ADDL CIT 10(1)), MUMBAI V. AKER POWERGAS P. LTD, MUMBAI

ITA 2407/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59748 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2011
• Court: TRIBUNAL
• Department Lawyers: PKB MENEN
• Assessee Lawyers: URVI SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A BEFORE SHRI D.MANMOHAN (VP) & SHRI PRAMOD KUMAR (AM ) I.T.A.NO. 2407/MUM/2011 (ASSESSMENT YEAR : 2005-06) ACIT RANGE 10(1) ROOM NO. 455 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. AKER POWERGAS PVT. LTD. POWERGAS HOUSE P.O. BOX 9789 177, VIDYANAGARI MARG KALINA, MUMBAI-400 098. APPLICANT RESPONDENT PAN/GIR NO. : AAACD1981E ASSESSEE BY : MISS URVI SHAH DEPARTMENT BY : SHRI P.K.B. MENEN DATE OF HEARING : 18.1.2012 DATE OF PRONOUNCEMENT : 25.1.2012 ORDER PER D. MANMOHAN (VP) :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER PASSED BY LEARNED CIT(A)-21, MUMBAI AND IT PERTAINS TO A.Y. 2 005-06. 2. FACTS CONCERNING THE ISSUES IN THIS APPEAL ARE S TATED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF CONS ULTANCY AND ENGINEERING DESIGN. DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE RECEIVED A DIVIDEND OF ` 1.29 CRORES ON SHARES HELD BY IT. SINCE DIVIDEND INCOME IS EXEMPT FROM TAX THE ASSESSING OFFICER SOU GHT TO DISALLOW PROPORTIONATE EXPENDITURE INCURRED BY THE ASSESSEE, REFERABLE TO EARNING OF EXEMPT INCOME, BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT. BY APPLYING DECISION OF THE ITAT, MUMBAI (SPECIAL BENC H) IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (ITA NO. 8057/MUM /2003) THE ASSESSING OFFICER ARRIVED AT THE CONCLUSION THAT RU LE 8D OF THE I.T. RULES IS APPLICABLE RETROSPECTIVELY WHEREBY DISALLOWANCE OF EXPENDITURE WOULD BE MANDATORY AS PER PROCEDURE PRESCRIBED THEREIN. A CCORDINGLY HE ARRIVED AT A FIGURE OF ` 25,50,963/- WHICH WAS DISALLOWED UNDER SECTION 14A OF THE ACT. M/S. AKER POWERGAS PVT. LTD. 2 3. AGGRIEVED, THE ASSESSEE CONTENDED BEFORE LEARNED CIT(A) THAT SECTION 14A OF THE ACT COMES INTO PLAY ONLY WHEN SO ME EXPENDITURE IS ACTUALLY INCURRED FOR EARNING EXEMPT INCOME; IN THE INSTANT CASE THE ASSESSEE DID NOT INCUR ANY EXPENDITURE SPECIFICALLY FOR EARNING DIVIDEND INCOME. THE ASSESSEE HAD ALSO RELIED UPON THE DECIS ION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MAN UFACTURING CO. LTD., 328 ITR 81 TO SUBMIT THAT PROVISIONS OF RULE 8D IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION AND ONLY REASONABLE EX PENDITURE CAN BE DISALLOWED IF THE ASSESSEE HAS INCURRED ANY EXPENDI TURE FOR THE PURPOSE OF EARNING DIVIDEND INCOME. IT WAS ALSO CONTENDED T HAT CERTAIN ADMINISTRATIVE/MANAGERIAL EXPENSES ARE ABSOLUTELY N ECESSARY FOR THE PURPOSE OF RUNNING THE BUSINESS AND IT CANNOT BE TR EATED AS EXPENDITURE INCURRED FOR EARNING DIVIDED INCOME. DURING THE YEA R DIVIDEND WAS RECEIVED FROM THE INVESTMENT MADE BY THE ASSESSEE I N THE PAST AND ONLY FEW SHARES WERE PURCHASED DURING THE YEAR UNDER CON SIDERATION WHICH HAS ALSO GIVEN RISE TO DIVIDEND INCOME. THUS, THERE WAS NO ADDITIONAL ACTIVITY CARRIED OUT BY THE ASSESSEE DURING THE YEA R REFERABLE TO THE PURCHASE AND SALE OF INVESTMENTS; THE TOTAL SALE TR ANSACTIONS AND PURCHASE TRANSACTIONS WERE 19 ONLY. 4. HAVING REGARD TO THE CIRCUMSTANCES, LEARNED CIT( A) OBSERVED AS UNDER :- HOWEVER, THOUGH THE NUMBER OF TRANSACTIONS MAY BE LESS, BUT THE ACTIVITY OF SALE AND PURCHASE OF INVESTMENT REQUIRE D IN-DEPTH STUDY OF PARTICULAR INVESTMENT/SECURITIES AND ITS F UTURE PROFITABILITY. THIS REQUIRES INVESTMENT OF STAFF SP ECIFICALLY SKILLED IN THAT FIELD. THEREAFTER, IT REQUIRES DECISION MAKING ACTION OF THE MANAGEMENT. IN THE CASE OF SECURITIES/INVESTMENTS W HICH WERE NOT DISPOSED OF DURING THE YEAR, SUCH DECISION OF H OLDING BACK THE SAME ALSO REQUIRES THE SAME ACTIVITIES/INVOLVEMENT OF STAFF AND MANAGERIAL LEVEL WHICH REQUIRES IN THE CASE OF SALE AND PURCHASE OF SECURITIES. IN THE FACTS AND CIRCUMSTANCES, IN M Y CONSIDERED VIEW, SOME MANAGERIAL AND ADMINISTRATIVE EXPENSES W ERE DEFINITELY INCURRED BY THE APPELLANT FOR EARNING THE EXEMPT IN COME. AS PER ASSESSING OFFICERS OWN WORKING UNDER RULE 8D, BY T AKING THE CORRECT FIGURE OF AVERAGE VALUE OF INVESTMENTS, THE DISALLOWANCE WOULD BE WORKED OUT AT ` 10,10,589/-. HOWEVER, LOOKING INTO THE FACT OF THE NUMBER OF TRANSACTIONS ENTERED INTO, SU CH EXPENDITURE APPEARS TO BE ON A HIGHER SIDE. IN MY CONSIDERED VI EW, THE DISALLOWANCE OF ` 3,00,000/- WILL MEET THE ENDS OF JUSTICE. M/S. AKER POWERGAS PVT. LTD. 3 THEREFORE, IT IS HELD THAT THE APPELLANT INCURRED M ANAGERIAL AND ADMINISTRATIVE EXPENSES AT ` 3,00,000/- FOR THE PURPOSE OF EARNING EXEMPT INCOME ATTRACTING THE PROVISIONS OF SECTION 14A(1) OF THE ACT. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AT ` 25,50,963/- IS REDUCED TO ` 3,00,000/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. T HOUGH LEARNED DEPARTMENTAL REPRESENTATIVE VOCIFEROUSLY CONTENDED THAT THE EXPENDITURE DISALLOWED BY LEARNED CIT(A) IS TOO LOW AND DISALLOWANCE MADE BY THE ASSESSING OFFICER DESERVES TO BE CONFIR MED, NO MATERIAL WHATSOEVER WAS PLACED BEFORE US TO CONTRADICT THE F INDINGS OF LEARNED CIT(A). UNDER THE CIRCUMSTANCES, WE DO NOT FIND AN Y INFIRMITY IN THE ORDER PASSED BY LEARNED CIT(A). AS DECLARED IN THE OPEN COURT, WE UPHOLD THE ORDER OF LEARNED CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER SD/- (D.MANMOHAN) VICE-PRESIDENT DATED : 25 TH JANUARY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS