THE GREATER BOMBAY CO-OP BANK LTD, MUMBAI V. ACIT 1(3), MUMBAI

ITA 2748/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59852 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2007-2008
• Appeal Filed On: 08-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: A L SHARMA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 2748MUM/2011 ASSESSMENT YEAR: 2007-08 THE GREATER BOMBAY CO-OP BANK LTD., APPELLAN T 89, GBCB HOUSE, BHULESHWAR, MUMBAI 400 002. (PAN AABAT4479N) VS. ASSTT. COMMISSIONER OF INCOME-TAX-1(3), R ESPONDENT AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 20. APPELLANT BY : MR. A.L. SHARMA RESPONDENT BY : MR. A.K. NAYAK DATE OF HEARING : 02/02/2012 DATE OF PRONOUNCEMENT : 24/02/2012 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF CIT(A)-2, MUMBAI, PASSED ON 22/02/2011 FOR THE ASSE SSMENT YEAR 2007-08, WHEREIN THE ASSESSEE HAS RAISED THE FOLLOW ING GROUND OF APPEAL:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 93,10,520/- UNDER RULE 8D R.W.S. 14A OF THE ACT, MA DE BY THE AO. 2. THE AO NOTED THAT DURING THE YEAR UNDER CONSIDER ATION, THE ASSESSEE COMPANY HAD RECEIVED THE EXEMPT DIVIDEND I NCOME OF RS. 14,81,080/- AGAINST WHICH THE ASSESSEE HAD NOT ADDE D BACK ANY AMOUNT AS EXPENDITURE ATTRIBUTABLE TO EARNING EXEMP T INCOME. THE AO, THEREFORE, INTIMATED THE ASSESSEE VIDE ORDER SH EET ENTRY DATED 14/12/2009 THAT RULE 8D BEING BROUGHT INTO THE IT RULES, 1962 HAS TO BE APPLIED FOR THE PURPOSE OF CALCULATING DISALL OWANCE U/S 14A OF ITA NO. 2748/MUM//2011 THE GREATER BOMBAY CO-OP BANK LTD. 2 THE ACT. ACCORDINGLY, THE AO APPLYING THE PROVISIO NS OF RULE 8D MADE THE ADDITION OF RS. 93,10,520/- U/S 14A OF THE ACT. ON APPEAL, BEFORE THE CIT(A) THE ASSESSEE SUBMITTED THAT THE CLAUSE N O. 2(II) OF RULE 8D IS NOT APPLICABLE IN THE ASSESSEES CASE SINCE THE INTEREST EXPENDITURE IS DIRECTLY RELATED TO THE INTEREST EARNINGS BY THE ASSESSEE. AS SUCH THE ADDITION OF ANY SHOULD HAVE BEEN RESTRICTED TO 0.5% OF THE AVERAGE VALUE OF INVESTMENTS. WITHOUT PREJUDICE TO THE ABOV E, THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE IS HIGHLY DISPROPOR TIONATE TO THE DIVIDEND INCOME WHICH IS ONLY RS.14,81,080/- AGAINS T WHICH DISALLOWANCE HAD BEEN MADE TO THE EXTENT OF RS. 93, 10,820/-, WHICH IS HIGHLY EXCESSIVE. THE CIT(A) AFTER CONSIDERING T HE SUBMISSIONS OF THE ASSESSEE AND AFTER ANALYZING THE ISSUE WITH CAS E LAWS, HELD AS UNDER:- 8. BOTH THE WISDOM, THAT OF THE JUDICIARY AS PRONO UNCED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE AND, THAT OF THE LEGISLATURE AS CONTAINED IN RULE 8D, CO NVEY THAT IN THE PRESENT SCENARIO, THE BEST WISDOM IS TO APPLY PRINC IPLES CONTAINED IN RULE 8D FOR DETERMINING DISALLOWANCE U /S 14A, SUBJECT OF COURSE TO SECTION 14A(1) OF THE ACT. THE REFORE, I HOLD THAT THE DISALLOWANCE TO BE MADE U/S 14A FOR EXPENS ES INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE INCOME-TAX ACT HAS TO BE THE BASIS OF PRI NCIPLES AS SPELT OUT IN THE RULES AS CONTAINED IN THE NOTIFICA TION DATED 24 TH MARCH, 2008. 9. IN THE INSTANT CASE THE DISALLOWANCE HAS BEEN DO NE IN ACCORDANCE WITH FORMULA CONTAINED IN RULE 8D AND IS THEREFORE CONFIRMED. AGGRIEVED BY THE ORDER OF THE CIT(A) THE ASSESSEE I S IN APPEAL BEFORE US. 3. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE CANVASSED THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED B Y THE DECISION OF THE ITAT, MUMBAI BENCH C, MUMBAI IN THE CASE OF P ARLE BISLERI (P) LTD. VS. ACIT IN ITA NOS. 5522/MUM/09 AND 3135/MUM/ 10 FOR AYS. 2006-07 AND 2007-08 VIDE ORDER DATED 30 TH DECEMBER, 2011. A COPY OF THE SAID ORDER HAS BEEN FILED ON RECORD. ITA NO. 2748/MUM//2011 THE GREATER BOMBAY CO-OP BANK LTD. 3 4. ON THE OTHER HAND, THE LEARNED DR HAS NOT CONTRO VERTED THE FACTS AVAILABLE ON RECORD NOR BROUGHT ANY CONTRARY DECISION TO THIS EFFECT. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE RECORD AND GONE THROUGH THE RECORDS AS ALSO THE DECISION O F THE CO-ORDINATE BENCH (SUPRA). THE CO-ORDINATE BENCH IN THE CASE OF PARLE BISLER (P) LTD. HELD AS UNDER:- ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS. 18,35,87 4/- IN A.Y 2006-07 AND RS. 43,62,186/- IN A.Y 2007-08. INVOKING THE PROVISIO NS IN SECTION 14A R.W.R 8D(2)(III), THE ASSESSING OFFICER DISALLOWED AN AMOU NT OF RS. 16,44,641/- IN A.Y 2006-07 AND RS. 18,23,631/-. IT WAS THE SUBMISSION T HAT INVOKING RULE 8D IN THIS YEAR DOES NOT ARISE AS DECIDED BY THE HON'BLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO 328 ITR 81 (BOM). THE LEARNED C OUNSEL HAS NO OBJECTION IF THE REASONABLE AMOUNT TO BE DISALLOWED UNDER SECT ION 14A IS FIXED TO 5% OF THE DIVIDEND AS DECIDED BY THE COORDINATE BENCHES IN VA RIOUS DECISIONS MORE PARTICULARLY IN THE CASE OF M/S P.N. WRITER & CO. P VT. LTD., VS. ADD. CIT IN ITA NOS.4388 & 4390/MUM/2010 DATED 14 TH OCTOBER, 2011. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THAT T HE ASSESSING OFFICER DISALLOWED % OF THE AVERAGE VALUATION OF THE INVESTMENT ON T HE GROUND THAT THESE ARE RELATABLE TO EARNING OF INCOME. HOWEVER, CONSIDERIN G THE FACTS OF THE CASE THAT ASSESSEE HAD INVESTED FROM SURPLUS FUNDS, WE HOLD T HAT NO PART OF INTEREST IS TO BE CONSIDERED FOR DISALLOWANCE MADE UNDER SECTION 14A. MOREOVER RULE 8D IS NOT APPLICABLE TO THIS YEAR AS HELD BY THE JURISDICTION AL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO 328 ITR 81 (BOM). IN OUR CONSIDE RED OPINION, THE ENDS OF JUSTICE WOULD BE MET IF 5% OF THE DIVIDEND INCOME E ARNED BY ASSESSEE IS DISALLOWED AS EXPENDITURE INCURRED IN RELATION TO T HE EARNING OF EXEMPT INCOME. THUS, WE ALLOW THESE GROUNDS IN PART AND DIRECT THE ASSESSING OFFICER TO DISALLOW ONLY 5% OF THE DIVIDEND INCOME AS EXPENDITURE RELAT ABLE TO EARNING THAT INCOME UNDER SECTION 14A. GROUNDS NO 2 IN BOTH APPEALS ARE ACCORDINGLY PARTLY ALLOWED. 6. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE CASE DECIDED BY THE TRIBUNAL IN THE CASE OF PARLE B ISLERI (P) LTD. (SUPRA), RESPECTFULLY FOLLOWING THE SAID DECISION, WE SET ASIDE THE ORDER OF THE CIT(A) AND HOLD THAT 5% OF THE DIVIDE ND INCOME EARNED BY THE ASSESSEE IS DISALLOWED AS EXPENDITURE INCURR ED IN RELATION TO THE EARNING OF EXEMPT INCOME. THUS, THE GROUND RAIS ED BY THE ASSESSEE IS PARTLY ALLOWED. ITA NO. 2748/MUM//2011 THE GREATER BOMBAY CO-OP BANK LTD. 4 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF FEBRUARY, 2012. SD/- SD/- (B. RAMAKOTAIAH) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 24 TH FEBRUARY, 2012 KV COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, G BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.