ADDL CIT RG 6(2), MUMBAI V. CEAT LTD, MUMBAI

ITA 2538/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79260 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH RANJAN PRASAD
• Assessee Lawyers: GAJENDRA JAIN
• Keywords: Opportunity of being heard; Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO. 1933/M/2011 (AY 2007 - 2008) CEAT LIMITED, 463, CEAT MAHAL, DR. ANNIE BESANT ROAD, MUMBAI - 30. / VS. ADD. CIT, RANGE 6(2), MUMBAI - 20. ./ PAN : AAACC1645G ( / APPELLANT) .. ( / RESPONDENT ) ./I.T.A. NO. 2538/M/2011 (AY 2007 - 2008) DCIT, CIRCLE 6(2), MUMBAI - 20. / VS. CEAT LIMITED, 463, CEAT MAHAL, DR. ANNIE BESANT ROAD, MUMBAI - 30. ./ PAN : AAACC1645G ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI GAJENDRA JAIN / REVENUE BY : SHRI RAJESH RANJAN PRASAD , DR / DATE OF HEARING : 19 .6.2014 / DATE OF PRONOUNCEMENT : 25 .6.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS INVOLVING ASSESSMENT YEAR 2007 - 2008. BOTH THE APPEALS ARE FILED AGAINST THE ORDER OF CIT (A) - 12, MUMBAI DATED 1.12.2010. SINCE, THE ISSUES RAISED IN BOTH THE APPEALS ARE CONNECTED, THEREFORE, FOR THE SAKE OF CONVENIENCE, THEY ARE CLUBBED, HEARD T OGETHER AND DISPOSED OF IN THIS CONSOLIDATED ORDER. APPEAL WISE AND GROUND WISE ADJUDICATION IS GIVEN IN THE FOLLOWING PARAGRAPHS OF THIS ORDER. 2 2. FIRSTLY, WE SHALL TAKE UP APPEAL ITA NO.1933/M/2011, WHICH IS FILED BY THE ASSESSEE ON 9.3.2011 AGAINST THE ORDER OF CIT (A)12, MUMBAI. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 9,69,613/ - CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF FOREIGN TRAVEL EXPENSES OF RS. 9,69,613/ - BY TREATING THE SAME AS EXPENDITURE INCURRED FOR NON - BUSINESS PURPOSE. 2. DISALLOWANCE OF EXPENDITURE OF GUEST HOUSES AND RESIDENTIAL FLATS OF RS. 1,17,49,450/ - CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF EXPENSES ON GUEST HOUSES AND RES IDENTIAL FLATS PROVIDED TO OWN EMPLOYEES ON THE FLIMSY GROUND THAT DETAILS NOT PROVIDED AND IT CANNOT BE CONFIRMED THAT IT IS USED ONLY FOR BUSINESS PURPOSE. WE HAVE SUBMITTED GUEST HOUSE REGISTER DURING THE APPEAL HEARING, WHILE CIT (A) HAS MENTIONED ON PAGE 12 PARA 10.2 THAT THE SAME WAS NOT PROVIDED AT ALL. IN CASE OF RESIDENTIAL FLATS PROVIDED TO EMPLOYEES, DETAILS OF PROOF THAT THEY ARE ONLY PAYROLL OF THE COMPANY ARE NOT PROVIDED. 3. OVER VALUATION OF CLOSING STOCK TO THE EXTENT OF RS. 31,35,062/ - CI T (A) HAS ERRED IN PARTLY CONFIRMING THE OVER VALUATION OF CLOSING STOCK BY STATING THAT WHEN IN THE CLOSING STOCK UNUTILIZED MODVAT CREDIT IS ADJUSTED. SIMILAR ADJUSTMENT SHOULD BE MADE TO OPENING STOCK. HOWEVER, SINCE WE HAVE ALREADY INCREASED THE VALUE OF CLOSING STOCK ON THE BASIS OF ACTUAL PAYMENT OF EXCISE DUTY AND CENVAT CREDIT AVAILED (SECTION 145A OF THE INCOME TAX ACT, 1961) AND THE SAME WAS AUDITED AND CONFIRMED BY OUR STATUTORY AUDITORS, STILL ONCE AGAIN THE VALUATION OF CLOSING STOCK WORKED OU T ON AD - HOC BASIS THAT IS INCORRECT. (WE HAVE CARRIED FORWARD THE VALUATION OF CLOSING STOCK AS ON 31 ST MARCH, 2006 AS OPENING STOCK OF 1 ST APRIL , 2006 AS PER STATEMENT OF 145A OF THE INCOME TAX ACT RETURN OF AY 2006 - 2007.) 3. THE ISSUES RAISED IN THIS AP PEAL RELATE TO (I) DISALLOWANCE OF FOREIGN TRAVEL EXPENSES; (II) DISALLOWANCE OF EXPENDITURE OF GUEST HOUSE AND RESIDENTIAL FLATS AND (III) OVER VALUATION OF THE CLOSING STOCK. AT THE OUTSET, IN CONNECTION WITH THE FIRST ISSUE IE., DISALLOWANCE OF FOREIGN TRAVEL EXPENSES, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE AO MADE ADDITION FOR WANT OF DETAILS AS THE ASSESSEE FURNISHED ONLY THE SKETCHY DETAILS WITHOUT GIVING THE PURPOSE OF BUSINESS. DURING THE ASSESSMENT PROCEEDIN GS, ASSESSEE FILED AN ORDER OF THE ITAT ON SIMILAR ISSUE FOR THE AY 2004 - 05. FURTHER, THE NAMES OF THE PERSONS, COUNTRIES VISITED AND EXPENDITURE INCURRED AMOUNTING TO RS.9,69,613/ - . PARA 10 OF THE IMPUGNED ORDER IS RELEVANT IN THIS REGARD. CONSIDERING THE ABSENCE OF BUSINESS PURPOSE ON IMPUGNED VISITS, AO MADE ADDITION AND RELIED ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE 3 OF CIT VS. CALCUTTA AGENCY LIMITED [19 ITR 91). DURING THE FIRST APPELLATE PROCEEDINGS, CIT (A) CONFIRMED THE ADDITION MADE BY THE AO AS PER THE DISCUSSION GIVEN IN PARA 9.2 OF HIS ORDER BY HOLDING THAT THE ASSESSEE FAILED TO FURNISH THE PURPOSE OF FOREIGN VISIT, THE LINKAGE OF VISITS FOR BOOSTING THE BUSINESS AND ADDITION OF THE NEW CLIENTS ETC. 4. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PAGE 56 OF THE PAPER BOOK - II, WHEREIN AN ORDER OF THE TRIBUNAL FOR THE AY 2004 - 05 WAS PLACED AT, AND MENTIONED THAT THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE AND THEREFORE, THE ADDITION SHOULD BE DELETED. FURTHER, ASSESSEE BROUGHT OUR ATTENTION TO PAGES 61 TO 133 OF THE PAPER BOOK - I AND MENTIONED THAT THEY ARE THE COUNTRY WISE EXPORT SALES AND EXPORT INVOICES AND THEY WERE NOT FILED BEFORE THE AO AND THE CIT (A). FURTHER, HE MENTIONED THAT THIS ISSUE MAY BE REMANDED TO THE FILE OF THE AO FOR EXAMINING THE EXPORT SALES AND THE COUNTRIES VISITED BY THE THREE EMPLOYEES AND TO TAKE A FRESH DECISION IN THE MATTER. 5. ON THE OTHER HAND, LD DR HAS NO OBJECTION IN THIS REGARD. 6. WE HAVE HEAR D BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID RELEVANT MATERIAL, WE FIND IT REASONABLE TO REMAND THE ISSUE TO THE FILE OF THE AO TO EXAMINE THE SAME AND TO TAKE A FRESH DECISION IN THE LIGHT OF THE INFORMATION FURNISHED BEFORE US. ACCORDINGLY, WE REMAND THE MATTER TO THE FILE OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. ACCORDINGLY, GROUND NO.1 IS ALLOWED FOR STATISTICAL PURPOSES. 7. SECOND ISSUE RELATES TO THE EXPENDITURE ON GUEST HOUSE AND RESIDENTIAL FLATS. AT THE VERY OUTSET, LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO PAGE 182 OF THE PAPER BOO K - I, WHICH IS AN AFFIDAVIT FILED BY SHRI GOVIND SHARMA, VICE PRESIDENT (TAXATION & CROP. AFFAIRS), AND MENTIONED THAT THE CONFIRMATION GIVEN BY SHRI SHARMA IS SUPPORTED BY THE GUEST HOUSE REGISTER, WHICH IS PLACED IN THE PAPER BOOK - I VIDE PAGE 174 ONWARD S. HE ALSO MENTIONED THAT THIS ISSUE CAN ALSO BE REMANDED TO THE FILE OF THE AO TO EXAMINE THE EXPENDITURE INCURRED ON GUEST HOUSES 4 AND RESIDENTIAL FLATS OWNED BY THE EMPLOYEES. IT IS ALSO SUBMITTED THAT THE EXPENDITURE INCURRED ON EMPLOYEES MAY BE FULLY ALLOWED AS IT IS INCURRED FOR THE BUSINESS PURPOSES. AS SUCH, IT IS NOT CLEAR FROM THE RECORD THAT WHY THE ASSESSEE HAS TO INCUR ON THE RESIDENTIAL FLATS ALLOTTED TO THE EMPLOYEES OF THE COMPANY. CONSIDERING THE NO OBJECTION FROM THE LD DR, WE REMAND THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AFTER EXAMINING THE DETAILS AND CONTENTS MADE IN THE SAID AFFIDAVIT AND PASS A SPEAKING ORDER AFTER GRANTING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GR OUND NO.2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . 8. THIRD ISSUE RAISED BY THE ASSESSEE RELATES TO THE VALUATION OF CLOSING STOCK. AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THIS ISSUE SHOULD ALSO BE REMANDED TO THE FILE OF THE AO. TO JUSTIFY THE SAME, LD COUNSEL MENTIONED THAT THE ASSESSEE IS FOLLOWING INCLUSIVE METHOD OF ACCOUNTING AND THE ONLY ACTUALS ARE ENTERED IN THE BOOKS OF ACCOUNTS. THERE IS NO NEED FOR ADJUSTMENT OF IN VENTORIES AS THEY WERE ALREADY ADJUSTED B ASING ON THE ACTUALS IN ACCORDANCE WITH THE PROVISIONS OF SECTION 145A OF THE ACT. LD COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED BY STATING THAT THE JUDGMENTS RELIED ON BY THE REVENUE AUTHORITIES HAVE NO RELEVANCE TO THE FACTS OF THE PRESENT CASE. FURTHE R, REFERRING TO THE ANNEXURE - A TO THE ASSESSMENT ORDER, LD COUNSEL MENTIONED THAT THERE ARE PATENT ERRORS IN MATTERS OF CLOSING STOCK. HE MENTIONED THAT SOME UNKNOWN ERRORS ARE FOUND PLACED IN THE ORDER OF THE AO. BRINGING OUR ATTENTION TO ITEM NO. V OF THE SAID ANNEXURE - A, LD COUNSEL MENTIONED THAT THE FIGURES SUGGEST RS. 96,11,053/ - ; RS. 10,15,39,384/ - & RS. 11,74,59,949/ - ARE UNCONNECTED TO THE ASSESSEE. IN ALL PROBABILITY, THESE FIGURES WERE IMPORTED FROM SOME OTHER ASSESSEES IN HIS JURISDICTION. 9. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON HEARING BOTH THE PARTIES AND ON PERUSAL OF THE MATERIAL ON RECORD, WE ARE OF THE OPINION THAT THIS ISSUE NEEDS TO REVISI T THE FILE OF THE AO AND THE CLOSING STOCK VALUATIONS HAVE TO BE REDONE IN THE LIGHT OF THE PROVISIONS OF SECTION 145A OF THE ACT. ACCORDINGLY, WE REMAND THE ISSUE TO THE FILE OF THE AO FOR ADJUDICATING THE ISSUE AFRESH AFTER GRANTING 5 A REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.3 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO.2538/M/2011 (AY 2007 - 2008) (BY REVENUE) 12. THI S APPEAL FILED BY THE REVENUE ON 31.3.2011 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 1.12.2010. IN THIS APPEAL, REVENUE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF 50% OF LICENSE FEES PAID TO M/S. RPG ENTERPRISES LTD WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT PROVE THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE DISALLOWANCE OF 50% OF LICENSE FEE PAID TO RPG ENTERPRISES LTD WITHOUT APPRECIATING THE FACT THAT DETERMINATION OF THE COST TO BE SHARES BY THE ASSSESSEE ON THE BASIS OF TURNOVER IS GROSSLY ARBITRARY HAVING NO NEXUS WITH THE NATURE OF SERVICES RENDERED BY M/S. RPG ENTERPRISES LTD OF THE ASSESSEE COMPANY. 2. ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE AND IN LAW, THE CIT (A) ERRED IN DIRECTING THE AO TO RECOMPUTED THE DISALLOWANCE U/S 14A ON A REASONABLE BASIS RELYING ON THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD WITHOUT APPRECIATING THE FACT THAT THE JUDGMEN T OF BOMBAY HIGH COURT HAS NO T BEEN ACCEPTED BY THE REVENUE AND SLP HAS BEEN PROPOSED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DELETING THE ADDITION OF CLUB MEMBERSHIP EXPENSES OF RS. 6,16,455/ - BY RELYING O N THE DECISION IN THE CASE OF M/S. OTIS ELEVATOR CO(INDIA) LTD, 195 ITR 682 (BOM), WITHOUT APPRECIATING THAT THE FACTS OF THIS CASE ARE NOT APPLICABLE TO THE FACTS OF THE ASESSEES CASE. 13. GROUND NO.1 RELATES TO DISALLOWANCE OF 50% OF THE LICENSE FEES. IN THIS REGARD, AT THE OUTSET, LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THIS ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PAGE 49 OF THE PAPER BOOK - II, WHEREIN THE ORDER OF THE ITAT IN THE ASSESSEES OWN CASE VIDE ITA NO. 789 & 1453/M/2008 (AY 2004 - 05) IS PLACED AT, AND MENTIONED THAT VIDE PARA 15 OF THE SAID ORDER OF THE TRIBUNAL (SUPRA) DATED 5.8.2009 AN IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE. FOR THE COMPLETENESS OF THIS ORDER, THE SAID PRARA 15 & 16 ARE REPRODUCED HERE UNDER : 15. GROUND NO.2 OF THE ASSESSEE READS AS FOLLOWS: LD CIT (A) ERRED IN CONFIRMING THE DISALLOWANCE OF 50% OF LICENSE FEES PAID TO RPG ENTERPRISES LTD OF RS. 1,74,00,000/ - 6 16. AT THE TIME OF HEARING OF THIS APPEAL, IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE THAT IDENTICAL ISSUE HAD COME UP FOR C ONSIDERATION IN ASSESSEES OWN CASE IN AY 1997 - 98 AND THIS TRIBUNAL HAS CONSIDERED THE ISSUE. NATURE OF THIS EXPENSE IS THAT UNDER AN AGREEMENT THE ASSESEE BECAME A LICENSEE MEMBER OF RPG ENTERPRISES LTD AND WAS ENTITLED TO USE ITS TRADE MARK RPG AND AL SO HAVE FULL ACCESS TO VARIOUS ORGANIZATIONAL FACILITIES DEVELOPED BY RPG ENTERPRISES. THE ASSESSEE ALSO EXPLAINED VARIOUS SERVICES WHICH IT CAN RECEIVE FROM RPG ENTERPRISES BY REASON OF MAKING THE AFORESAID PAYMENT. ACCORDING TO THE ASSESSING OFFICER, T HERE WAS NO RATIONALE EXPLANATION FOR THE BENEFIT WHICH THE ASSESSEE RECEIVED BY MAKING PAYMENT. IN THE PAST 50% OF SUCH DISALLOWANCE HAD BEEN MADE AND IN THE LIGHT OF THE SAME, THE ASSESSING OFFICER MADE DISALLOWANCE OF 50% OF THE EXPENSES. IN AY 1997 - 9 8 IN ITA NO.5111/MUM/03; THIS ISSUE HAD CAME UP FOR CONSIDERATION IN ASSESSEES OWN CASE BEFORE THE TRIBUNAL AND THE TRIBUNAL FOLLOWING THE DECISION OF THE HONBLE CALCUTTA BENCH IN JCIT VS. CFL CAPITAL FINANCE SERVICES LTD VIDE ITA NO.930/KOL/01, DATED 31 .5.2007 AND ORDERS OF COCHIN BENCH AND CHENNAI BENCH OF THE ITAT ON IDENTICAL ISSUE, WAS PLEASED TO DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL, WE DIRECT THE ADDITION CONFIRMED BY CIT (A) BE DELETED. 