JAMNALAL SONS PVT. LTD., WARDHA V. CIT-II, NAGPUR

ITA 264/NAG/2008

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3511 (ITAT-NAGPUR)
• Duration Of Justice: 11 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 30-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR MILIND BHUSARI
• Assessee Lawyers: M A GOHEL
• Keywords: Earning of tax free income
• Section: 14A; 201; 264; 263

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL BENCH, NAGPUR (AT E - COURT, PUNE) BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI PARTHA SARATHI CHAUDHURY , JM . / I TA NO. 264 /NAG /20 08 / ASSESSMENT YEAR : 2002 - 03 JAMNALAL SONS PRIVATE LIMITED. BACHHRAJ BHAWAN, GANDHI CHOWK, WARDHA - 442 001. PAN : AAACJ3176H ....... / APPELLANT / V/S. THE ASSISTANT COMMISSIONER OF INCOME TAX, WARDHA. / RESPONDENT A SSESSEE BY : SHRI M.A. GOHEL REVENUE BY : DR. MILIND BHUSARI, CIT / DATE OF HEARING : 14 .10 .2019 / DATE OF PRONOUNCEMENT : 15 .10 .2019 / ORDER PER PARTHA SARATHI CHAUDHU RY, JM : THIS APPEAL PREFERRED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE LD. CIT - II, NAGPUR DATED 11.03.2008 PASSED U/S.263(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2002 - 03 AS PER THE GROUNDS OF APPEAL ON RECORD . 2 ITA NO. 264 /NAG /20 08 A.Y. 2002 - 03 2. THE CRUX OF THE GRIEVANCE OF THE ASSESSEE IS WITH REGARD TO THE ORDER PASSED U/S. 263 OF THE ACT BY THE LD. CIT STATING THAT THE ORDER OF TH E ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. IT WAS OBSERVED BY THE LD. CIT THAT THE ASSESSEE HAS SHOWN GROSS INCOME OF RS.11,33,67,921/ - WHICH INCLUDES DIVIDEND INCOME OF RS.9,92,43,831/ - AS PER PROFIT AND LOSS ACCOUNT WHICH IS 87.54% OF THE GROSS INCOME. THE ASSESSEE HAS DEBITED TOTAL EXPENSES OF RS.1,03,13,584/ - TO THE PROFIT AND LOSS ACCOUNT. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT, THE EXPENDITURE OF RS.90,28,511/ - BEING 87.54% OF THE TOTAL EXPENDITURE OF RS.1,03,13,584/ - IS NOT ALLOWABLE. THEREFORE, THE ORDER OF THE ASSESSING OFFICER DATED 10.05.2006 NOT DISALLOWING THE PROPORTIONATE EXPENDITURE OF RS.90,28,511/ - INCURRED IN RELATION TO EXEMPT INCOME I.E. DIVIDEND OF RS.9,92,43,831/ - WAS ERRONEOUS AND PR EJUDICIAL TO THE INTEREST OF THE REVENUE . THE LD. CIT IN HIS ORDER DIRECTED THE EXPENDITURE OF RS.90,28,511/ - TO BE DISALLOWED BY THE ASSESSING OFFICER. 3. AT THE TIME OF HEARING THROUGH E - COURT, BOTH THE PARTIES UNANIMOUSLY AGREED THAT THE ASSESSING OFF ICER SHOULD HAVE DISALLOWED CERTAIN EXPENDITURE AS PER SECTION 14A OF THE ACT AND TO THAT EXTENT, THE ORDER PASSED U/S.263 IS CORRECT. THE GRIEVANCE OF THE ASSESSEE IS ONLY TO THE RATE OF DISALLOWANCE WHICH THE LD. CIT HAS DIRECTED TO THE ASSESSING OFFICE R AND FOR THIS FACT OF THE MATTER, THE LD. AR SUBMITTED THAT THE DISALLOWANCE UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVAT LTD., INCOME TAX APPEAL NO.934 OF 2011 SHOULD BE APPLIED. IN THIS CASE , QUESTION - B BEFORE THE HONBLE HIGH COURT WAS AS FOLLOWS: B) WHETHER ON THE FACTS AND I N THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ITAT WAS CORRECT IN RESTRICTING THE DISALLOWANCES TO THE EXTENT OF 2% OF THE 3 ITA NO. 264 /NAG /20 08 A.Y. 2002 - 03 INCOME ON THE BASIS THAT IN THE EARLIER YEAR CIT(A) RESTRICTED THE EXPENSES TO 2% OF TOTAL EXEMPT INCOME, OVERLOOKING THAT THE CIT(A) WHILE CALCULATING THE EXPENSES IN THE RELEVANT ASSESSMENT YEAR HAS TAKEN INTO ACCOUNT THE PROVISIONS OF SECTION 14A OF THE I .T.ACT WHILE MAKING THE DISALLOWANCE ON PROPORTIONATE BASIS? ON THAT QUESTION, THE HONBLE HIGH COURT HAS HELD AS FOLLOWS: 4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.09.2010 WHILE APPLYING THE DECISION OF TH IS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.02.2009 FOR THE ASSESSMENT YEAR 2002 - 03 AND ORDER DATED 10.09.2009 FOR THE ASSESSMENT YEARS 2003 - 04 AND 2004 - 05 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER, THE TRIBUNAL HAS REMANDED THE MATTER TO THE ASSESSING OFFICER TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO TH E EXTENT OF 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. 4. WE HAVE PERUSED THE CASE RECORDS AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO ANALYZED THE FACTS AND CIRCUMSTANCES IN THIS CASE. HAVING HEARD THE SUBMISSIONS ON CONSENSUS REGARDING VALIDITY OF 263 ORDER PASSED BY THE LD. CIT, WE ARE AT CONFORMITY WITH SUCH CONSENSUS ARRIVED AT BY THE PARTIES HEREIN. THE REVISIONARY JURISDICTION HAS BEEN RIGHTLY UNDERTAKEN BY THE LD. CIT U/S.263 OF THE ACT SINCE DISA LLOWANCE U/S.14A OF THE ACT SHOULD HAVE BEEN CARRIED OUT IN THIS CASE. HAVING SAID THAT YARDSTICK SET FORTH BY THE HONBLE HIGH COURT REGARDING THE DISALLOWANCE ON THE ISSUE AS ON RECORD NEEDS TO BE FOLLOWED AND THEREFORE IN THE INTEREST OF JUSTICE, WE DIR ECT THE ASSESSING OFFICER TO APPLY THE DISALLOWANCE RATE U/S.14A OF THE ACT AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT (SUPRA.). 4 ITA NO. 264 /NAG /20 08 A.Y. 2002 - 03 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRO NOUNCED ON 15 TH DAY OF OCTOBER , 201 9 . SD/ - SD/ - D. KARUNAKARA RAO PARTHA SARATHI CHAUDHURY ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 15 TH OCTOBER, 2019. SB / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT - II, NAGPUR. 4. THE PR. CIT, NAGPUR. 5 . , , / DR, ITAT, NAGPUR. 6. / GUARD FILE. // TRUE COPY // / BY ORDER, / PRIVATE SECRETARY , / ITAT, PUNE . 5 ITA NO. 264 /NAG /20 08 A.Y. 2002 - 03 DATE 1 DRAFT DICTATED ON 14 . 10 .2019 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15 .10 .201 9 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER