Nav Bharat Vanijya Ltd., New Delhi V. DCIT, New Delhi

ITA 2242/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0608 (ITAT-DELHI)
• Duration Of Justice: 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 11-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: V P GUPTA ADOVATE
• Keywords: Business income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `F: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER. I.T. A. NO.2242/DEL/2010 ASSESSMENT YEAR: 2006-07 NAV BHARAT VANIJYA LTD., DY. COMMISSIONER OF INC OME-TAX, LINK HOUSE, 4 TH FLOOR, VS. CIRCLE 13(1), NEW DELHI. 3, BAHADUR SHAH ZAFAR MARG, NEW DELHI. PAN: AAACN8947L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI V. P. GUPTA, ADOVATE. RESPONDENT BY: SMT. BANITA DEVI NAOREM, SR. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE COMMISSIONER OF INCOME-TAX (APPEALS)S ORDER DATED 01.03.2010, PERTAINING TO T HE A.Y. 2006-07. 2 2. VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DIRECTED AGAINST THE CIT(A)S ORDER IN UPHOLDING DISALLOWANCE OF RS. 1,40,026/- UNDER SEC. 14A READ WITH RULE 8D OF THE INCOME-TAX RULES. DUR ING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSES SING OFFICER THAT THE ASSESSEE COMPANY HAD SHOWN DIVIDEND INCOME OF RS.4, 88,785/- WHICH WAS CLAIMED TO BE EXEMPTED U/S 10(34) OF THE INCOME-TAX ACT. IT WAS FURTHER OBSERVED BY THE AO THAT THOUGH DIVIDEND INCOME WAS CLAIMED AS EXEMPTED, NO DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT WAS OFFERED BY THE ASSESSEE. THE AO, THEREFORE, ASKED THE ASSESSEE TO GIVE THE D ETAILS OF MANAGERIAL EXPENSES THAT WERE INCURRED RELATING TO EARNING OF DIVIDEND INCOME CLAIMED TO BE EXEMPTED FROM TAX AND THEN TO SHOW CAUSE AS T O WHY PROPORTIONATE MANAGERIAL EXPENSES INCURRED TO EARN THE EXEMPT INC OME BE NOT DISALLOWED U/S 14A OF THE ACT. IN REPLY THERETO, THE ASSESSEE SUBMITTED BEFORE THE AO THAT COMPANY WAS DEALING IN SHARES AND SECURITIES H OLDING THEM AS STOCK-IN- TRADE AND THE INCOME FROM THIS ACTIVITY WAS REGULAR LY OFFERED AS BUSINESS INCOME. IT WAS FURTHER POINTED OUT BY THE ASSESSEE THAT THE DIVIDEND INCOME EARNED BY THE ASSESSEE WAS INCIDENTAL TO TRADING AC TIVITY AND NO DIRECT AND INDIRECT EXPENSES WERE INCURRED BY THE ASSESSEE TO EARN DIVIDEND INCOME. THEREFORE, THE ASSESSEE PLEADED BEFORE THE AO THAT SEC. 14A WAS NOT APPLICABLE TO THE ASSESSEES CASE. 3 3. THE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED BY THE AO. ON THE BASIS OF GUIDELINES PROVIDED IN NOTIFICATION NO.45/ 2008 DATED 24.03.2008, THE AO WORKED OUT THE SUM OF RS.1,40,026/- TO BE AN EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EXEMPT DIVIDEND INCO ME. THE AO THEREFORE, DISALLOWED THE SUM OF RS.1,40,026/- OUT OF THE EXPE NSES. 4. ON AN APPEAL, THE CIT(A) APPLIED THE RATIO OF SP ECIAL BENCH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (200 9) 117 ITD 169 (MUM.)(SB) AND UPHELD THE AOS ACTION. THE CIT(A) REJECTED THE ASSESSEES CONTENTION THAT PROVISION OF SEC. 14A RE AD WITH RULE 8D OF INCOME-TAX RULES WERE NOT APPLICABLE TO THE ASSESSM ENT YEAR UNDER CONSIDERATION IN THE LIGHT OF THE DECISION OF SPECI AL BENCH OF ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA). 5. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. 7. THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA) HOLDING THAT RULE 8D IS APPLICABLE RETROSPECTIVELY, HAS BEEN OVER-RULED BY THE DECISIO N OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. L TD. VS. DCIT (2010- TIOL-564-HC-MUM-IT), WHERE IT HAS BEEN LAID DOWN TH AT RULE 8D WAS NOT 4 APPLICABLE PRIOR TO THE ASSESSMENT YEAR2008-09. TH E HONBLE BOMBAY HIGH COURT FURTHER HELD THAT SEC. 14A IS APPLICABLE IN E ARLIER YEARS AND THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE PRESENT CASE IS REL ATED TO THE ASSESSMENT YEAR 2006-07 AND THUS, PROCEDURE PRESCRIBED IN RULE 8D T O DETERMINE THE EXPENSES TO BE DISALLOWED SHALL NOT BE APPLICABLE T O THE PRESENT CASE. THEREFORE, THE AOS METHOD OF DISALLOWING THE SUM O F RS.1,40,026/- BY APPLYING NOTIFICATION NO.45/2008 DATED 24.03.2008 I S UNJUSTIFIED AND NOT TENABLE. HOWEVER, CERTAIN EXPENDITURE MUST HAVE BE EN INCURRED BY THE ASSESSEE TO EARN DIVIDEND INCOME FROM THE SHARES AN D SECURITIES HELD AS STOCK-IN-TRADE. THE HONBLE BOMBAY HIGH COURT HAS HELD THAT THE AO MUST ADOPT A REASONABLE BASIS TO WORK OUT THE EXPENSES T HAT MIGHT HAVE BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. HAVING R EGARD TO THE FACTS OF THE PRESENT CASE, WE FIND THAT 10% OF THE DIVIDEND INCO ME WOULD BE SUFFICIENT FOR THE PURPOSE OF DISALLOWANCE OF EXPENSES INCURRE D BY THE ASSESSEE TO EARN THE DIVIDEND INCOME. WE THEREFORE, DIRECT THE AO T O DISALLOW THE SUM OF RS.48,880/- WHICH IS ROUNDED TO RS.49,000/- U/S 14A OF THE ACT ON ACCOUNT OF SOME MANAGERIAL EXPENSES THAT MIGHT HAVE BEEN IN CURRED BY THE ASSESSEE TO EARN THE DIVIDEND INCOME FROM THE SHARES AND SEC URITIES HELD AS STOCK-IN- TRADE. THE DISALLOWANCE OF RS.1,40,026/- CONFIRMED BY THE CIT(A) IS THUS, 5 REDUCED TO RS.49,000/-. THE AO SHALL MODIFY THE AS SESSMENT ORDER ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 9. THIS DECISION IS PRONOUNCED IN THE OPEN COURT IM MEDIATELY AFTER THE HEARING WAS OVER ON 11 TH JANUARY, 2011. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 11 TH JANUARY, 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.