14. FURTHER, LD COUNSEL MENTIONED THAT THE ABOVE ORDER OF THE TRIBUNAL WAS CONFIRMED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE INCOME TAX APPEAL NO.4148 OF 2009 DATED 6.12.2010 AND THE COPY OF THE SAID JUDGMENT IS PLACED AT PAGE 47 OF THE PAPER BOOK - II. CONSIDERING THE SETTLED NATURE ISSUE, WE ARE OF THE OPINION THAT ORDER OF THE CIT (A) IS FAIR AND REASONABLE AND IT DOES NOT CAL L FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.1 IS DISMISSED. 15. GROUND NO.2 RELATES TO THE DISALLOWANCE U/S 14A OF THE ACT. IN THIS REGARD, DURING THE FIRST APPELLATE PROCEEDINGS, CIT (A) GAVE A DIRECTION TO THE AO TO CALCULATE THE DISALLOWANCE U/S 14A OF THE ACT ACCORDINGLY AT 5% OF THE DIVIDEND INCOME RECEIVED BY THE APPELLANT. THE SAID DIRECTION GIVEN BY THE CIT (A) IS CONTESTED BY THE REVENUE VIDE GROUND NO.2 OF THE PRESENT APPEAL. 16. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND HEAVILY RELIED ON THE ORDER OF THE CIT (A). 17. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO . 18. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PERUSAL OF THE ORDER OF THE CIT (A) IN GENERAL, PARA 6 IN PARTICULAR, WE FIND THE SAME IS RELEVANT HERE WHICH READS AS UNDER: 6. I HAVE CAREFULLY CONSIDERED THIS ISSUE. IN ITS DECISION DATED 12.8.201 0 THE HONBLE BOMBAY HIGH COURT HAS CLEARLY HELD THAT RULE 8D IS APPLICABLE ONLY FROM AY 2008 - 2009 . IN VIEW OF THIS THE AOS ACTION REGARDING CALCULATION OF DISALLOWANCE 7 U/S 14A BY APPLYING RULE 8D OF THE IT RULES CANNOT BE UPHELD. HOWEVER, THE HONBLE B OMBAY HIGH COURT HAS ALSO OPINED THAT THE CALCULATION U/S 14A OF THE IT ACT HAS TO BE ON A REASONABLE BASIS BY TAKING THE TOTALITY OF CIRCUMSTANCES IN VIEW AND AFTER AFFORDING A REASONABLE OPPORTUNITY TO STATE IN ITS CASE. IN THE DECISION OF THE HONBLE S PECIAL BENCH OF ITAT IN THE CASE OF M/S. CHEMINVEST LTD VS. ITO (124 TTJ 577) THE HONBLE ITAT IN THE CASE OF MAGGANLAL CHAGGANLAL PVT LTD 236 ITR 456 (BOM) AND M/S. GHERZI EASTERN LTD (ITA NO.6562/BOM/94, DATED 23/9/2002 ITAT MUMBAI, IT HAS BEEN OBSERVE D THAN EVEN IF NO EXEMPT INCOME IS EARNED, A PROPORTION OF THE EXPENDITURE INCURRED IS ATTRIBUTABLE TO MANAGING THE SAID INVESTMENTS AND THEREFORE SECTION 14A OF THE ACT WOULD DEFINITELY BE APPLICABLE . IN THIS CASE, THERE IS A DIVIDEND INCOME OF RS. 1.86 CRS EARNED. THEREFORE, IT IS LOGICAL TO SAY THAT THE APPELLANT WOULD HAVE SPENT A CERTAIN QUANTUM OF FUNDS TO MONITOR THE INVESTMENTS THAT HAVE LED TO THIS EARNING AND THAT AMOUNT NEEDS TO BE DISALLOWED. IN THE CASE OF (1) LUPEN LABORATORIES PVT LTD THE HONBLE ITAT MUMBAI VIDE THEIR ORDER DATED 20.10.2009 FOR AY 1998 - 99 (2) GODREJ AGROVE T LTD VS. ACIT VIDE ORDER DATED 17/9/2010 OF ITAT G BENCH, MUMBAI AND OTHER ORDERS OF THE HONBLE ITAT HAVE SAID THAT 1% TO 5% OF THE DIVIDEND INCOME SHOULD BE TREATED AS EXPENDITURE INCURRED ON EARNING IT . USING THIS AS A BASE THE ASSESSING OFFICER IS THEREFORE DIRECTED TO CALCULATE THE DISALLOWANCE U/S 14A OF THE IT ACT ACCORDINGLY AT 5% OF THE DIVIDEND INCOME RECEIVED BY THE APPELLANT. 19. FROM THE ABOVE, WE ARE OF THE OPINION THAT THE WHILE ADJUDICATING THE ISSUE, THE CIT (A) HAS RIGHTLY CONSIDERED THE DECISIONS OF THE ITAT AS WELL AS THE JUDGMENTS OF THE HIGHER JUDICIARY AND THE DIRECTION GIVEN BY THE CIT (A) TO CALCULATE THE DISALLOWANCE U/S 14A OF THE ACT AT 5% OF THE DIVIDEND INCOME IS FAIR AND REASONABLE. THEREFORE, CONSIDERING THE SAME, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUND NO.2 RAISED BY THE REVENUE IS DISMISS ED. 20. GROUND NO.3 RELATES TO THE DISALLOWANCE OF RS.6,16,455/ - IN RESPECT OF CLUB EXPENSES. BRIEFLY STATED, IN THE RETURN ASSESSEE CLAIMED RS. 6,16,455/ - AS EXPENDITURE ON ACCOUNT OF PAYMENTS MADE TO CLUBS WHICH INCLUDES ANNUAL SUBSCRIPTION AS WELL AS C OST OF CLUB SERVICES. DURING THE ASSESSMENT PROCEEDINGS, AO IS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND DISALLOWED THE SAME BY HOLDING THAT NO EVIDENCE COULD BE PRODUCED BY THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. MATTER TRAVELLED TO T HE FIRST APPELLATE AUTHORITY WHEREIN THE CIT (A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE IN THIS REGARD, DELETED THE ADDITION VIDE PARA 8 OF HIS ORDER. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 21. DURING THE PROCEEDINGS BEFORE US, LD DR RELIE D ON THE ORDER OF THE AO. 22. ON THE OTHER HAND, LD COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT (A). 8 23. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIAL PLACED BEFORE US. ON PER USAL OF THE ORDER OF THE CIT (A) IN GENERAL, PARA 8 IN PARTICULAR, WE FIND THE SAME IS RELEVANT HERE WHICH READS AS UNDER: 8. THE NEXT GROUND OF APPEAL RELATES TO DISALLOWANCE OF RS. 6,16,455/ - MADE BY THE AO IN RESPECT OF PAYMENTS MADE TO CLUBS TREATING THE SAME AS NON - BUSINESS PURPOSE EXPENSES. IN THE IMMEDIATELY PRECEDING YEAR ON THE SAME ISSUE, THE CIT (A) IN HIS ORDER DATED 12.10.2009 HAS HELD AS UNDER: ON THIS ISSUE, THE CIT (A) HAS DECIDED IN FAVOUR OF THE APPELLANT IN AY 2003 - 2004. IN HIS ORDER DATED 29.3.2007, RELYING ON THE MUMBAI HIGH COURT DECISION IN OTIS ELEVATOR VS. CIT (195 ITR 682) AND THE MUMBAI TRIBUNAL DECISION IN JINDAL DYE INTERNATIONAL (P) LTD (1 SIT 243). FOLLOWING THE DECISION OF THE CIT (A) - VI IN THE APPELLANTS CASE IN EARLIER YEARS, TH E DISALLOWANCE OF CLUB EXPENSES IS DELETED. 8.1. AS THE FACTS OF THE CASE HAVE REMAINED THE SAME AND I FIND THAT I HAVE NO REASON TO DISAGREE WITH THE OBSERVATION OF THE CIT (A) REPRODUCED ABOVE, IN THE CURRENT YEAR ALSO THE ADDITION M ADE IS DELETED. 24. FROM THE ABOVE, WE FIND THAT IN THE EARLIER YEARS, THE SIMILAR ISSUE HAS BEEN CONSISTENTLY DECIDED BY THE REVENUE IN FAVOUR OF THE ASSESSEE BY RELYING ON THE JUDGMENT OF THE HONBLE HIGH COURT IN THE CASE OF OTIS ELEVATOR VS. CIT (SUP RA). CONSIDERING THE SAME, WE ARE OF THE OPINION THAT THE CIT (A) HAS RIGHTLY ADJUDICATED THE ISSUE FOLLOWING THE PRINCIPLE OF CONSISTENCY AND THE BINDING NATURE OF THE JUDGMENT. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT (A) AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, THE GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 25. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRO NOUNCED IN THE OPEN COURT ON 2 5 T H JUNE, 2014. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 25.6.2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 9 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI