENTS AND APPLIED 0.5% OF THE SAME FOR THE PU RPOSE OF DISALLOWANCE OF THE EXPENSES U/S 14A. THE LD SR COUNSEL HAS SUB MITTED THAT THE FORMULA AS ADOPTED BY THE COMMISSIONER OF INCOME TA X (APPEALS) IS THE SAME WHICH IS PROVIDED UNDER RULE 8D AND THEREFORE, THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS) IS SELF CONTRA DICTORY; ON ONE HAND HE HELD THAT RULE 8D IS NOT APPLICABLE; WHEREAS WHI LE ADJUDICATING THE ISSUE, THE FORMULA AS PROVIDED UNDER RULE 8D IS APP LIED. HE HAS FURTHER SUBMITTED THAT THE ASSESSEE ITSELF HAS DISALLOWED A REASONABLE AMOUNT OF EXPENSES APPORTIONED TO THE EXEMPT INCOME. THE LD SR COUNSEL HAS POINTED OUT THAT OUT OF THE TOTAL EXPENSES ` 49,85, 000/- PERTAINING TO MIS DEPARTMENT, THE ASSESSEE HAS ALLOCATED ` 7 LACS TOW ARDS EXEMPT INCOME WHICH IS ABOUT 15% OF THE TOTAL EXPENSE, THEREFORE , THE DISALLOWANCE MADE BY THE ASSESSEE ITSELF IS REASONABLE. HE HAS SUBMITTED THAT SINCE THE AUTHORITIES BELOW HAVE NOT FOUND ANY FAULT IN T HE APPORTIONMENT MADE BY THE ASSESSEE; THEREFORE, THE ORDERS OF THE AUTHO RITIES ARE NOT SUSTAINABLE WHEN RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HE HAS FURTHER SUBMITTED THAT IN THE CASE OF GODREJ & BOYCE REPORTED IN 328 ITR 81, THE DEPARTMENT HAS TA KEN SAME PLEA OF LOGIC AND RATIONALE OF TAKING 0.5% AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF DISALLOWANCE OF ADMINISTRATIVE EXPENSES U/S 14A WHICH HAS BEEN TURNED DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT ON THE REASON ITA NO. 198/M/2012 . 4 THAT RULE 8D IS NOT APPLICABLE PRIOR TO ASSESSMENT YEAR 2008-09 AND THEREFORE, THE DISALLOWANCE CANNOT BE MADE BY APPLY ING THE FORMULA AS PROVIDED U/R 8D. HE HAS FURTHER SUBMITTED THAT EV EN OTHERWISE IN THE EARLIER YEARS, THE DEPARTMENT HAS NOT MADE ANY DISA LLOWANCE U/S 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES. IN SUPPORT OF HIS CONTENTION, HE HAS REFERRED THE ORDER OF THE TRIBUNAL IN THE CASE OF T HE ASSESSEE FOR THE ASSESSMENT YEARS 1999-00 TO 2003-04. THEREFORE, THE DEPARTMENT IN THE EARLIER YEAR HAS ACCEPTED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR EARNING THE DIVIDEND INCOME. 4.2 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T THOUGH RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION; HO WEVER, THE DISALLOWANCE U/S 14A SHOULD BE MADE ON SOME REASON ABLE BASIS AND THEREFORE, ESTIMATION HAS TO BE EXAMINED WHETHER T HE DISALLOWANCE MADE BY THE ASSESSEE ITSELF IS REASONABLE OR NOT. 4.3 IN REBUTTAL, THE LD SR COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT WITHOUT PREJUDICE TO THE CONTENTION OF THE ASSESSEE , IF THE TRIBUNAL FIND THAT SOME REASONABLE DISALLOWANCE IS REQUIRED TO BE MADE, THEN IT HAS TO BE ESTIMATED WITHOUT REMITTING THE ISSUE TO THE AUT HORITIES BELOW. 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THE GRIEVANCE OF THE ASSESSEE I S THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS APPLIED FOR MULA AS PROVIDED UNDER RULE 8D FOR THE DISALLOWANCE OF ADMINISTRATI VE EXPENSES U/S 14A. ITA NO. 198/M/2012 . 5 THERE IS NO DISPUTE THAT THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION; THEREFORE, IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG LTD (SUPRA) THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSE U/S 14A SHOULD BE MADE ON SOME REASONABLE B ASIS. 5.1 AS REGARDS THE CONTENTION OF THE LD SR COUNSEL FOR THE ASSESSEE THAT NO DISALLOWANCE WAS MADE IN THE EARLIER YEAR AND TH EREFORE, THERE SHOULD BE NO DISALLOWANCE FOR THE YEAR UNDER CONSIDERATION ; WE DO NOT AGREE WITH THE SAME BECAUSE THE ASSESSEE ITSELF HAS MADE DISALLOWANCE U/S 14A TO THE TUNE OF ` 7 LACS BEING THE EXPENSES INCURRED FOR EARNING EXEMPT DIVIDEND INCOME. 5.2 EVEN OTHER WISE, THE ORDERS OF THE EARLIER YEAR S WOULD NOT OPERATE AS RES-JUDICATA WHEN THE DISALLOWANCE IS PROPOSED AS P ER THE PROVISIONS OF THE ACT, WHICH HAS NOT BEEN EXAMINED IN THE EARLIER YEARS. 6 HAVING CONSIDERED THE RELEVANT FACTS, WE FIND THA T THE ASSESSEE HAS INCURRED A TOTAL EXPENSES OF ` 49,85,000/- TOWARDS STAFF COST, OPERATING AND ADMINISTRATIVE EXPENSE; ESTABLISHMENT/GENERAL E XPENSES OF MIS DEPARTMENT WHICH IS HANDLING THE INVESTMENT APART F ROM THE ACTIVITY OF ACCOUNTS AND BANKING OPERATIONS. ACCORDINGLY, IN OU R VIEW A REASONABLE ESTIMATE AND ALLOCATION OF EXPENSES FOR THE PURPOSE S OF INVESTMENT ACTIVITY WOULD BE THE 1/3 OF THE TOTAL EXPENSES INC URRED ON MIS DEPARTMENT. FURTHER, SINCE THE INVESTMENT ACTIVITY ALSO INCLUDES ITA NO. 198/M/2012 . 6 INVESTMENT IN THE FOREIGN COMPANIES AND THE DIVIDEN D OF WHICH IS TAXABLE AS WELL AS THE INVESTMENT WHICH ARE NOT YIELDING DI VIDEND INCOME; BUT SOME FIXED MATURITY PLANS OF MUTUAL FUNDS, THEN THE SAME WOULD BE EXCLUDED WHILE CONSIDERING APPORTIONMENT OF THE EXP ENSES INCURRED FOR EARNING THE DIVIDEND INCOME. SINCE 1/3 OF THE TOTAL EXPENSES COMES TO ` 16,22,000/-; BUT SOME OF THE INVESTMENTS ARE IN F OREIGN COMPANIES AND ALSO IN FIXED MUTUALITY PLAN; THEREFORE, WE ESTIMAT E THE DISALLOWANCE U/S 14A ON ACCOUNT OF ADMINISTRATIVE EXPENSES AT ` 14 L ACS ATTRIBUTABLE TOWARDS EXEMPT DIVIDEND INCOME. 5 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. 2 .3 % 2. - 4 51 !. 6 - . 78 ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 5 TH MAY 2013 . '1 - /0& $' 4 9 %3 15 TH 8 0 - : SD/- SD/- ( '# ) '$ ! ( RAJENDRA ) ACCOUNTANT MEMBER ( ) ! (VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 15 TH MAY 2013 RAJ* ITA NO. 198/M/2012 . 7 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI