SUNSTAR GRAPHICS P. LTD, MUMBAI V. ITO 8(2)(4), MUMBAI

ITA 2328/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7702 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 16-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 2328 / MUM . /2018 ( ASSESSMENT YEAR : 20 05 06 ) SUNSTAR GRAPHICS PVT. LTD. A 6, NEELAM CENTRE S.K. AHIRA MARG WORLI, MUMBAI 400 025 PAN AABCS9955Q . APPELLANT V/S INCOME TAX OFFICER WARD 8 (2)( 4 ), MUMBAI . RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI CHAITANYA ANJARIA DATE OF HEARING 03 . 0 1 .201 9 DATE OF ORDER 16.01.201 9 O R D E R A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 29 TH NOVEMBER 201 7, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 14 , MUMBAI, FOR THE ASSESSMENT YEAR 20 0 5 06 . 2 . WHEN THE APPEAL WAS CALLED FOR HEARING, NO ONE WAS PRESENT ON BEHALF OF THE ASSESSEE TO R EPRESENT THE CASE. EVEN, NO APPLICATION HAS BEEN FILED BY THE ASSESSEE SEEKING ADJOURNMENT OF THE APPEAL. IN VIEW OF THE AFORESAID, I PROCEED TO DISPOSE OF THE APPEAL EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 2 SUNSTAR GRAPHICS PVT. LTD. 3 . THE DISP UTE IN THE PRESENT APPEAL IS CONFINED TO THE DISALLOWANCE OF ` 5,19,590, MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ). 4 . BRIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MARKETING, SELLING AND DISTRIBUTING PRODUCTS RELATING TO SCREEN AND DIGITAL PRINTING. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 31 ST OCTOBER 2005, DECLARING TOTAL INCOME OF ` 11,48,960. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED T HAT THOUG H IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS EARNED DIVIDEND INCOME OF ` 12,97,437, AND INTEREST INCOME OF ` 3,06,967, WHICH WERE CLAIMED AS EXEMPT UNDER SECTION 10 OF THE ACT, HOWEVER, IT HAS NOT DISALLOWED ANY EXPENDITURE ATTRIBUTABLE TO EAR NING OF SUCH INCOME. HE, THEREFORE, CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT SHOULD NOT BE MADE. THOUGH, IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME AS THE INVESTMENTS WERE MADE OUT OF OWN FUND S AND ALL ADMINISTRATIVE EXPENSES WERE INCURRED FOR THE MAIN BUSINESS OF THE COMPANY, HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND PROCEEDED TO DISALLOW AN AMOUNT OF ` 5,19,590, UNDER SECTION 14A OF THE ACT. BEING AGGRIEVED WITH SUCH DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL 3 SUNSTAR GRAPHICS PVT. LTD. BEFORE THE FIRST APPELLATE AUTHORITY. BEING UNSUCCESSFUL BEFORE THE LEARNED COMMISSIONER (APPEA LS), THE ASSESSEE WENT IN FURTHER APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL WHILE DISPOSING OFF THE APPEAL IN ITA NO.7268/MUM./2010, DATED 19 TH DECEMBER 2013, TAKING NOTE OF THE FACT THAT THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14A OF THE ACT BY APPLYING RULE 8D WHICH IS APPLICABLE FROM ASSESSMENT YEAR 2008 09, RESTORED THE ISSUE TO THE ASSESSING OFFICER FOR COMPUTING THE DISALLOWANCE AFRESH. WHILE COMPLETING THE ASSESSMENT IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFIC ER AGAIN REPEATED THE ADDITION / DISALLOWANCE BY OBSERVING THAT WHILE MAKING SUCH DISALLOWANCE IN THE ORIGINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT INVOKED RULE 8D. THOUGH, THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTH ORITY, HOWEVER, IT WAS UNSUCCESSFUL. 5 . I HAVE CONSIDERED THE SUBMISSIONS OF LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSED MATERIAL ON RECORD. IT IS EVIDENT , THOUGH I N THE ORIGINAL ASSESSMENT ORDER THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT HAD NOT REFERRED TO RULE 8D, HOWEVER, HE HAS MADE THE DISALLOWANCE ADOPTING THE METHODOLOGY OF THE SAID RULE. THE T RIBUNAL HAVING TAKEN NOTE OF THIS FACT RESTORED THE ISSUE TO TH E ASSESSING OFFICER FOR COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT AFRESH WITHOUT APPLYING RULE 8D. HOWEVER, IN 4 SUNSTAR GRAPHICS PVT. LTD. THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE DIRECTIONS OF THE TRIBUNAL, THE ASSESSING OFFICER HAS AGAIN REPEATED THE SAME ADDITION BY SIMPLY STATING THAT IN THE ORIGINAL ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT APPLIED PROVISIONS OF RULE 8D. IN MY CONSIDERED OPINION, THE ASSESSING OFFICER HAS NOT COMPUTED THE DISALLOWANCE IN STRICT COMPLIANCE TO THE DIRECTIONS OF THE TRIBUNAL. THEREFORE, I AM UNABLE TO SUSTAIN THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. MOREOVER, WHILE MAKING SUCH DISALLOWANCE, THE ASSESSING OFFICER HAS NOT AT ALL CONSIDERED THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS WERE MADE OU T OF INTEREST FREE S URPLUS FUND. HOWEVER, CONSIDERING THE FACT THAT THE ASSESSEE MIGHT HAVE INCURRED SOME EXPENDITURE IN EARNING THE EXEMPT INCOME AND SINCE PROVISIONS OF RULE 8D ARE NOT APPLICABLE TO THE IMPUGNED ASSESSMENT YEAR, I DIRECT THE ASSESSING OFFICER TO RESTRICT TH E DISALLOWANCE UNDER SECTION 14A OF THE ACT TO 2% OF THE EXEMPT INCOME EARNED IN THE RELEVANT PREVIOUS YEAR. I MAKE IT CLEAR, THE AFORESAID DIRECTION IS PURELY ON THE BASIS OF FACTS INVOLVED IN THE PRESENT APPEAL, HENCE, NOT APPLICABLE TO ANY OTHER CASE. G ROUNDS RAISED ARE PARTLY ALLOWED. 6 . IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.01.2019 SD/ SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 5 SUNSTAR GRAPHICS PVT. LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI