ALCO COMPANY P. LTD, MUMBAI V. ASST CIT 2(1), MUMBAI

ITA 2305/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92672 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JEEVANLAL LAVIDIYA
• Assessee Lawyers: CHETAN A KARIA
• Keywords: Earning of tax free income; Condonation of delay
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER . / ITA NO.2305/MUM/2013 / ASSESSMENT YEAR 2005-06 ALCO COMPANY P. LTD., 3 RD FLOOR, RAHIMTOOLA HOUSE, 7, HOMJI STREET, FORT, MUMBAI 400001 / VS. ASSTT. COMMISSIONER OF INCOME TAX 2(1), MUMBAI. ./ ./ PAN/GIR NO. : AAACA 1031G ( / APPELLANT ) .. ( / RESPONDENT ) . / ITA NO.1799/MUM/2013 / ASSESSMENT YEAR 2005-06 THE DCIT 2(1), AAYKAR BHAVAN, ROOM NO.561, 5 TH FLOOR, MK ROAD, MUMBAI 400 020 / VS. ALCO COMPANY P. LTD., 3 RD FLOOR, RAHIMTOOLA HOUSE, 7, HOMJI STREET, FORT, MUMBAI 400001 ./ ./ PAN/GIR NO. : AAACA 1031G ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY SHRI CHETAN A. KARIA REVENUE BY SHRI JEEVANLAL LAVIDIYA ' # $ / DATE OF HEARING : 08/06/2015 ' # $ / DATE OF PRONOUNCEMENT : 08/06/2015 / O R D E R PER I.P.BANSAL, J.M: THESE ARE CROSS APPEALS AND ARE DIRECTED AGAINST ORDER PASSED BY LD. CIT(A)-4, MUMBAI DATED 18/12/2012 FOR ASSESSMENT Y EAR 2005-06. GROUNDS OF APPEAL READ AS UNDER: . / ITA NO.2305& 1799/MUM/2013 / ASSESSMENT YEAR 2005-06 2 GROUNDS OF ASSESSEES APPEAL: 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN CONFIRMING DISALLOWANCE OF RS.16,23,432/- U/S.14A OF THE ACT AS AGAINST RS.4,8 5,000/- DISALLOWANCE BY THE ASSESSEE. 2) THE APPELLANT PRAYS THAT: I) DISALLOWANCE U/S.14A MAY BE RESTRICTED TO THE AMOUN T OF RS.4,85,000/- II) RECOVERY OF DEMAND IN DISPUTE MAY BE STAYED; III) PERSONAL HEARING MAY BE GRANTED; IV) ANY OTHER RELIEF YOUR HONOURS MAY DEEM FIT. GROUNDS OF REVENUES APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND LAW, THE LEARNED CIT(A) HAS ERRED IN ALLOWING RELIEF TO THE ASSESSEE TO THE EXTENT IM PUGNED IN THE GROUNDS ENUMERATED BELOW: 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN RE-WORKING THE DISALLOWANCE U/S. 14A ON AD-HOC BASI S IGNORING THE FACT THAT THE AO HAD WORKED OUT THE DISALLOWANCE U/S.14A BY THE CALC ULATION METHOD PRESCRIBED IN RULE 8D WHICH HAS BEEN ACCEPTED AS A REASONABLE MET HOD BY THE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. ( 328 ITR 81) 2. IT MAY BE MENTIONED HERE THAT THE APPEAL FILED B Y THE ASSESSEE IS A BELATED ONE AND IS DELAYED BY 11 DAYS. AN APPLICAT ION FOR CONDONATION OF DELAY HAS BEEN FILED, WHICH IS DATED 9/6/2014 AND AN AFFIDAVIT IS ALSO FILED BY JOINT MANAGING DIRECTOR. IT IS STATED IN THE APPLI CATION THAT THE PAPERS TO BE FILED ALONG WITH THE APPEAL WERE FORWARDED TO THE CHARTERED ACCOUNTANT AND DUE TO COMMUNICATION GAP AT THE END OF THE CHARTERE D ACCOUNTANTS OFFICE THE DELAY HAS OCCURRED. 3. IN THIS VIEW OF THE SITUATION, AFTER HEARING BOT H THE PARTIES, AS DELAY IS SMALL WE CONDONE THE DELAY IN FILING THE APPEAL A ND PROCEED TO DECIDE THESE APPEALS. 4. THE ISSUE RAISED BY BOTH THE PARTIES IS COMMON I .E. REGARDING DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME T AX ACT, 1961(THE ACT). EARLIER THE MATTER WAS RESTORED BACK BY THE TRIBUNA L TO THE FILE OF AO FOR RE- ADJUDICATION OF DISALLOWANCE UNDER SECTION 14A IN THE LIGHT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA). THE AO CALCULATED THE DISALLOWANCE BY APP LYING 0.5% OF AVERAGE . / ITA NO.2305& 1799/MUM/2013 / ASSESSMENT YEAR 2005-06 3 INVESTMENT I.E. REGARDING THE EXPENDITURE AND COMPU TED THE DISALLOWANCE AT RS.29,82,705/-. THE DISALLOWANCE WAS AGITATED IN T HE APPEAL FILED BEFORE LD. CIT(A)AND ASSESSEE SUBMITTED A CALCULATION BEFOR E LD. CIT(A) FOR MAKING THE DISALLOWANCE U/S.14A. THE SAID CALCULATION IS RE PRODUCED BY LD. CIT(A) IN PARA-4.1 OF HIS ORDER, WHICH FOR THE SAKE OF CONVEN IENCE IS REPRODUCED BELOW: DISALLOWANCE ON THE BAS SI EXPENSES TO RATIO OF SA LES: TAXABLE INCOME AMOUNT PROPOSITION OTHER INCOME 12,84,809 SALES 1,93,62,156 2,06,46,964 16% EXEMPT INCOME DIVIDEND 10,12,02,024 INTEREST ON TAX FREE BONDS 79,18,562 LONG TERM GAIN EXEMPT 10,91,20,586 84% TOTAL INCOME AS PER P&L 12,97,67,550 100% INDIRECT EXPENSES 86,83,860 LESS : DIRECTLY RELATED TO SALES 71,60,428 A MOUNTS ALREADY DISALLOWED 9,04,906 80,65,33 4 EXPENSES RELATING TO ENTIRE BUSINESS: 6,18,526 84% OF EXPENSES TO BE DISALLOWED 5,20,114 ADD: EXPENSES SPENT FOR INVESTMENT 9,04,906 TOTAL DISALLOWANCE 14,25,020 5. LD. CIT(A) AFTER GOING THROUGH THE DETAILS OF EX PENSES AND ABOVE CALCULATION OF THE ASSESSEE HAS COME TO A CONCLUSIO N THAT IN PLACE OF RS.14,25,020/- CALCULATED IN THE AFOREMENTIONED TA BLE, THE DISALLOWANCE WAS REQUIRED TO BE MADE AT A SUM OF RS.16,23,432/- AND , THEREFORE, HE REDUCED THE DISALLOWANCE TO A SUM OF RS.16,23,432/-. THE RELEV ANT OBSERVATIONS OF LD. CIT(A), FOR THE SAKE OF CONVENIENCE, ARE REPRODUCED BELOW: 5. I HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS OF THE ASSESSEE. THE TOTAL DIVIDEND INCOME, INTEREST ON TAX' FREE BONDS ARE RS.I0,91,20,586/- AND IT IS 84% OF THE TOTAL RECEIPTS OF THE ASSESSEE INCLUDING OTHER INCOME AND SALES. ASSESSEE HAS CLAIMED AS PER THE CHART REPRODUCED AB OVE THAT CERTAIN EXPENSES ARE RELATING TO SALES ONLY AND THEY CANNOT BE APPOR TIONED, WHEREAS, A.O. HAS CALCULATED THE DISALLOWANCE ON THE BASIS OF THE INV ESTMENT MADE AS PER RULE 8D AND THE QUESTION OF ALLOCATION DOES NOT ARISE. BUT HON'BLE ITAT IN THE CASE OF GILLETTE GROUP INDIA PVT. LTD. 16 ITR (TRIB) 57 HAS HELD THAT THE DISALLOWANCE CANNOT BE MORE THAN THE EXPENSES CHARGED TO PROFIT AND LOSS ALC. EVEN AS PER RULE BD, WHEREAS, IN THE CASE OF THE ASSESSEE EXPENSES O THER THAN RELATED TO SALES ARE RS.9,04,906/- DIRECTLY RELATED TO INVESTMENT U/S. 1 4A AND OTHER APPORTIONABLE EXPENSES ARE RS.6,18,526/- AS PER THE CHART GIVEN B Y THE ASSESSEE AND, . / ITA NO.2305& 1799/MUM/2013 / ASSESSMENT YEAR 2005-06 4 THEREFORE, THE DISALLOWANCE ON ACCOUNT OF EXPENSES SHOULD NOT BE MORE THAN RS.15,23,432/- WHICH ARE THE TOTAL EXPENSES OTHER T HAN THE EXPENSES DIRECTLY RELATED TO SALES. WHEREAS, THE EXPENSES CLAIMED BY THE ASSESSEE AS DIRECTLY RELATABLE TO SALES HAVE NOT BEEN VERIFIED BY THE A. O. AND CERTAIN EXPENSES, LIKE REPAIR AND MAINTENANCE, RENT AND ELECTRICITY, TRAVE LLING EXPENSES ETC. CANNOT BE SAID TO BE ENTIRELY RELATED TO SALES, THEREFORE, ON ADHOC BASIS RS.1 LAKH ARE MORE ALLOCATED TO THE DIVIDEND EARNING ACTIVITY OF THE A SSESSEE AND A TOTAL DISALLOWANCE, WHICH IS ALSO A REASONABLE DISALLOWAN CE IN VIEW OF THE DECISION IN GODREJ & BOYCE MFG. CO. LTD. VS. CIT 328 ITR 81, OF RS.16,23,432/- IS CONFIRMED. THIS IS A REASONABLE DISALLOWANCE BY RESPECTFULLY F OLLOWING THE DECISION OF HON'BLE ITAT IN THE CASE OF GILLETTE GROUP INDIA PV T. LTD. (SUPRA) ALSO. IN RESULT, THE GROUND OF APPEAL IS TREATED AS PARTLY ALLOWED. THE DEPARTMENT IS AGGRIEVED WITH THE PART DISALLOW ANCE, WHICH HAS BEEN DELETED BY LD. CIT(A) AND ASSESSEE IN ITS APPEAL IS AGGRIEVED WITH THE DISALLOWANCE SUSTAINED TO THE EXTENT OF RS.16,23,43 2/- IN PLACE OF DISALLOWANCE OF RS.14,25,020/- CALCULATED IN THE ABOVE TABLE. 6. ON THE THESE FACTS, IT WAS SUBMITTED BY LD. AR THAT ASSESSEE HAS RIGHTLY ALLOCATED 84% EXPENSES WHICH WAS CALCULATED TO RS.5 ,20,114/- AND LD. CIT(A) WITHOUT ASSIGNING ANY REASON HAS CONSIDERED 100% EX PENSES AND HAS FURTHER ADDED A SUM OF RS.1.00 LAC. HE SUBMITTED THAT IN A SSESSMENT YEAR 2005-06 RULE 8D IS NOT APPLICABLE AS PER DECISION OF HONBL E BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. (SUPRA), THERE FORE, LD. CIT(A) HAS RIGHTLY HELD THAT RULE 8D COULD NOT BE APPLIED. HE SUBMITTE D THAT THOUGH ASSESSEE IN ITS GROUNDS OF APPEAL HAS ASSAILED THE ENTIRE ADDIT ION OVER AND ABOVE RS.4,85,000/- BUT ASSESSEES GRIEVANCE IN THE PRES ENT APPEAL IS LIMITED ONLY TO THE EXTRA DISALLOWANCE UPHELD BY LD. CIT(A) ABOVE R S.14,25,020/-, CALCULATED IN THE AFOREMENTIONED TABLE. 7. ON THE OTHER HAND, LD. DR ARGUING THE APPEAL FOR REVENUE SUBMITTED THAT DISALLOWANCE WAS RIGHTLY CALCULATED BY AO AS P ER RULE 8D, WHICH IS A REASONABLE DISALLOWANCE. IN REPLY TO THE ARGUMENTS OF LD. AR IT WAS SUBMITTED BY HIM THAT LD. CIT(A) DID NOT COMMIT ANY ERROR I N MAKING FURTHER ADDITION TO THE AFOREMENTIONED CALCULATION SUBMITTED BY THE ASS ESSEE. . / ITA NO.2305& 1799/MUM/2013 / ASSESSMENT YEAR 2005-06 5 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE CAREFULLY BEEN CONSIDERED. AS PER AFOREMENTIONED DECISION OF HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. (SUPRA), RULE 8D IS NOT APPLICABLE TO THE ASSESSMENT YEARS PRIOR TO ASSESSMENT YEAR 2008-09. THE DISALLOWANCE CALCULATED BY THE AO AT A SUM OF RS.29,82,705/- IS IN ACCORDANCE WITH RULE 8D, WHICH CANNOT BE UPHELD, THEREFORE, FINDING NO MERIT IN REVENUES APPEAL THE SAME IS DISMISSED. 9. NOW COMING TO THE APPEAL FILED BY THE ASSESSEE, WE HAVE GONE THROUGH THE AFOREMENTIONED CALCULATION SUBMITTED BY THE ASS ESSEE AND ALSO THE ORDER PASSED BY LD. CIT(A), WE FOUND THAT THE CALCULATIO N SUBMITTED BY THE ASSESSEE IS REASONABLE AND WAS REQUIRED TO BE ACCEPTED BY LD . CIT(A). THEREFORE, CONSIDERING THE DETAILS OF EXPENDITURE AND CALCULAT ION SUBMITTED BY THE ASSESSEE, WE UPHOLD THE DISALLOWANCE ONLY TO THE EX TENT OF RS.14,25,020/- AND REST OF THE DISALLOWANCE UPHELD BY LD. CIT(A) IS DE LETED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/06/201 5 ' )* + , 08/06/2015 ' SD/- SD/- ( . / D.KARUNAKARA RAO ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER ) MUMBAI; + DATED 08/06/2015 . / ITA NO.2305& 1799/MUM/2013 / ASSESSMENT YEAR 2005-06 6 ! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /# ( ) / THE CIT(A)- 4. /# / CIT 5. 01 #23 , $ 23 , ) / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, 0# # //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ) / ITAT, MUMBAI . . ./ VM , SR. PS