M/S. CHAMPAGNE INDAGE LTD., MUMBAI V. THE ACIT CIR 6(2), MUMBAI

ITA 2427/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48709 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-04-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 08-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: D B SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI C BENCH BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.2427/MUM/2008 A.Y 2004-05 M/S. CHAMPAGNE INDAGE LIMITED, 82, INDAGE HOUSE, DR. A.B.ROAD, WORLI, MUMBAI 400 018. PAN: AAACI 1335 D VS. ASST. COMMISSIONER OF I.T, RANGE 6(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.B.SHAH. RESPONDENT BY : SHRI SURENDRA KUMAR, SR.DR O R D E R PER T.R.SOOD, AM: IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BU T THE ONLY DISPUTE INVOLVED IS DISALLOWANCE OF INTEREST U/S.36 (1)(III)/14A OF THE ACT. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS MADE INVES TMENTS IN M/S. WEHE INDAGE P. LTD. AND HIMACHAL INDAGE P. LTD. SIN CE ASSESSEE COULD NOT PROVE THAT BORROWED FUNDS HAVE NOT BEEN INVESTE D IN THESE INVESTMENTS, INTEREST WAS DISALLOWED U/S.36(1)(III) /14A. ON APPEAL, THE ADDITION WAS CONFIRMED BY THE LD. CIT[A]. 3. BEFORE US BOTH THE PARTIES MADE DETAILED SUBMISS IONS. THE LD. COUNSEL OF THE ASSESSEE ALSO RELIED ON THE ORDERS I N ASSESSEES OWN CASE FOR THE A.YRS. 2001-02 AND 2003-04 PASSED BY T HE TRIBUNAL AS WELL AS THE OTHER CASE LAWS. 2 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND FIN D THAT THE EARLIER ORDERS PASSED BY THE TRIBUNAL ARE NOT RELEV ANT BECAUSE THE TRIBUNAL DID NOT HAD THE BENEFIT OF SPECIAL BENCH O F THE TRIBUNAL IN THE CASE OF CHEMIINVEST LTD. VS. ITO [121 ITD 318] (S.B ) (DEL). IN THIS CASE THE HEAD NOTE READS AS UNDER: SECTION 14A, READ WITH SECTION 10(34), OF THE INCO ME-TAX ACT, 1961 EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME ASSESSMENT YEAR 2004-05 WHETHER SINCE DI VIDEND INCOME IS EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34), I NTEREST PAID ON BORROWED CAPITAL UTILIZED IN PURCHASE OF SHARES, BE ING EXPENDITURE INCURRED IN RELATION TO DIVIDEND INCOME NOT FORMING PART OF ASSESSEES TOTAL INCOME, CANNOT BE ALLOWED AS A DEDUCTION HE LD, YES WHETHER SUCH DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVE N IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE HELD, YES. FURTHER, THE ISSUE HAS BEEN CONSIDERED IN DETAIL BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. VS. DCIT [43 DTR 171], WHEREIN IT WAS HELD THAT RULE 8D WILL NOT HAVE RETROSPECTIVE APPLICATION. HOWEVER, AT THE SAME TIME IT WAS ALSO OBSERVED THAT DISALLOWANCE WOULD BE MADE EVEN WHEN INVESTMENT MAD E IN SHARES. THE LD. COUNSEL OF THE ASSESSEE HAS ALSO PLACED REL IANCE ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF RELIANCE UTILITIES AND POWER CO. LTD. VS. CIT [313 ITR 340], WHEREIN IT WAS HELD THAT WHEN MIXED FUNDS WERE AVAILABLE, THEN THERE SH OULD BE A PRESUMPTION THAT INTEREST FREE FUNDS HAVE BEEN INVE STED IN INVESTMENTS. THEREFORE, WE SET ASIDE THE ORDER OF T HE LD. CIT[A] AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE REGARDING DISALLOWANCE OF INTEREST IN THE LIGHT OF THE DECISION 3 OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA] AND RELIANCE UTILITIES AND POWER CO. LTD. VS. CIT [SUPRA]. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7/4/2011. SD/- SD/- (D.K.AGARWAL) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 27/4/2011. P/-*