M/s. Munjal Auto Industries Ltd., Baroda V. The Dy.CIT.,Circle-4, Baroda

ITA 2044/AHD/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9943 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 24-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 11-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMIR VAKIL
• Keywords: Earning of tax free income; Proportionate interest; Tax effect
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD .., , !' BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER 1. ./ I.T.A. NO.2044/AHD/2012 2. ./ I.T.A. NO.1998/AHD/2012 ( / ASSESSMENT YEAR : 2009-10) 1. MUNJAL AUTO INDUSTRIES LTD. 187, GIDC ESTATE WAGHODIA BARODA 391 760 2. THE DCIT CIRCLE-4 BARODA / VS. 1. THE DCIT CIRCLE-4, BARODA 2. MUNJAL AUTO INDUSTRIES LTD. BARODA % ./ ./ PAN/GIR NO. : AAACG 8588L ( %( / APPELLANTS ) .. ( )%( / RESPONDENTS ) ASSESSEE BY : SHRI SURENDRA MODIANI, AR REVENUE BY : SHRI SAMIR VAKIL, SR.DR *+ / DATE OF HEARING 24/10/2016 ,-.+ / DATE OF PRONOUNCEMENT 28/11/2016 / O R D E R PER PRADIP KUMAR KEDIA, AM: THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-III, BARODA DATED 14/06/2012 PASSED FOR ASSESSMENT YEAR (AY) 2000-10. ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 2 - 2. THE REVENUE AS WELL AS THE ASSESSEE FILED CROSS- APPEALS ARISING FROM THE ASSESSMENT ORDER OF THE ASSESSING OFFICER (AO) PASSED UNDER SECTION 143(3) DATED 24/10/2011 FOR THE AY 2009-10. 3. THE REVENUE IS AGGRIEVED BY THE PARTIAL RELIEF O F RS.28,96,697/- OUT OF DISALLOWANCE MADE U/S.14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). THE ASSESS EE IS ALSO AGGRIEVED BY THE ACTION OF THE CIT(A) IN CONFIRMING THE PARTIAL DISALLOWANCE TO THE EXTENT OF RS.11,16,259/- UNDER SECTION 14A OF THE A CT. THE RELEVANT GROUND OF APPEAL RAISED BY THE REVENUE IN ITS ITA N O.1998/AHD/2012 READS AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION OF 28,96,697/- MADE U/S.14A READ WITH RULE 8D MERELY ACCEPTING THE ASSESSEES S UBMISSION AND WITHOUT CONSIDERING THE FACTS OF THE CASE. 3.1. LIKEWISE, THE RELEVANT GROUND OF APPEAL RAISED BY THE ASSESSEE IN ITS ITA NO.2044/AHD/2012 READS AS UNDER:- 1. THE LEARNED COMMISSIONER (APPEALS) ERRED IN CON FIRMING DISALLOWANCE OF THE EXTENT OF RS.11,16,259/- UNDER SECTION 14A OF INCOME-TAX ACT. 3. BRIEFLY STATED, RELEVANT FACTS ARE THAT THE AS SESSEE IS IN THE BUSINESS OF MANUFACTURING AUTO-COMPONENTS FOR TWO-WHEELERS. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.16,16 ,85,860/-. THE RETURN ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 3 - WAS SUBJECTED TO SCRUTINY AND THE INCOME WAS ASSESS ED AT RS.16,45,82,557/-. IN THE COURSE OF HEARING, THE A O OBSERVED THAT ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.2,31,08 ,162/- WHICH IS CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSEE IN RESPONSE TO SHOW-CAUSE NOTICE BY THE AO SUBMITTED T HAT NO EXPENDITURE HAS BEEN INCURRED TOWARDS INTEREST FOR EARNING INCO ME BY WAY OF DIVIDEND FROM INVESTMENTS. SIMILARLY, THE ASSESSEE FURTHER SUBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED TOWARDS ADMINISTRATIV E AND MANAGERIAL EXPENSES EXCEPT AN ESTIMATED SUM OF RS.50,000/- IN CURRED FOR TIME SPENT BY EMPLOYEES ATTRIBUTABLE TO INVESTMENTS. THEREFO RE, A SUM OF RS.50,000/- HAS BEEN DISALLOWED IN THE RETURN OF IN COME ON THIS ACCOUNT WHICH WOULD COVER INDIRECT EXPENDITURE CONTEMPLATED UNDER RULE 8D(2)(III) OF THE ACT. HOWEVER, THE AO DID NOT FIN D THE SUBMISSION OF THE ASSESSEE AS TENABLE AND RESORTED TO DISALLOWANC E AS PER FORMULA LAID DOWN UNDER RULE 8D OF THE INCOME TAX RULES, 1962. HE ACCORDINGLY, COMPUTED DISALLOWANCE AS PER RULE 8D AT RS.28,96,69 7/- COMPRISING OF RS.17,80,438/- TOWARDS PROPORTIONATE INTEREST EXPEN DITURE UNDER RULE 8D(2)(II) AND RS.11,16,259/- BEING 0.5% OF THE AVER AGE INVESTMENTS IN SHARES TOWARDS ADMINISTRATIVE AND MANAGERIAL SERVIC ES. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A). THE CIT(A) DELETED THE DISALLOW ANCE ON ACCOUNT OF ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 4 - INTEREST MADE UNDER RULE 8D(2)(II) BUT HOWEVER, CON FIRMED THE OTHER DISALLOWANCE OF RS.11,16,259/- CONFERRED UNDER RULE 8D(2)(III). 6. AGGRIEVED BY THE ORDER OF THE CIT(A) GRANTING PA RTIAL RELIEF TO THE ASSESSEE, THE REVENUE FILED AN APPEAL BEFORE THE TR IBUNAL. SIMILARLY, THE ASSESSEE ALSO PREFERRED APPEAL AGAINST THE ORDER OF THE CIT(A) ASSAILING HIS ACTION OF CONFIRMATION OF PART DISALLOWANCE. 7. AT THE TIME OF HEARING, IT WAS SUBMITTED BY THE LD.AR FOR THE ASSESSEE THAT APPEAL FILED BY THE REVENUE IS HIT BY CBDT CIRCULAR NO.21 OF 2015 DATED 10/12/2015. AS PER AFORESAID CIRCULA R, ALL PENDING APPEALS FILED BY REVENUE ARE LIABLE TO BE DISMISSED AS A ME ASURE FOR REDUCING LITIGATION WHERE THE TAX EFFECT DOES NOT EXCEED THE PRESCRIBED MONETARY LIMIT WHICH IS RS.10 LAKHS. IN THE INSTANT CASE, T HE TAX EFFECT ON THE DISPUTED ISSUE RAISED BY THE REVENUE IS LESS RS.10 LAKHS AND THEREFORE APPEAL OF THE REVENUE IS REQUIRED TO BE DISMISSED IN LIMINE . 8. THE LD.DR FOR THE REVENUE FAIRLY ADMITTED THE AP PLICABILITY OF THE CBDT CIRCULAR NO.21 OF 2015. ACCORDINGLY, APPEAL OF THE REVENUE IS DISMISSED AS NOT MAINTAINABLE. HOWEVER, IT WILL BE OPEN TO THE REVENUE TO SEEK RESTORATION OF ITS APPEAL ON SHOWING INAPPL ICABILITY OF THE AFORESAID CBDT CIRCULAR IN ANY MANNER. ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 5 - 9. NOW, WE SHALL PROCEED TO DEAL WITH THE GRIEVANCE BY THE ASSESSEE IN ITS APPEAL. THE ONLY ISSUE IS WHETHER THE CIT(A ) IS JUSTIFIED IN CONFIRMING DISALLOWANCE OF RS.11,16,259/- TOWARDS A DMINISTRATIVE AND MANAGERIAL EXPENSES UNDER SECTION 14A R.W.RULE 8D(2 )(III) OF THE IT RULES, 1962. 10. AT THE OUTSET, THE LD.AR MR.SURENDRA MODIANI SU BMITTED THAT AN ESTIMATED AMOUNT OF RS.50,000/- HAS BEEN DISALLOWED SUO MOTU BY THE ASSESSEE ITSELF AS ATTRIBUTABLE TO EXEMPT INCOME. THE AO HAS NOT RECORDED ANY OBJECTIVE SATISFACTION AS TO HOW THE E XPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO EARNING OF THE INCOME WH ICH IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE EXCEEDS THE AFORESAID SUO MOTU DISALLOWANCE. HE THEREFORE URGED THAT DISALLOWAN CE SUSTAINED BY THE CIT(A) TOWARDS ADMINISTRATIVE AND MANAGERIAL EX PENSES ARE UNCALLED FOR AND DESERVES TO BE QUASHED. 11. THE LD.DR, ON THE OTHER HAND, RELIED ON THE ORD ERS OF THE AUTHORITIES BELOW. 12. WE FIND THAT THE SUBMISSION OF THE ASSESSEE B EFORE THE CIT(A) A SUM OF RS.50,000/- HAS BEEN DISALLOWED BY THE ASSESSEE ITSELF SUO MOTU HAS REMAINED UNCONTROVERTED. ON A BROADER CONSIDERAT ION, WE ALSO NOTE THAT THE INVESTMENTS WERE LARGELY MADE IN THE EARLIER Y EARS AND HAS BEEN CARRY ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 6 - FORWARDED IN THE CURRENT YEAR WITH A VERY FEW MOVEM ENTS THEREIN. THE ASSESSEE HAS COMPUTED DISALLOWANCE WHICH WAS CLAIME D TO BE SUFFICIENT BY THE ASSESSEE HAVING REGARD TO THE FACTS AND CIRC UMSTANCES OF THE CASE. NOTWITHSTANDING THE AFORESAID STAND OF THE ASSESSEE ON THIS ACCOUNT, THE AO MECHANICALLY APPLIED RULE 8D(2)(III) WITHOUT EX AMINING THE MERITS OF THE ASSESSEES STAND AND WITHOUT RECORDING ANY S ATISFACTION AS TO HOW THE DISALLOWANCE OFFERED BY THE ASSESSEE IS INCORRE CT HAVING REGARD TO ACCOUNT OF THE ASSESSEE. WE NOTE THAT NO LACK OF SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO THE EXEMPT INCOME HAS BE EN RECORDED BY THE AO AS CONTEMPLATED UNDER SECTION 14A(2) OF THE ACT. WE ARE OF THE CONSIDERED VIEW THAT UNDER THE CIRCUMSTANCES, WHERE THE REVENUE HAS FAILED TO RECORD DISSATISFACTION ON THE CORRECTNES S OF THE CLAIM OF THE ASSESSEE WITH RESPECT TO DISALLOWANCE OFFERED, IT I S NOT OPEN FOR IT TO RESORT RULE 8D(2)(III) IN TERMS OF IT RULES, 1962. WE FIND THAT IN TERMS OF SECTION 14A OF THE IT ACT R.W.RULE 8D OF IT RUL ES, THE ONUS IS ON THE AO TO SHOW HOW THE ASSESSEES CLAIM IS INCORRECT. A BARE READING OF SECTION 14A OF THE ACT WOULD SUGGEST THAT ITS APPLI CABILITY IS NOT AUTOMATIC. IT IS HEDGED BY CONDITION PRESCRIBED TH EREIN. SECTION 14A INHERES IN IT THE CONCEPT OF REASONABLENESS. THE F ORMIDABLE AMOUNT OF EXPENDITURE CANNOT BE SAID TO BE ATTRIBUTABLE TO TA X-FREE INCOME BY APPLYING A STRAIGHT JACKET FORMULA AS PER RULE 8D(2 )(III) OF THE IT RULES WITHOUT DEMONSTRATING INCORRECTNESS IN THE OFFER OF DISALLOWANCE MADE BY ITA NOS.2044 & 1998/AHD/2012 MUNJAL AUTO INDUSTRIES LTD. VS. ACIT (CROSS-APPEAL S) ASST.YEAR 2009-10 - 7 - THE ASSESSEE. HENCE, WE ARE DISPOSED TO ADJUDICA TE THE ISSUE IN FAVOUR OF THE ASSESSEE. THUS, THE ORDER OF CIT(A) ON DISA LLOWANCE OF ADMINISTRATIVE AND MANAGERIAL EXPENSES STANDS VACAT ED. 13. IN THE COMBINED RESULT, THE APPEAL OF THE ASSES SEE IS ALLOWED, WHEREAS APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 28/11/2016 SD/- SD/- ( ..) ( ) ( R.P. TOLANI ) ( PR ADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 28/ 11 /2016 2..,.../ T.C. NAIR, SR. PS !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. %( / THE APPELLANT 2. )%( / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-III, BARODA 5. 78945 , 45. , 3 / DR, ITAT, AHMEDABAD 6. 9;* / GUARD FILE. / BY ORDER, )7 //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD