Emtici Engineering Ltd., Anand V. The ACIT., Anand Circle, Anand

ITA 2546/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6810 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-04-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAVAL
• Assessee Lawyers: M K PATEL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO. 2546/AHD/2009 A. Y.: 2006-07 EMTICI ENGINEERING LIMITED, ANAND SOJITRA ROAD, VALLABH VIDYANAGAR 388 120 VS THE J. C. I. T., ANAND RANGE, ANAND PA NO. AAACE 4642 F (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. K. PATEL, AR RESPONDENT BY SHRI ROBIN RAVAL, 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)-IV , BARODA DATED 18 TH JUNE, 2009 FOR ASSESSMENT YEAR 2006-07, CHALLENGING THE DISALLOWANCE U/S 14A OF THE IT ACT OF RS.5,48,662/- . 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ABOV E DISALLOWANCE WAS MADE BEING THE EXPENSES WORKED OUT AS ATTRIBUTA BLE TO EXEMPT DIVIDEND INCOME BY APPLYING RULE 8 D OF THE IT RULE S. THE AO DID NOT ACCEPT THE ASSESSEES CONTENTION THAT NO EXPENSES W ERE INCURRED FOR EARNING EXEMPT DIVIDEND INCOME. THE AO HELD THAT WH ETHER TO INVEST OR NOT AND WHETHER TO RETAIN INVESTMENT OR TO LIQUI DATE, ARE STRATEGIC DECISION, IN WHICH TOP MANAGEMENT WOULD BE INVOLVED AND HENCE PART OF THE ADMINISTRATIVE AND MANAGERIAL EXPENSES SHOU LD BE HELD AS ATTRIBUTABLE TO EARN TAX FREE INCOME FROM SUCH INVE STMENTS. THE AO ITA NO.2546/AHD/2009 EMTICI ENGINEERING LTD. VS JCIT ANAND CIRCLE, ANAND 2 FURTHER NOTED THAT THE TERM EXPENDITURE OCCURRING I N SECTION 14A OF THE IT ACT WOULD TAKE IN ITS SWEEP NOT ONLY DIRECT EXPE NDITURE BUT ALL OTHER EXPENDITURE ALSO. THE DISALLOWANCE WAS WORKED OUT U NDER RULE 8 D OF THE IT RULE BY APPLYING THE DECISION OF ITAT SPE CIAL BENCH (MUM.) IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. 11 9 TTJ (MUM) (MUM.) (SB) 289. THE LEARNED CIT(A) CONFIRMED THE ADDITION AS MADE BY THE AO AS PER RULE 8 D OF THE IT RULES. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ISSUE IS NOW FINALLY DECIDED BY THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT AN D ANOTHER 328 ITR 81 IN WHICH IT WAS HELD THAT RULE 8 D IS NOT RETROSPECTIVE AND IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND THE DISALLOWANCE FOR THE EARLIER PERIOD TO BE DETERMINE D ON REASONABLE BASIS. HE HAS FURTHER SUBMITTED THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS GUJARAT PO WER CORPORATION LTD. 2011- TIOL-219-HC-AHM-IT (TAX APPEAL NO.1587 OF 2009) IN RECENT DECISION HELD AS UNDER: INCOME TAX SECTION 14A WHEN THERE IS NO EVIDENCE THAT THE BORROWED AMOUNT IS UTILISED FOR INVESTMENT IN TAX FREE SECURITY, AND THE MAJOR INVESTMENT WAS MADE BEFORE THE DATE OF BORROWINGS, WHETHER DISALLOWANCE MADE BY THE AO U/S 14A FOR INTEREST ON BORROWED FUNDS IS RIGHTLY DELETED. HE, THEREFORE, SUBMITTED THAT THE MATTER MAY BE REM ANDED TO THE FILE OF THE AO FOR RECONSIDERATION IN VIEW OF THE ABOVE DECISIONS. THE LEARNED DR DID NOT DISPUTE THE ABOVE FACTS AND STAT ED THAT THE MATTER MAY BE REMANDED TO THE AO FOR RECONSIDERATION. ITA NO.2546/AHD/2009 EMTICI ENGINEERING LTD. VS JCIT ANAND CIRCLE, ANAND 3 4. ON CONSIDERATION OF THE ABOVE FACTS AND SUBMISSI ONS 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 & 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-SECTION (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. THE 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 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. ITA NO.2546/AHD/2009 EMTICI ENGINEERING LTD. VS JCIT ANAND CIRCLE, ANAND 4 THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT V S GUJARAT POWER CORPORATION LTD. (SUPRA) HAS ALSO DECIDED IDENTICAL ISSUE AS NOTED ABOVE. THEREFORE, IN VIEW OF THE ABOVE DECISIONS, W E SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISS UE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE SAME AFRESH AS P ER THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT AND ANOTHER (SUPRA) AND AS PER THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE C ASE OF CIT VS GUJARAT POWER CORPORATION LTD. (SUPRA). THE AO SHAL L GIVE REASONABLE SUFFICIENT OPPORTUNITY TO THE ASSESSEE O F PRODUCING RELEVANT MATERIALS BEFORE HIM ON THE FACTS AND CIRC UMSTANCES OF THE CASE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21-04-2011 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 21-04-2011 LAKSHMIKANT/- ITA NO.2546/AHD/2009 EMTICI ENGINEERING LTD. VS JCIT ANAND CIRCLE, ANAND 5 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 D Y. REGISTRAR, ITAT, AHMEDABAD