Kirloskar Ebara Pumps Ltd., Pune V. ACIT, Circle 11(1), Pune

ITA 2196/PUN/2012

• Counselvise Citation: 219624514 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 05-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MODI; S B WALIMBE
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 2196/PN/2012 (ASSESSMENT YEAR 2008-09) KIRLOSKAR EBARA PUMPS LTD., PRIDE KUMAR SENATE BUILDING, SENAPATI BAPAT ROAD, PUNE-411016 PAN NO.AAACK7293A .. APPELLANT VS. ACIT, CIRCLE11(1), PUNE .. RESPONDENT APPELLANT BY : SHRI C.H. NANIWADEKAR RESPONDENT BY : SHRI S.B.WALIMBE & SHRI A.K. MODI DATE OF HEARING : 02-12-2013 DATE OF PRONOUNCEMENT : 10-12-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE ASSESSING OFFICER PASSED U/S.143(3) R.W.S. 144C OF THE INCOME TAX 2. DISALLOWANCE OF RS.5,57,657/- U/S.14A IS THE ONL Y ISSUE RAISED BY THE ASSESSEE IN THE EFFECTIVE GROUND OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURERS OF SINGLE STAGE AND MULTI STAGE INDUSTRIAL PROCESS PUMPS AND STEAM TURBINES. IT FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS.28,30,63,579 /- ON 26-09-2008. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE ASSESSING OFFICER THAT IT HAS INVESTED RS.11,15,31, 587/- IN VARIOUS ASSETS THE INCOME OF WHICH IS EXEMPT. HE OBSERVED THAT THE ASSESSEE 2 HAS RECEIVED DIVIDEND INCOME OF RS.12,72,877/-. TH E INVESTMENT WAS MADE DURING THE YEAR OUT OF CAPITAL AND RESERVES AN D SURPLUS. THE ASSESSING OFFICER PROPOSED DISALLOWANCE OF 0.5% BE ING THE AVERAGE VALUE OF INVESTMENT WHICH WORKED OUT TO RS.5,57,657 /- U/S.14A R.W. RULE 8D. 4. BEFORE THE DRP IT WAS SUBMITTED THAT RULE 8D WAS NOT MANDATORY AND CAN BE INVOKED ONLY IF THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT WAS ARGUED THAT THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION THAT THE CALCULATION OF THE ASSESSEE WAS INCORRECT. REL YING ON THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF D CIT VS. JINDAL PVT. LTD. IT WAS ARGUED THAT NO DISALLOWANCE IS CALLED F OR. 5. HOWEVER, THE DRP WAS NOT SATISFIED WITH THE EXPL ANATION GIVEN BY THE ASSESSEE. IT WAS OBSERVED THAT THE ASSESSEE HAS WORKED OUT THE DISALLOWANCE AT RS.50,000/- AND THE DETAILS AS TO H OW SUCH CALCULATION WAS ARRIVED AT WAS NOT GIVEN. IT WAS ARGUED THAT T HE DISALLOWANCE SO ESTIMATED BY THE ASSESSEE AT RS.50,000/- IS NOT BAS ED ON ANY SCIENTIFIC WORKING IN RELATION TO THE ACCOUNTS OF THE ASSESSEE . THE DRP ACCORDINGLY UPHELD THE DRAFT ASSESSMENT ORDER WHERE IN THE ASSESSING OFFICER HAS DISALLOWED THE EXPENDITURE OF RS.5,57,6 57/- U/S.14A(1) R.W. RULE 8D. IN ASSESSMENT, IN ABSENCE OF ANY FRE SH MATERIAL THE ASSESSING OFFICER MADE ADDITION OF RS.5,57,657/- U/ S.14A WHICH IS THE SUBJECT MATTER OF APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE ASSESSING OFFICER AN D DRP. IT WAS SUBMITTED THAT THE ASSESSEE HAS ALREADY DISALLOWED AN AMOUNT OF 3 RS.50,000/- BEING EXPENSES ATTRIBUTABLE FOR EARNING SUCH EXEMPT INCOME. THE ASSESSING OFFICER HAS AT NO POINT OF TI ME MENTIONED HOW THE CALCULATION ARRIVED AT BY THE ASSESSEE IS WRONG . THERE IS NO RECORD OF HIS SATISFACTION FOR THE ABOVE. REFERRING TO TH E DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAJSHRI PRODUCTION PVT. LTD. VS. ADDL. CIT VIDE ITA NO.5983/M/2011 ORDER DA TED 13-11- 2013 FOR A.Y. 2008-09 HE SUBMITTED THAT THE TRIBUNA L UNDER IDENTICAL FACTS AND CIRCUMSTANCES FOLLOWING THE DECISION OF H ONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. AND OTH ERS REPORTED IN 247 CTR 162 HAS OBSERVED THAT MERE MENTIONING BY TH E ASSESSING OFFICER THAT HE WAS NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM MADE BY THE ASSESSEE IS NOT SUFFICIENT. HE ACCORDI NGLY SUBMITTED THAT NO DISALLOWANCE UNDER THE FACTS AND CIRCUMSTANCES O F THE CASE IS CALLED FOR. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND WHILE SUPPORTING THE ORDER OF THE ASSESSING OFFICER REFE RRED TO THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. THE BANK OF RAJASTHAN LTD. VS. ITA NO.3655/MUM/2012 ORD ER DATED 03- 07-2013 RELATING TO A.Y. 2008-09. REFERRING TO THE SAID DECISION, HE SUBMITTED THAT UNDER SOMEWHAT SIMILAR CIRCUMSTANCES THE TRIBUNAL HAS SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OF FICER U/S.14A BY REVERSING THE DECISION OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND DRP AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS BROUGHT TO OUR NOTICE BY BOTH THE SIDES. IN THE 4 INSTANT CASE, THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.12,72,877/- AND HAS SUO-MOTO DI SALLOWED AN AMOUNT OF RS.50,000/- TOWARDS EXPENDITURE ATTRIBUTA BLE FOR EARNING THE EXEMPT DIVIDEND INCOME. WE FIND THE ASSESSING OFFI CER NOT BEING SATISFIED WITH THE CALCULATION MADE BY THE ASSESSEE DISALLOWED AN AMOUNT OF RS.5,57,657/ BEING 0.5% OF THE AVERAGE VA LUE OF INVESTMENT AS EXPENSES TOWARDS EARNING OF SUCH EXEMPT INCOME. 8.1 IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSES SEE THAT SINCE THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION THAT THE CALCULATION MADE BY THE ASSESSEE IS WRONG, THEREFOR E, DISALLOWANCE OF RS.5,57,657/- CANNOT BE SUSTAINED. IT IS THE SUBMIS SION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE DISALLOWANCE M ADE BY THE ASSESSEE IS ALSO ON ADHOC BASIS AND IT IS NOT SCIEN TIFIC. SINCE THERE IS NO PROPER METHOD ADOPTED BY THE ASSESSEE THE ASSESS ING OFFICER IS NOT REQUIRED TO RECORD HIS SATISFACTION THAT SUCH CALCU LATION IS WRONG. 8.2 ADMITTEDLY, THE ASSESSEE IN THE INSTANT CASE HA S SUO-MOTO DISALLOWED AN AMOUNT OF RS.50,000/- ON ADHOC BASIS AND THE SAME IS NOT BASED ON ANY SCIENTIFIC METHOD. THEREFORE, THE CALCULATION ADOPTED BY THE ASSESSEE CANNOT BE ACCEPTED AS CORRE CT. AT THE SAME TIME, THE ASSESSING OFFICER ALSO HAS NOT GIVEN ANY SCIENTIFIC METHOD AND HAS GONE ON THE BASIS OF 0.5% OF THE AVERAGE IN VESTMENT TOWARDS EXPENDITURE ATTRIBUTABLE FOR EARNING THE EXEMPT DIV IDEND INCOME. SINCE THE ASSESSMENT YEAR INVOLVED IN THE INSTANT C ASE IS 2007-08, THEREFORE, RULE 8D IS NOT APPLICABLE. AT THE SAME T IME, THE CALCULATION OF DISALLOWANCE U/S.14A SHOULD BE REASONABLE. SINC E THE ASSESSEE IN THE INSTANT CASE HAS MERELY ESTIMATED THE EXPENDITU RE ATTRIBUTABLE FOR 5 EARNING THE DIVIDEND INCOME AT RS.50,000/- AND SINC E THE ASSESSING OFFICER IN ABSENCE OF ANY MATERIAL BEFORE HIM HAS D ETERMINED SUCH DISALLOWANCE AT 0.5% OF THE AVERAGE INVESTMENT, THE REFORE, BOTH THE METHODS IN OUR OPINION ARE NOT SCIENTIFIC. CONSIDE RING THE TOTALITY OF THE FACTS OF THE CASE, DISALLOWANCE OF RS.2,50,000/ - UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE IN OUR OPINION WILL MEET THE ENDS OF JUSTICE. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 10-12-2013. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 10 TH DECEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. D.R. B BENCH, PUNE 4. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE