CONSTRUCTIVE FINANCE P LTD., Jaipur V. ACIT, Jaipur

ITA 209/JPR/2011

• Counselvise Citation: 20923114 RSA 2011
• Duration Of Justice: 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 09-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 209 & 210/ JP/2011 ASSESSMENT YEAR 2004-05 & 2004-06 PAN: AAAFC 7766 K M/S. CONSTRUCTIVE FINANCE (P) LTD. VS. THE DCIT WHITE HOUSE, D-23/A, INDIRAPURI CIRCLE-1 LAL KOTHI, TONK ROAD, JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) ASSESSEE BY: NONE (ADJOURNMENT APPLICATION REJEC TED) DEPARTMENT BY : SHRI SUNIL MATHUR DATE OF HEARING: 29-09-2011 DATE OF PRONOUNCEMENT:07-10-2011 ORDER PER N.L. KALRA, AM:- THE ASSESSEE HAS FILED THE APPEALS AGAINST TWO DIFF ERENT ORDERS OF THE LD. CIT(A)- BIKANER (CAMP AT JAIPUR) DATED 16-12-20 11 FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06. 2.1 THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE FO R BOTH THE ASSESSMENT YEAR ARE THE SAME. THEREFORE, WE ARE REP RODUCING THE GROUNDS OF APPEAL FOR THE ASSESSMENT YEAR 2004-05 AS UNDER: - 1. THAT THE ORDER PASSED BY THE LD CIT(A) IS BAD IN LAW 2 2. THAT THE LD CIT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1 961 ARE APPLICABLE TO THE ASSESSEE COMPANY AND THEREBY CONFIRMING DISALLOWANCE U/S 14A TO THE EXTENT OF RS . 2,08,20,405/-. 3. THAT THE LD CIT(A) ERRED IN APPLYING RULE 8D FOR WORKING OUT DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961, SINCE THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR THE YEAR UNDER ASSESSMENT AND ARE APPLICABLE ONLY W.E.F. ASSESSMENT YEAR 2008-09 IN ACCORDANCE WITH THE DECISION OF BOMBAY HIGH COURT I N THE CASE OF GODREJ BOYCE MFG.CO. LTD (2010) 328 ITR 81. 2.2 WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI ALS AVAILABLE ON RECORD. THE ISSUES WHICH HAVE BEEN RAISED BY THE AS SESSEE, HAVE BEEN CONSIDERED WHILE DISPOSING OFF THE APPEALS OF THE R EVENUE IN THE CASE OF THE ASSESSEE IN ITA NOS.217 & 218/ JP/2011 FOR THE ASSESSMENT YEAR 2004-05 & 2005-06 DATED 30-06-2011. AT THAT RELEVA NT TIME, NO REFERENCE WAS MADE BEFORE US THAT THE APPEAL OF THE ASSESSEE HAS BEEN FILED. WHILE DISPOSING OF THE APPEALS OF THE REVENUE (SUPRA), WE HAVE HELD AS UNDER:- 2.5 WE HAVE HEARD THE LD. DR AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT WILL BE USEFUL TO REPRODUCE THE RELEVANT PORTION FROM THE HELD PORTION FROM THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, 328 ITR 81 3 THE FOLLOWING PRINCIPLES WOULD EMERGE FROM SECTION 14A AND THE DECISION OF CIT VS. WALFORT SHA RE AND STOCK BROKERS (P) LTD. [2010] 326 ITR 1 (SC) (A) THE MANDATE OF SECTION 14A IS TO PREVENT CLAIMS FOR DEDUCTION OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE; (B) SECTION 14A(1) IS ENACTED TO ENSURE THAT ONLY EXPENSES INCURRED IN RESPECT OF EARNING TAXABLE IN COME ARE ALLOWED; THE PRINCIPLE OF APPORTIONMENT OF EXPENSES IS WIDENED BY SECTION 14A TO INCLUDE EVEN THE APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME OF AN INDIVISIBLE BUSINESS. (D) THE BASIC PRINCIPLE OF TAXATION IS TO TAX NET INCOME. THIS PRINCIPLE APPLIES EVEN FOR THE PURPOSE OF SECTION 14A AND EXPENSES TOWARDS NON-TAXABLE INCOME MUST BE EXCLUDED (E) ONCE A PROXIMATE CAUSE FOR DISALLOWANCE IS ESTABLISHED WHICH IS THE RELATIONSHIP OF THE EXPENDITURE WITH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME A DISALLOWANCE HAS TO BE EFFECTE D. ALL EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE PROVISIONS OF THE ACT HAS TO BE DISALLOWED U/S 14A. INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IS BROADLY ADVERTED TO AS EXEMPT INCOME AS AN 4 ABBREVIATED APPELLATION. THE PLAIN MEANING OF SECTI ON 14A IS THAT NO DEDUCTION CAN BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE HON'BLE BOMBAY HIGH COURT FURTHER HELD THAT RULE DD WILL APPLY W.E.F. ASSESSMENT YEAR 2008-09. HENCE, RULE DD WILL NOT BE APPLICABLE IN THIS CASE. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIO NMENT. IT HAS BEEN HELD BY THE ITAT MUMBAI BENCH IN THE CASE OF GLENN MARK PHARMACEUTICAL LTD. VS. DCIT, 2010 -TIOL- 775-ITAT- MUM THAT IF THERE IS A COMMON POOL THEN REASONABLE DISALLOWABLE IS TO BE MADE. WE THEREFORE , FEEL THAT THE MATTER IS REQUIRED TO BE RESTORED BACK ON THE F ILE OF THE AO TO RECOMPUTE THE DISALLOWANCE AS PER REASONABLE BASIS AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE AND MAY CONSIDER THE NEXUS OF BORROWED FUNDS WITH ASSETS YIELDING EX EMPT INCOME. 2.3 FOLLOWING THAT ORDER, WE RESTORE THE MATTER BAC K ON THE FILE OF THE AO. SINCE THE ISSUES WERE AGAIN CONSIDERED IN VIEW OF THE DECISION OF HON'BLE BOMBAY HIGH COURT, WE THEREFORE, FEEL IT PR OPER TO REJECT THE ADJOURNMENT APPLICATION OF THE ASSESSEE. 5 4. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE A LLOWED TO THAT THE EXTENT THAT RULE 8D WILL NOT BE APPLICABLE. THE DI SALLOWANCE U/S 14A IS TO BE RECONSIDERED BY THE AO. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 07-10 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 07 /10/2011 *MISHRA COPY FORWARDED TO :- 1. M/S. CONSTRUCTIVE FINANCE (P) LTD., JAIPU R 2. THE DCIT, CIRCLE- 1, JAIPUR 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.209/JP /11) A.R, ITAT, JAIPUR 6