HV AXLES LTD, MUMBAI V. ADDL CIT 2(1), MUMBAI

ITA 2229/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8475 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 17-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 19-03-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: DINESH VYAS
• Keywords: Rule 8D; Set aside
• Section: 14A; 2

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI BEFORE SHRI RAJENDRA SINGH(AM) AND SHRI V.D.RAO, (JM) ITA NO.2229/M/2010 ASSESSMENT YEAR 2005-06 M/S. HV AXLES LTD. THE ADDL.CIT 2(1), 3 RD FLOOR, NANAVATI MAHALAYA AAYAKAR BHAVAN, M.K. ROAD 18, HOMI MODI STREET, HUTATMA CHOWK MUMBAI 400 020 . MUMBAI 400 001. APPELLANT RESPONDENT ASSESSEE BY : SHRI DINESH VYAS REVENUE BY : SHRI SHRAVAN KUMAR O R D E R PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 22.1.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2005-06 . THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING DISALLOW ANCE OF EXPENSES UNDER SECTION 14A OF THE INCOME-TAX ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.1,08,89,739/- WHICH WAS EXEMPT FROM TA X. THE AO THEREFORE ASKED THE ASSESSEE TO EXPLAIN AS TO WHY T HE EXPENSES ATTRIBUTABLE TO THE INVESTMENT FROM WHICH THE DIVID END HAD BEEN EARNED SHOULD NOT BE DISALLOWED UNDER SECTION 14A O F THE INCOME-TAX ACT. THE ASSESSEE EXPLAINED THAT IT HAD INVESTED SU RPLUS FUND 2 TEMPORARILY IN MUTUAL FUNDS FROM WHICH DIVIDEND HAS BEEN RECEIVED WHICH WAS TAXABLE AS INCOME FROM OTHER SOURCES AN D THEREFORE NO DISALLOWANCE COULD BE MADE. AO, HOWEVER, OBSERVED T HAT THE DIVIDEND INCOME WAS EXEMPT AND THEREFORE RELATED EXPENSES WE RE DISALLOWABLE. IT WAS NOTED BY HIM THAT THE ASSESSEE HAD SUBSTANTI AL BORROWINGS AND THE FUNDS WERE MIXED AND THAT 15.33% OF TOTAL FUNDS CONSTITUTED BORROWED FUNDS. HE THEREFORE TREATED 15.33% INVESTM ENT AS HAVING BEEN MADE FROM BORROWED FUNDS AND PROPORTIONATE INT EREST AMOUNTING TO RS.2.94 LACS WAS THEREFORE DISALLOWED. AS REGARD S OTHER EXPENSES, AO ESTIMATED THE SAME AT 5% OF THE DIVIDEND INCOME WHICH CAME TO RS.5,44,484/- WHICH WAS ALSO DISALLOWED. THE TOTAL DISALLOWANCE OF EXPENDITURE WAS THUS AT RS.8,38,387/-. 3. IN APPEAL CIT(A) AGREED WITH THE AO THAT EXPENSE S RELATED TO DIVIDEND INCOME HAD TO BE DISALLOWED. HOWEVER HE HE LD THAT DISALLOWANCE HAD TO BE COMPUTED AS PER RULE 8D WHIC H HAD RETROSPECTIVE APPLICATION. ACCORDINGLY HE DIRECTED THE AO TO RECOMPUTE THE DISALLOWANCE AS PER RULE 8D, AGGRIEV ED BY WHICH THE ASSESSEE IS IN APPEAL. 4. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REG ARDING DISALLOWANCE OF EXPENSES IN RELATION TO DIVIDEND INCOME WHICH WA S EXEMPT FROM TAX. IN TERMS OF THE PROVISIONS OF SECTION 14(2) AN D 14(3) DISALLOWANCE OF EXPENSES HAS TO BE MADE AS PER THE METHOD PRESCRIBED BY GOVERNMENT. THE GOVERNMENT HAVE SINCE NOTIFIED RULE NO.8D PRESCRIBING THE METHOD FOR COMPUTATION OF DIS ALLOWANCE, CIT(A) 3 HAS HELD THAT RULE 8D HAD RETROSPECTIVE APPLICATION AND HAS TO BE APPLIED FOR ASSESSMENT YEAR UNDER REFERENCE ALSO. H OWEVER THIS VIEW HAS NOT BEEN UPHELD BY THE HONBLE HIGH COURT OF MU MBAI, WHICH RECENTLY IN CASE OF GODREJ & BOYCE MANUFACTURING CO . LTD. (328 ITR 81) HAVE HELD THAT RULE 8D WOULD APPLY ONLY FROM AS SESSMENT YEAR 2008-09 AND THAT FOR THE PRIOR PERIOD DISALLOWANCE HAS TO BE MADE ON REASONABLE BASIS AFTER ALLOWING OPPORTUNITY OF HEAR ING TO THE ASSESSEE. THE ASSESSMENT YEAR INVOLVED IN THE PRESE NT CASE IS A.Y.2005-06 AND THEREFORE RULE 8D COULD NOT BE APPL IED FOR THIS YEAR. WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND REST ORE THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AFTER TAKING INTO ACCOUNT THE JUDGMENT OF HONBLE HIGH COURT OF MUMBAI IN CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA) AND AFTER CONSIDERIN G FURTHER SUBMISSIONS AS MAY BE MADE BY THE ASSESSEE ON THE I SSUE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 6. THE DECISION WAS PRONOUNCED IN THE OPEN COURT TO DAY (I.E. 17.02.2011) SD/- SD/- ( V.D. RAO ) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 17.02.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 4 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR H BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK