Appeal details
Counselvise Citation
[2011] 134 COUNSELVISE.COM (IT) 6128 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 10 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-07-2011
Appeal Filed By
Assessee
Order Result
Partly Allowed
Bench Allotted
B
Next Hearing Date
06-07-2011
Assessment Year
2006-2007
Appeal Filed On
11-08-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.2381/AHD/2009 A. Y.: 2006-07 N. J. INDIA INVESTMENT PVT. LTD., 9TH FLOOR, UDHNA UDHYOG NAGAR SANGH COMMERCIAL COMPLEX, CENTRAL ROAD NO.10, UDHNA, SURAT VS THE D. C. I. T., CIRCLE-1, AAYAKAR BHAVAN, OPP. NEW CIVIL HOSPITAL, MAJURA GATE, SURAT PA NO. AABCN 2790 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. J. SHAH, AR RESPONDENT BY DR. JAYANT JHAVERI, SR. DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-I, SURAT DATED 03 RD JUNE, 2009, FOR ASSESSMENT YEAR 2006-07. 2. ON GROUND NO.1, THE ASSESSEE CHALLENGED THE DISA LLOWANCE U/S 14A OF THE IT ACT IN A SUM OF RS.1,32,419/-.THE AO DISALLOWED PROPORTIONATE EXPENSES OF RS.3,38,442/- U/S 14A OF THE IT ACT IN RESPECT OF DIVIDEND INCOME. THE AO HAS STATED THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF INVESTMENT CONSULTANT AND DISTRIBUTOR. DURING THE YEAR, THE ASSESSEE HAS EARNED DIVIDEND I NCOME OF RS.30,51,768/- WHICH IS EXEMPT FROM INCOME TAX. THE AO ASKED THE ASSESSEE AS TO WHY PROPORTIONATE DISALLOWANCE SHOUL D NOT BE MADE U/S 14A OF THE IT ACT. THE ASSESSEE EXPLAINED THAT IT HAS NOT INCURRED ITA NO.2381/AHD/2009 N. J. INDIA INVESTMENT PVT. LTD. VS DCIT, CIR-1, SU RAT 2 ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME; THE REFORE, PROVISIONS OF SECTION 14A OF THE IT ACT WOULD NOT APPLY. THE A O DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE THE DISALLO WANCE U/S 14A OF THE IT ACT IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FALL PART OF THE TOTAL INCOME. THE LEARNED CIT(A) CONFIRMED THE ORDER OF THE AO WITH R EGARD TO DISALLOWANCE U/S 14A OF THE IT ACT AND ALSO NOTED T HAT THE ASSESSEE WAS ASKED TO CALCULATE THE DISALLOWANCE IF SUCH MET HOD IS ADOPTED AS A GUIDELINE. THE ASSESSEE ACCORDINGLY WORKED OUT TH E DISALLOWANCE AT RS.1,32,419/-. THE LEARNED CIT(A) ACCORDINGLY RE DUCED THE DISALLOWANCE. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED DURING THE A SSESSMENT YEAR UNDER APPEAL. THEREFORE, THERE IS NO QUESTION OF IN TEREST EXPENDITURE BEING RELATABLE TO THE EXEMPT DIVIDEND INCOME. IT W AS ALSO STATED THAT THERE WAS NO DIRECT EXPENDITURE CONNECTED WITH THE EARNING OF DIVIDEND INCOME. HE HAS SUBMITTED THAT THE CALCULAT ION WAS GIVEN AS PER THE DIRECTION OF THE LEARNED CIT(A) BUT THE STA ND OF THE ASSESSEE REMAINED SAME THAT NO INTEREST EXPENDITURE HAS BEEN INCURRED IN EARNING DIVIDEND EXEMPT INCOME. HE HAS FURTHER SUBM ITTED THAT NOW THE MATTER IS FINALLY DECIDED BY THE HONBLE BOMBAY HIGH COURT ION THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LT D. VS DCIT AND ANOTHER 328 ITR 81 IN WHICH THE HONBLE BOMBAY HIGH COURT HELD THAT SECTION 14A IS APPLICABLE TO DIVIDEND INCOME AND IN COME FROM MUTUAL FUNDS EXEMPT UNDER SECTION 10(33) OF TH E IT ACT. THE HON HIGH COURT HAS ALSO HELD THAT RULE 8D OF TH E INCOME TAX RULES IS NOT RETROSPECTIVE AND IS APPLICABLE FROM T HE ASSESSMENT YEAR ITA NO.2381/AHD/2009 N. J. INDIA INVESTMENT PVT. LTD. VS DCIT, CIR-1, SU RAT 3 2008-09 AND THE DISALLOWANCE FOR THE EARLIER PERIOD TO BE DETERMINED ON REASONABLE BASIS. HE HAS ALSO RELIED UPON THE D ECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES LTD., 323 ITR 518. HE HAS, THEREFORE, SUBMIT TED THAT THE MATER MAY BE REMANDED TO THE FILE OF THE AO FOR RECONSIDE RATION. THE LEARNED DR ALSO SUGGESTED THAT THE MATTER MAY BE RE MANDED TO THE FILE OF THE AO FOR RECONSIDERATION. 4. ON CONSIDERATION OF THE ABOVE FACTS AND SUBMISSI ON OF THE PARTIES, WE ARE OF THE VIEW THAT THE MATTER IS COVE RED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ AND BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER 328 ITR 81 IN WHICH IT WAS HELD AS UNDER: HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAD TO ENFORCE THE PROVISIONS OF SUB-SECTIO N (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. T HE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDED INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT ITA NO.2381/AHD/2009 N. J. INDIA INVESTMENT PVT. LTD. VS DCIT, CIR-1, SU RAT 4 FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4.1 THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS HERO CYCLES LTD., 323 ITR 518 HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTERE ST AND THE INVESTMENT IN THE SHARES AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF T HIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, WAS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTL8Y OR INDIRECTLY SOME EXPENDITURE WAS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED COULD NOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLI FY THE MANDATE OF SECTION 14A, COULD NOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRED FINDING OF INCURRING OF EXPENDITURE AND WHERE IT WAS FOUND THA T FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAD BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A COULD NOT STAND. CONSEQUENTLY, THE DISALLOWANCE WAS NOT PERMISSIBLE. 5. IN VIEW OF THE ABOVE DECISIONS, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE SAME ISSUE AFRESH AS PER THE ABOVE DECISIONS. THE AO SHALL GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO ITA NO.2381/AHD/2009 N. J. INDIA INVESTMENT PVT. LTD. VS DCIT, CIR-1, SU RAT 5 THE ASSESSEE AND THE ASSESSEE SHALL PRODUCE SUFFICI ENT MATERIAL BEFORE THE AO FOR CONSIDERATION OF THE ISSUE. IN TH E RESULT, GROUND NO.1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED FOR S TATISTICAL PURPOSES. 6. ON GROUND NO.2, THE ASSESSEE CHALLENGED THE ADDI TION OF RS.182/- WHICH WAS DISALLOWED ON ACCOUNT OF INTERES T PAID ON SERVICE TAX WHICH AMOUNTED TO PENALTY AND INFRINGEMENT OF L AW. THIS GROUND WAS NOT PRESSED BEFORE THE LEARNED CIT(A). SAME WAS ACCORDINGLY DISMISSED. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT ARGUE THIS GROUND OF APPEAL BEFORE US. THEREFORE, THERE IS NO MERIT IN THIS GROUND OF APPEAL. SAME IS DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 08-07-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 08-07-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AH MEDABAD
