Gopal & Sons (HUF), Kolkata V. ITO, Ward - 32(1), Kolkata, Kolkata

ITA 2156/KOL/2009

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75019 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 1 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2014
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2009
• Court: TRIBUNAL
• Department Lawyers: T SHRI S P LAHIRI
• Assessee Lawyers: S P CHOWDHURY
• Keywords: Business income; Earning of tax free income; Advance ruling; Deemed dividend
• Section: 143(3); 14A

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 180/KOL/2010 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2006-07 INCOME-TAX OFFICER, WD-32(1), KOLKATA VS. GOPAL & SONS (HUF) (PAN:AABHG9506N) (,- /APPELLANT ) (./,-/ RESPONDENT ) & & & & & / I.T.A NO. 2156/KOL/2009 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2006-07 GOPAL & SONS (HUF) VS. INCOME-TAX OFFICER, WD-3 2(1), KOLKATA (,- /APPELLANT ) (./,-/ RESPONDENT ) DATE OF HEARING: 10.01.2014 DATE OF PRONOUNCEMENT: 27.01.2014 FOR THE REVENUET: SHRI S. P. LAHIRI, JCIT, SR. DR FOR THE ASSESSEE: SHRI S. P. CHOWDHURY $0 / ORDER PER SHRI MAHAVIR SINGH, JM: THESE CROSS APPEALS BY REVENUE AND ASSESSEE ARE ARI SING OUT OF ORDER OF CIT(A)-XIX, KOLKATA IN APPEAL NO. 362/CIT(A)-XIX/ITO,WD-32(1)/K OL/08-09 DATED 12.11.2009. ASSESSMENT WAS FRAMED BY ITO, WARD-32(1), KOLKATA U /S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEAR 2006-07 VIDE HIS ORDER DATED 31.12.2008. 2. FIRST WE TAKE UP ITA NO. 180/K/2010 (REVENUES A PPEAL). THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF INTEREST OF RS.7,43,926/-. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO. 1 : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A)-XIX, KOLKATA, ERRED IN DELETING THE ADDITION MADE IN RESPECT OF INTERES T PAYMENT OF RS.7,43,926/-. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HUF HAS RECEIVED INTEREST OF RS.23,08,914/- FROM FDR MAINTA INED WITH BANK. APART FROM THAT ASSESSEE ALSO EARNED DIVIDEND AND NSC INTEREST AT RS.43,00,4 74/-. THE ASSESSEE CLAIMED EXPENSES AT 2 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 RS.20.61 LAC AGAINST THESE TWO INCOMES. THE AO WAS OF THE VIEW THAT THESE ARE INCOME FROM OTHER SOURCES. HENCE, INTEREST EXPENSES OF RS.20.6 1 LAC CANNOT BE ALLOWED AND HE DISALLOWED INTEREST PAYMENT OF RS.7,43,926/- BY STATING THAT T HE SECURITIES LOAN OF RS.38,11,397/- AND UNSECURED LOAN OF RS.24,24,057/- HAS NOT BEEN UTILI SED FOR THE PURPOSE OF BUSINESS. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWE D THE CLAIM OF ASSESSEE AFTER CONSIDERING THE SUBMISSION OF ASSESSEE. AGGRIEVED, REVENUE IS NOW IN APPEAL BEFORE US. 4. WE FIND THAT THE ASSESSEE HAS DECLARED INCOME U NDER THE HEAD BUSINESS INCOME AS WELL AS INCOME FROM OTHER SOURCES. THE ASSESSEE ALSO CLA IMED EXPENDITURE OF RS.7,43,926/- ON ACCOUNT OF INTEREST PAID TO THE BANK AND OTHERS. T HE ASSESSEE HAS ALSO EARNED INTEREST INCOME OF RS.23.08 LAC FROM FDRS MAINTAINED WITH BANK AND CRE DITED TO THE P&L ACCOUNT. ACCORDING TO AO, THIS INTEREST EXPENSES OF RS.7,43,926/- PAID TO THE BANK IS NOT ALLOWABLE AS DEDUCTION FOR THE SIMPLE REASON THAT THE INTEREST INCOME EARNED O N FDRS IS ASSESSABLE AS INCOME FROM OTHER SOURCES AND NOT AS BUSINESS INCOME. FURTHER, ACCOR DING TO AO, THE ASSESSEE HAS NOT ESTABLISHED THE NEXUS THAT LOANS TAKEN WERE UTILISED FOR THE PU RPOSE OF BUSINESS. AS EXPLAINED BEFORE THE AO AS WELL AS BEFORE CIT(A) AND EVEN NOW BEFORE US, THE ASSESSEE EXPLAINED THAT IT WAS ENGAGED IN THE BUSINESS OF HIRE PURCHASE FINANCING WHICH COULD NOT CONTINUE IN THE CURRENT YEAR BUT IN SUBSEQUENT FY 2006-07 RELEVANT TO AY 2007-08 THE BUSINESS OF HIRE PURCHASE FINANCING WAS RESTARTED AND FOR THIS HE FILED SUPPORTING EVID ENCES. WE FIND THAT THE AO HIMSELF HAS COMPUTED THE INTEREST INCOME UNDER THE HEAD BUSINES S INCOME BUT NOT ALLOWED THE INTEREST EXPENSES OF RS.7,43,926/-. THE BUSINESS OF THE ASS ESSEE I.E. OF HIRE PURCHASE FINANCING IS CLOSED DURING THE RELEVANT ASSESSMENT YEAR TEMPORARILY BUT IT WAS STARTED IN FY 2006-07 RELEVANT TO AY 2007-08 AND IN SUCH CIRCUMSTANCES, THE EXPENDITU RE INCURRED BY THE ASSESSEE IS TO BE ALLOWABLE. EVEN OTHERWISE, IF THE AO WAS OF THE VI EW THAT THIS INTEREST INCOME IS INCOME FROM OTHER SOURCES, THIS EXPENDITURE HAS TO BE ALLOWED A S DEDUCTION U/S. 57 OF THE ACT BECAUSE ASSESSEE HAS CREDITED INCOME TO THE P&L ACCOUNT AND CLAIMED THESE EXPENSES. ACCORDINGLY, WE CONFIRM THE ORDER OF CIT(A) ALLOWING THIS DEDUCT ION AND THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 5. NOW, WE ARE COMING TO ASSESSEES APPEAL IN ITA N O.2156/K/2009. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE ADDITION MAD E BY AO BY TREATING THE AMOUNT PAID AS DEEMED DIVIDEND BY APPLYING THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.2: 2. ON THE FACTS BROUGHT ON RECORD, THE LD. CIT(A) OUGHT TO HAVE DELETED THE ADDITION OF RS.1,20,10,988/- ON ACCOUNT OF DEEMED DIVIDEND BY A PPLYING PROVISION OF SEC.2(22)(E) OF THE INCOME TAX ACT MADE BY THE LD. ASSESSING OFFICE R. 3 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 6. BRIEFLY STATED FACTS LEADING TO THE ABOVE ISSUE AS PER THE AO ARE THAT THE SOURCE OF INVESTMENT IN SHARES DURING THE PREVIOUS YEAR WAS O UT OF FUNDS RECEIVED FROM G. S. FERTILIZERS PVT. LTD. IN WHICH THE ASSESSEE HUF HAS SUBSTANTIAL INTEREST. THE AO NOTED THE FOLLOWING FOUR POINTS: I) DURING THE PREVIOUS YEAR, THE HUF RECEIVED ADV ANCE FROM G. S. FERTILISERS (P) LTD. THE OPENING BALANCE OF THE ADVANCE ACCOUNT WITH G. S. FERTILISERS (P) LTD. AS ON 01.04.2005 WAS RS.60,25,000/- AND THE CLOSING BALAN CE AS ON 31.03.2006 WAS RS.2,61,33,000/-. II) G. S. FERTILISERS (P) LTD. IS MANUFACTURERS & D ISTRIBUTORS OF VARIOUS GRADES OF NPK FERTILIZERS AND OTHER AGRICULTURAL INPUTS. III) FROM THE SUBMITTED AUDIT REPORTS AND ANNUAL RE TURN (FILED WITH ROC) OF G. S. FERTILISERS (P) LTD. FOR THE RELEVANT PERIOD. IT I S APPARENT THAT THE SUBSCRIBED SHARE CAPITAL OF THE COMPANY WAS RS.1,05,75,000 (10.57.50 0 NUMBER OF SHARES OF RS.10 EACH). FROM THE DETAILS OF SHAREHOLDERS OF THE COMPANY, AS MENTIONED IN THE ANNUAL RETURN AND ALSO FROM THE INVESTMENT DETAILS OF GOPAL & SON S (HUF), IT IS EVIDENT THAT GOPAL & SONS (HUF) WAS A REGISTERED SHAREHOLDER OF 3,92,500 NUMBER OF SHARES. THEREFORE, GOPAL & SONS (HUF) WAS BOTH THE REGISTERED SHARE HO LDING OF THE COMPANY & ALSO THE BENEFICIAL OWNER OF SHARES AND HOLDING MORE THAT 10 % OF VOTING POWER (ACTUAL SHARE HOLDING OF GOPAL & SONS (HUF) WAS 37.12%). IV) FROM THE AUDITED ACCOUNTS OF G. S. FERTILISERS (P) LTD. IT IS SEEN THAT THE COMPANY WAS HAVING A BALANCE OF RS.1,20,10,988 AS RESERVE & SU RPLUS AS ON 31.03.2006. ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTI ON 2(22)(E) OF THE ACT AND MADE ADDITION OF RS.1,20,10,988/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO BY OBSERVING IN PARAS 8.5 AND 8.6 AS UNDER: 8.5. HOWEVER, I DO NOT FIND ANY FORCE IN THE SUBMI SSION OF THE APPELLANT. AS PER RECORD, THERE IS NO DISPUTE THAT THE APPELLANT HUF IS BENEF ICIAL OWNER OF THE SHARES. ON EXAMINATION OF ANNUAL RETURNS FILED BY THE COMPANY WITH ROC FOR THE RELEVANT YEAR, IT WAS OBSERVED BY THE AO THAT THOUGH, THE SHARES MIGH T HAVE BEEN ISSUED BY THE COMPANY IN THE NAME OF SHRI GOPAL KUMAR SANEI, KARTA OF HU F, BUT THE COMPANY HAS RECORDED NAME OF THE APPELLANT HUF AS SHAREHOLDER OF THE COM PANY. IN THE ANNUAL RETURN FILED WITH ROC, GOPAL & (HUF) HAS BEEN RECORDED AS SHAREH OLDER HAVING 37.12% SHARE HOLDING. THE ANNUAL RETURN FILED BY THE COMPANY IS REPLICA OF SHAREHOLDER REGISTER MAINTAINED BY THE COMPANY. ACCORDING TO THE COMPAN IES ACT, A SHAREHOLDER IS A PERSON WHOSE NAME IS RECORDED IN THE REGISTER OF SHARE HOL DERS MAINTAINED BY THE COMPANY. THE COMPANY, M/S. G.S. FERTILIZERS PVT. LTD. HAS RECORD ED THE NAME OF GOPAL & SONS (HUF) AS A SHAREHOLDER. THUS, THE APPELLANT IS NOT ONLY T HE BENEFICIAL HOLDER OF THE SHARES BUT ALSO THE REGISTERED SHAREHOLDER. FURTHER, AS PER TH E PROVISIONS OF SECTION 2(22)(E) AS AMENDED W.E.F. 1.4.1998, THE ONLY REQUIREMENT TO AT TRACT PROVISIONS OF SEC. 2(22)(E) IS THAT THE SHAREHOLDER BE BENEFICIAL SHAREHOLDER. THE DECISION OF HONBLE APEX COURT RELIED UPON BY THE APPELLANT PERTAINS TO 1922 I.T. ACT AND THE DECISION OF THE APEX COURT WAS WITH REFERENCE TO PROVISIONS OF SEC. 2(6A)(E) O F THE I.T. ACT, 1922. IN FACT, IN THE SAME CASE AS IN THE CASE REPORTED IN 122 ITR 1, THE HON BLE SUPREME COURT IN THE CASE REPORTED IN 82 ITR 628 (SC) HAS HELD AS UNDER: 4 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 SHARES HELD BY KARTA, WHEN SHARES WERE ACQUIRED FR OM THE FUNDS OF THE HUF, COULD BE CONSIDERED TO BE SHARES HELD BY THE HUF AN D THEN LOAN MADE TO THE FAMILY COULD FALL WITHIN THE DEFINITION OF DIVIDEN D IN SEC. 2(22)(E). THE HONBLE SUPREME COURT IN THE CASE OF KISHANCHAN D LUNIDASING BAJAJ VS. CIT REPORTED IN 60 ITR 500 (SC) HAS HELD: SHARES WERE ACQUIRED WITH THE FUNDS OF A HUF AND W ERE HELD IN THE NAME OF KARTA. HUF COULD BE ASSESSED TO TAX ON THE DIVIDEND FROM THOSE SHARES. THE HONBLE KERALA HIGH COURT IN THE CASE OF GORDHA NDAS KHIMJI (HUF) VS. CIT REPORTED IN 186 ITR 365 (KER.) HAS HELD: ADVANCES TO HUF SHAREHOLDER BY THE COMPANY TO THE EXTENT OF ITS ACCUMULATED PROFITS WILL BE ASSESSABLE AS DEEMED DI VIDEND IN THE HANDS OF HUF AND NOT IN THE HANDS OF KARTA. RECENTLY, ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR (P) LTD. REPORTED IN 118 ITD 1 HAS HELD THAT FOR THE PURPOSE OF TAXING THE DEEMED DIVIDEND, THE SHAREHOLDER MUST BE BOTH BENEFICIAL AND REGISTERED SHAREHOLDER. THOUGH, AS MENTIONED ABOVE, AS PER THE AMENDED PROVISIONS OF SEC. 2(22)( E) OF THE ACT, THE SHARE HOLDER SHOULD BE BENEFICIAL OWNER OF THE SHARES HOLDING NOT LESS THAN TEN PER CENT OF THE VOTING POWER, EVEN IF THE RATIO OF THE DECISION OF THE SPECIAL BE NCH (SUPRA) IS CONSIDERED IN THE CASE OF APPELLANT, THE APPELLANT IS BOTH BENEFICIAL AS WELL AS REGISTERED SHARE HOLDER OF THE COMPANY AS MENTIONED ABOVE. (8.6) IN VIEW OF ABOVE FACTS, DISCUSSION AND LEGAL POSITION, I AM OF THE OPINON THAT THE AO WAS JUSTIFIED IN MAKING THE ADDITION OF RS. 1,20,10 ,988/- BY PROVISIONS OF SECTION 2(22)(E) OF THE ACT. THE CASE OF THE APPELLANT IS COVERED UN DER THE PROVISION OF SECTION 2(22)(E) FROM ALL THE ANGLES THEREFORE, THE ADDITION OF RS.1 ,20,10,988/- IS HEREBY CONFIRMED. THE GROUND NO. 2 IS DISMISSED. AGGRIEVED, ASSESSEE CAME IN APPEAL BEFORE US. 7. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STAT ED THAT THIS ISSUE IS COVERED BY THE DECISION OF MUMBAI B BENCH, TRIBUNAL IN THE CASE OF BINAL SEVANTILAL KORADIA (HUF) VS. DEPARTMENT OF INCOME TAX, ITA NO.2900/MUM/2011, AY 2007-08 DATED 10.10.2012, WHEREIN IT HAS BEEN HELD AS UNDER: 4. WE OBSERVE THAT THE AO CONSIDERED A SUM OF RS.6 0,64,205 RECEIVED FROM M/S. KARODIA CONSTRUCTIONS P. LTD. BY THE ASSESSEE AS DE EMED DIVIDEND UNDER SECTION 2 (22)(E) OF THE ACT. HOWEVER, LD. CIT(A) HAS HELD T HAT ASSESSEE IS NOT AT ALL THE SHAREHOLDER OF M/S. KARODAI CONSTRUCTIONS P. LTD. S HRI BINAL S. KARODIA IS A SHARE HOLDER IN HIS INDIVIDUAL CAPACITY ONLY AND, THEREFO RE, ASSESSEE HUF CANNOT BE SAID TO BE A SHAREHOLDER OR A BENEFICIAL SHAREHOLDER. LD. CIT (A) BY CONSIDERING THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR PVT LTD. 118 ITD 1/ 313 ITR 146(AT), HELD THAT LOANS RECEIVED BY THE ASSESSEE F ROM M/S. KARODIA CONSTRUCTIONS P. LTD., CANNOT BE TREATED AS DEEMED DIVIDEND U/S. 2(2 2)(E) OF THE ACT AS RECIPENT OF MONEY SHOULD BE A REGISTERED SHAREHOLDER AS WELL AS BENEF ICIAL SHAREHOLDER WHEREAS N THE CASE OF THE ASSESSEE NONE OF THE ABOVE CONDITIONS ARE SA TISFIED. 5. LD D.R. HAS NOT DISPUTED ABOVE FACTS AND AS MENT IONED ABOVE, BUT DUTIFULLY RELIED ON ORDER OF ASSESSING OFFICER. 5 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 6. THE ITAT, SPECIAL BENCH IN THE CASE OF BHAUMIK C OLOUR PVT LTD. (SUPRA) HELD THAT PROVISIONS OF SECTION 2(22)(E) OF THE ACT CREATE A FICTION BRINGING ANY AMOUNT PAID OTHERWISE THAN AS DIVIDEND INTO NET OF DIVIDEND. TH EREFORE, THIS CLAUSE MUST BE GIVEN STRICT INTERPRETATION. IT WAS HELD THEREIN THAT IF THE PER SON IS A REGISTERED HOLDER BUT NOT THE BENEFICIARY SHARE HOLDER, THEN PROVISIONS OF SECTIO N 2(22)(E) WILL NOT APPLY. SIMILARLY, IF A PERSON IS A BENEFICIARY SHARE HOLDER BUT NOT A REGI STERED SHARE HOLDER, THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTON 2(22)(E) WILL NOT APP LY. THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILL TOP (2009) 313 ITR 116(RA J) HAS HELD THAT IN ORDER TO ATTRACT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT, FOLLOWIN G FOUR CONDITIONS ARE THE SINE QUO NON I.E. (I) THE ASSESSEE SHOULD BE A SHAREHOLDER OF THE COMPANY ; (II) THE COMPANY SHOULD BE A CLOSELY HELD COMPANY IN WHICH THE PUBLIC ARE NOT SU BSTANTIALLY INTERESTED; (III) THERE MUST BE PAYMENT BY WAY OF ADVANCE OR LOAN TO A SHAREHOLDER OR ANY PAYMENT BY THE COMPANY ON BEHALF OF OR FOR THE INDIVIDUAL BENEFIT OF THE SHAREHOLDER; AND (IV) THERE MUST BE SUFFICIENT ACCUMULATED PROFITS IN THE HANDS OF THE COMPANY UP TO THE DATE OF SUCH PAYMENT. 3. ITA NO.2900/MUM/2011 ASSESSMENT YEAR: 2007-08 IT IS EVIDENT FROM THE ABOVE THAT THE RECIPIENT OF THE LOAN FROM A CLOSELY HELD COMPANY IN WHICH THE PUBLIC ARE NOT SUBSTANTIALLY INTERESTED S HOULD BE A REGISTERED SHAREHOLDER AS WELL AS BENEFICIAL SHARE HOLDER IN THE LENDER COMPA NY. HOWEVER, IN THE CASE BEFORE US, ASSESSEE IS NEITHER A SHAREHOLDER NOR A BENEFICIAL SHAREHOLDER AS OBSERVED BY LD CIT(A) AND NOT DISPUTED BY LD D.R. AT THE TIME OF HEARNG OF THE APPEAL. THEREFORE, THE VIEW TAKEN BY LD CIT(A) IS DRECTLY COVERED BY THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF BHAUMIK COLOUR P. LTD. AS WELL AS DECISION OF HONB LE RAJASTHAN HIGH COURT IN THE CASE OF HOTEL HILL TOP (SUPRA). IT IS RELEVANT TO STATE THAT SAME VIEW HAS BEEN TAKEN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF IN COME-TAX V. UNIVERSAL MEDICARE PRIVATE LIMITED, 324 ITR 263(BOM) AS WELL AS BY AUT HORITY OF ADVANCE RULING IN THE CASE OF MADURA COATS P. LTD., IN RE, 274 ITR 609. 7. IN VIEW OF ABOVE, WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF LD CIT(A). HENCE, WE UPHOLD HIS ORDER BY REJECTING GROUND OF APPEAL TAKE N BY DEPARTMENT. IN THE AFORESAID JUDGMENT OF MUMBAI TRIBUNAL IN THE CASE OF BINAL SEVANTILAL KARODIA (HUF), SUPRA, THE TRIBUNAL WAS FOLLOWED THE DECISION IN TH E CASE OF ACIT VS. BHAUMIK COLOUR PVT. LTD. 313 ITR 146(AT). THE LD. SR. DR HAS NOT CONTR OVERTED THAT THIS ISSUE IS COVERED. WE FIND THAT THIS ISSUE IS COVERED BY THE ORDER OF MUMBAI T RIBUNAL IN THE CASE OF BINAL SEVANTILAL KARODIA (HUF), SUPRA. HENCE, TAKING IT AS COVERED MATTER, WE ALLOW THIS ISSUE OF ASSESSEES APPEAL. 8. THE NEXT ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE ADDITION OF RS.1,00,356/- BY INVOKING THE PROVISIO NS OF SECTION 14A OF THE ACT QUA THE EXEMPTED INCOME. FOR THIS, ASSESSEE HAS RAISED FOL LOWING GROUND NO.3: ON THE FACTS BROUGHT ON RECORD, THE LD. CIT(A) OUG HT TO HAVE DELETED THE ADDITION OF RS.1,00,356/- U/S. 14A OF THE INCOME TAX ACT MADE B Y THE LD. ASSESSING OFFICER. 6 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 9. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE HAS EARNED DIVIDEND INCOM E AMOUNTING TO RS.43,747/- WHICH IS EXEMPTED INCOME. THE AO DURING THE COURSE OF ASSESS MENT PROCEEDING DISALLOWED A SUM OF RS.1,00,356/- THE EXPENDITURE INCURRED FOR THE EXEM PTED INCOME. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE STATED THAT THE TRIBUNAL IS TAKING A C ONSISTENT VIEW THAT RULE 8D WILL NOT APPLY PRIOR TO AY 2008-09. LD. COUNSEL FOR THE ASSESSEE STATED THAT THIS ISSUE IS COVERED BY THE DECISION IN ITA NOS. 2270 & 2271/K/2010, DCIT VS. T HE ASHOKA TRADING CO. PVT. LTD., AY 2006-07 AND 2007-08 DATED 23.03.2012, WHEREIN IT HA S BEEN HELD AS UNDER: WE FIND THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) HAS ALREADY HELD APPLICABILITY OF RULE 8D OF THE RULES AS PROSPECTIVE AND NOT RETROSPECTIVE W.E.F. A SSESSMENT YEAR 2008-09, WHEREIN HONBLE HIGH COURT HAS ALSO DIRECTED TO RECOMPUTE T HE DISALLOWANCE IN CASE THERE IS A NEXUS FOR EXPENSES WITH EXEMPT INCOME BY LAYING DOW N THE PRINCIPLE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE T OTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASON ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE WE FURTHER FIND THAT THE TRIBUNAL, KOLKATA BENCH ON THE SELF SAME FACTS IN THE CASE OF SAGRIKA GOODS & SERVICES PVT. LTD. VS. INCOME-TAX O FFICER, I.T.A NO. 1278/KOL/2010, ASSESSMENT YEAR 2005-06 DATED 24 TH SEPTEMBER, 2010 HAS HELD AS UNDER: 5. HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED ON BY THE LD. AUTHORISED REPRE SENTATIVE OF THE ASSESSEE CITED SUPRA. WE FIND THAT ON THE ISSUE OF DISALLOWANCE U/ S. 14A, THIS BENCH OF THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW THAT THI S DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOLLOWING THE SAME, IN THIS APPEAL ALSO WE HOLD THAT THE DISALLOWANCE U/S 14A FOR EARNING EXEM PT DIVIDEND INCOME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DO SO AND WORK OUT THE QUANTUM OF DISALLOWANCE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AS DIRECTED ABOVE. IN VIEW OF THE ABOVE, WE RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO 1% OF TOTAL EXEMPT INCOME AND DIRECT THE ASSESSING OFFICER TO W ORK OUT THE QUANTUM OF DISALLOWANCE ACCORDINGLY. THIS GROUND OF APPEAL OF REVENUE IS PA RTLY ALLOWED. 7 ITA NOS. 180 /K/2010 & ITA NO.2156/K/2009 GOPAL & SONS (HUF) , AY:2006-07 AS THE ISSUE IS COVERED, WE DIRECT THE AO TO RESTRI CT THE DISALLOWANCE AT 1% OF THE TOTAL EXEMPT INCOME AND WORK OUT THE QUANTUM OF DISALLOWANCE ACC ORDINGLY. THIS GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 10. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED A ND THAT OF ASSESSEE IS PARTLY ALLOWED. 11. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.01. 2014 SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27TH JANUARY, 2013 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT ITO, WARD-32(1), KOLKATA 2 ./,- / RESPONDENT GOPAL & SONS (HUF), 113, PARK STREET , KOLKATA-700 016. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .