ADDL. C.I.T. 5(2), MUMBAI V. MERCATOR LINES LTD., MUMBAI

ITA 2699/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8759 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAVEEN GUPTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . , BEFORE SHRI D. MANMOHAN, VICE PRESIDENT / AND !'# , !$ %& SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 2699/MUM/2011 ' ' ' ' / ASSESSMENT YEAR 2006-07 DY. COMMISSIONER OF INCOME TAX 5(2), R.NO. 571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. M/S. MERCATOR LINES LTD., 3 RD FLOOR, MITTAL TOWER, B-WING, NARIMAN POINT, MUMBAI-400 021. PAN: AAACM 5007 A ( () / APPELLANT ) ( *+() / RESPONDENT ) REVENUE BY : SHRI NAVEEN GUPTA ASSESSEE BY : SHRI DINESH AHIR , -$ / DATE OF HEARING : 13-09-2012 .' , -$ / DATE OF PRONOUNCEMENT : 18-09-2012 %!/ / O R D E R PER RAJENDRA, A.M. THE SOLITARY GROUND OF APPEAL AGAINST THE ORDER DT. 17-01-2011 OF THE CIT(A)-9, MUMBAI FILED BY THE AO READS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RETAIN THE DISAL LOWANCE TO 5% OF DIVIDEND INCOME IGNORING THE FACT THAT THE DISALLOWANCE U/S. 14A IS TO BE WORKED OUT AS PER RULE 8D OF THE I.T. ACT AS ALSO THE DEPARTMENT HAS NOT ACCEPTE D THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF M/S. GODREJ AND BOYCE LTD AND THE SAME HAS BEEN CHALLENGED BEFORE THE APEX COURT. ITA NO. 2699/MUM/2011 M/S. MERCATOR LINES LTD. 2 THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CIT(A ) BE SET ASIDE AND THE ORDER OF THE A.O. BE RESTORED. 2. ASSESSEE-COMPANY, ENGAGED IN THE BUSINESS OF SHIPPI NG AND CARGO HANDLING SERVICES, FILED ITS RETURN OF INCOME ON 06-11-2006 DECLARING TOTAL INCOME OF RS. 11,07,70,498/-. RETURN WAS INITIALLY PROCESSED U/S . 143(1) OF THE INCOME TAX ACT, 1961 (ACT).LATER ON IT WAS SELECTED FOR SCRUTINY. ASSESSMENT WAS FINALISED ON 30-12- 2009 DETERMINING TOTAL INCOME OF THE ASSESSEE AT RS . 12,26,57,430/-. DURING THE ASSESSMENT PROCEEDINGS, ASSESSING OFFICER (AO) FOUN D THAT THE APPELLANT HAD EARNED DIVIDEND INCOME OF RS. 1.22 CRORES AND SAME WAS CLA IMED AS EXEMPT INCOME UNDER THE PROVISIONS OF CHAPTER III OF THE ACT. HE DIRECT ED THE ASSESSEE-COMPANY TO EXPLAIN AS TO WHY RELEVANT EXPENSES AS DEBITED IN THE P&L A /C SHOULD NOT BE DISALLOWED ON PROPORTIONATE BASIS INVOKING SECTION 14A OF THE ACT . AFTER CONSIDERING THE SUBMISSIONS MADE BY THE AO, HE DISALLOWED RS. 31,25 ,648/- AS EXPENSES ATTRIBUTABLE FOR EARNING EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. 2.1. ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APPEL LATE AUTHORITY (FAA). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE-COMPANY AND THE ASSESSMENT ORDER, HE HELD THAT RULE 8D WAS NOT APPLICABLE FOR THE ASSESS MENT YEAR UNDER CONSIDERATION, THAT AO HAD WRONGLY INVOKED THE PROVISIONS OF RULE 8D, THAT REASONABLE DISALLOWANCE HAD TO BE MADE TO FULFIL THE REQUIREMENTS OF SECTIO N 14A OF THE ACT. RELYING UPON THE ORDERS OF THE VIP INTERNATIONAL LTD. (ITA NOS.7242/ MUM/08 AND 1104/MUM/08) HE HELD THAT 5% DISALLOWANCE WAS REASONABLE. HE DIREC TED THE AO TO RESTRICT THE DISALLOWANCE TO 5% THAT WORKED OUT TO RS. 6,10,911/ -. FAA GRANTED RELIEF FOR THE REMAINING AMOUNT. 3. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDER OF THE AO WHERE AS AUTHORISED REPRESENTATIVE (AR) STRONGLY SU PPORTED THE ORDER OF THE FAA.AR FURTHER SUBMITTED THAT RULE 8D WAS NOT APPLI CABLE BEFORE THE ASSESSMENT YEAR 2008-09, THAT FAA HAS PASSED A REASONABLE ORDE R. AFTER HEARING THE RIVAL SUBMISSIONS, WE ARE OF THE OPINION THAT PROVISIONS OF RULE 8D CANNOT BE APPLIED FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E., ASSES SMENT YEAR 2006-07. AS THE FAA HAS ALREADY MADE REASONABLE DISALLOWANCE FOR EARNIN G EXEMPT INCOME, WE DO NOT WANT TO INTERFERE WITH HIS ORDERS. GROUND NO.1 IS DECIDED AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2012. SD/- SD/- ( . / D. MANMOHAN) ( !'# / RAJENDRA) / VICE PRESIDENT !$ %& / ACCOUNTANT MEMBER MUMBAI, 0% DATE: 18 TH SEPTEMBER, 2012 ITA NO. 2699/MUM/2011 M/S. MERCATOR LINES LTD. 3 TNMM %!/ %!/ %!/ %!/ , ,, , *-1 *-1 *-1 *-1 2!1'- 2!1'- 2!1'- 2!1'- / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR B BENCH, ITAT, MUMBAI 6. GUARD FILE +1- *- //TRUE COPY// %!/ %!/ %!/ %!/ / BY ORDER, / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI