Anand Trade Movers(Gujarat)Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(2), Ahmedabad

ITA 2816/AHD/2011

• Counselvise Citation: 281620514 RSA 2011
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-02-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 15-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Business expenditure; Earning of tax free income; Retrospective amendment; Bad and doubtful debts
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , . ! !,'# ' $ BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A. NO.2816/AHD/2011 ( ! & ! & ! & ! & / / / / ASSESSMENT YEAR : 2008-09) ANAND TRADE MOVERS (GUJARAT) PVT.LTD. B-16, 5 TH FLOOR OM TOWER OPP.BIDIWALA PARK SATELLITE, AHMEDABAD ! ! ! ! / VS. THE ITO WARD-1(2) AHMEDABAD ' '# ./() ./ PAN/GIR NO. : AAGCA 0231 Q ( '* / // / APPELLANT ) .. ( +,'*/ RESPONDENT ) '* - '/ APPELLANT BY : SHRI VIJAY RANJAN +,'* . - ' / RESPONDENT BY : SHRI SAMIR TEKRIWAL, SR.D.R. !/ . 0#/ // / DATE OF HEARING : 23/02/2012 1 & . 0# / DATE OF PRONOUNCEMENT : 16/04/2012 '2/ O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WHI CH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-VI AHMEDABAD DATED 19/07/2011 PASSED FOR A.Y. 2008-09. VARIOUS GROU NDS HAVE BEEN RAISED BY THE ASSESSEE IN ITS APPEAL BUT GROUND NO.4 IS AR GUED BEFORE US; REPRODUCED BELOW:- ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 2 - 4. WITHOUT PREJUDICE, ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE, THE CIT(A) ERRED IN HOLDING THAT OUT OF TOTAL ADMINISTRATIVE EXPENSES CLAIMED AT RS.16.19 LACS THE ASSESSEE WAS ENTITLED TO REDUCTION OF ONLY TWO ITEMS VIZ. FILING FEES RS.2,4 3,698 AND STAMPING AND REGISTRATION EXPENSES RS.1,64,900 AND THE BALANCE OF EXPENSES CLAIMED WAS LIABLE TO BE DISALLOWED U/S.14 A AND HE FURTHER FAILED TO REALIZE THAT THE TOTAL ADMINISTRA TIVE EXPENSES OF RS.16.19 LACS PERTAINED MOSTLY TO THE ASSESSEES BU SINESS OF TRADING ACTIVITIES WITH TOTAL TURNOVER OF RS.364.36 CRORES (AS NOTICED ALSO IN THE FIRST HALF OF PAGE OF THE IMPUG NED APPELLATE ORDER) AND HE FURTHER ERRED IN NOT ACCEPTING THE AS SESSEES CLAIM THAT AT ANY RATE OUT OF ADMINISTRATIVE EXPENSES ANY THING MORE THAN RS.2,19,223 CANNOT BE DISALLOWED EVEN U/S.14A. 2. AT THE OUTSET, IT IS WORTH TO MENTION THAT THE O NLY GROUND WHICH WAS ARGUED BEFORE US IS IN RESPECT OF THE INVOCATIO N OF THE PROVISIONS OF SECTION 14A OF THE IT ACT, THEREFORE, REST OF THE G ROUNDS AS MENTIONED IN THE GROUNDS OF APPEAL BEING NOT ARGUED OR PRESSE D, HENCE DISMISSED. 3. FACTS IN BRIEF AND THE ISSUE INVOLVED AS DISCUSS ED VIDE AN ORDER U/S.143(3) DATED 29/12/2010 WERE THAT THE ASSESSEE- COMPANY IS IN THE BUSINESS OF AGRO-PRODUCTS. ON VERIFICATION OF THE BALANCE-SHEET, IT WAS NOTICED THAT THE ASSESSEE-COMPANY HAD MADE AN INVES TMENT IN SHARES OF RS.1,83,30,750/-. IT WAS ALSO NOTED THAT THE ASSE SSEE HAS CLAIMED INTEREST EXPENSE OF RS.81,86,301/- AS PER P&L A/C. A SHOW-C AUSE NOTICE WAS ISSUED AS TO WHY THE EXPENSES INCURRED FOR EARNING EXEMPTED INCOME BE NOT DISALLOWED BY INVOKING THE PROVISIONS OF SECTIO N 14A OF IT ACT. IN COMPLIANCE, ASSESSEE HAS NARRATED THE FACTS AS PER THE FOLLOWING EXPLANATION:- ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 3 - FIRSTLY THE COMPANY HAS ITS OWNED FUND AGGREGATING OF RS.264.28 CRORES AS AGAINST WHICH THE INVESTMENT INEQUITY AND PREFERENCE SHARES OF RS.101.83 CROES. IN OTHER WORDS COMPANY HAS SUFFICIENTLY INTEREST FREE FUND TO MAKE INVESTMENT. FURTHER THE COMPANY HAS NOT EARNED ANY EXEMPTED INCOME IN THE Y EAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO DURING THE CO URSE OF HEARING HAS PROVED THE NEXUS OF INTEREST BEARING FUND UTILI ZED FOR THE PURPOSE OF BUSINESS AND FOR MAKING INVESTMENT. IN VIEW OF THE ABOVE, THE PROVISIONS OF SECTION 14A IS NOT AT ALL APPLICABLE TO THE ASSESSEE. PLEASE REFER TO THE FOLLOWING JUDGMENT O N THE IDENTICAL FACTS: IN THE CASE OF CIT VS HERO CYCLES THE HON'BLE HIGH COURT HELD THAT THE ASSESSEE HAD PROVED THAT THE INVESTMENT IN SHA RES WAS MADE OUT OF NON-INTEREST BEARING FUNDS. IT HELD THAT UN LESS THERE WAS EVIDENCE TO SHOW THAT THE INTEREST-BEARING FUNDS HA D BEEN INVESTED IN THE TAX-FREE INVESTMENT AND THE NEXUS WAS ESTABL ISHED BY THE REVENUE SECTION 14A COULD NOT BE APPLIED ON MORE PR ESUMPTION. ON THE SAME ISSUE THE HON'BLE HIGH COURT IN THE CAS E OF CIT VS RELIANCE UTILITIES HAS HELD THAT WHERE AN ASSESSEE HAS HIS OWN FUNDS AS WELL AS BORROWED FUNDS, A PRESUMPTION CAN BE MADE THAT THE ADVANCES FOR NON BUSINESS PURPOSE HAVE BEEN MAD E OUT OF THE OWN FUNDS AND THAT THE BORROWED FUNDS HAVE NOT BEEN USED FOR THIS PURPOSE. ACCORDINGLY THE DISALLOWANCE OF THE INTER EST ON THE BORROWED FUND IS NOT JUSTIFIED. WITHOUT PREJUDICE TO THE ABOVE IN ANY CASE DISALLOW ANCE AS PER RULE 8D IS IF REQUIRED ON ADMINISTRATIVE EXPENSES A RE SUBMITTING HEREWITH THE CHART SHOWING THE TOTAL ADMINISTRATIVE EXPENSES FROM WHICH THE BIFURCATION OF THE ADMINISTRATIVE EXPENSE S TOWARDS SHARE WHICH COME TO RS.2,19,223/-. 3.1. HOWEVER, THE AO WAS NOT CONVINCED AND FOLLOW ING THE CHEMINVEST LTD. VS. ITO 121 ITD 318 (DELHI)[SB] CALCULATED TH E DISALLOWANCE AS UNDER:- ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 4 - INTEREST EXPENSE NIL NIL TOTAL INVESTMENT AS ON 31.3.2007 1,83,30,750 TOTAL INVESTMENT AS ON 31.3.2008 1,01,83,29,750 TOTAL ASSET AS ON 31.3.2007 31,06,659 TOTAL ASSET AS ON 31.3.2008 2,64,28,04,851 DISALLOWANCE U/S.14A NIL X 518330250 1322955755 NIL % OF 518330250 RS.25,91,651/- 4. WHEN THE MATTER WAS CARRIED BEFORE THE LD.CIT(A) , IT WAS ARGUED THAT THE EXPENSES, SUCH AS, INSURANCE EXPENSES, FIL ING FEES, BAD DEBTS, ETC. WERE THE ROUTINE BUSINESS EXPENDITURE AND THOS E EXPENSES ARE NOT CONNECTED WITH THE IMPUGNED EXEMPTED INCOME. THE A SSESSEE HAS CITED THE DECISION OF WALFORT SHARE & STOCK BROKERS (P.) LTD. 326 ITR PG 1 (SC) FOR THE LEGAL PROPOSITION THAT FOR ATTRACTING SECTION 14A THERE HAS TO BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS ITS R ELATIONSHIP WITH THE EXEMPTED INCOME. ALTERNATIVELY, IT HAS ALSO BEEN ARGUED THAT ADMINISTRATIVE EXPENSES TO THE EXTENT OF RS.2,19,22 3/- WERE CONNECTED WITH THE SAID INVESTMENT ACTIVITY, THEREFORE THE DI SALLOWANCE SHOULD BE RESTRICTED TO THAT EXTENT ONLY. HOWEVER, LD.CIT(A) HAS TAKEN A STAND THAT AS PER THE P&L A/C. THE ENTIRE ADMINISTRATIVE EXPEN SES CLAIMED BY THE ASSESSEE WAS ONLY RS.16.19 LACS BUT THE AO HAD MADE THE DISALLOWANCE OF RS.25.91 LACS. AS PER LD.CIT(A), THE DISALLOWAN CE COULD BE MADE ONLY TO THE EXTENT THE SAME IS CLAIMED IN P&L A/C. HE H AS AGREED WITH THE ARGUMENT OF THE ASSESSEE THAT SUCH DISALLOWANCE HAD TO BE RESTRICTED TO THE EXTENT IT WAS CLAIMED AS EXPENSES AND NOT MORE THAN THAT. ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 5 - ACCORDING TO HIM, SECTION 14A DO NOT PROVIDE DISALL OWANCE OF ANY EXPENSE WHICH HAS NOT EVEN BEEN CLAIMED BY THE ASSE SSEE. HE HAS ALSO OPINED THAT THE APPLICATION OF RULE 8D IS NOT MECHA NICAL AND THAT DISALLOWANCE U/S.14A COULD NOT BE MORE THAN THE EXP ENSES CLAIMED. AN ANOTHER FACT HAS ALSO BEEN NOTICED BY THE LD.CIT(A) THAT FILING FEES OF RS.2,43,698/- AND REGISTRATION EXPENSES OF RS.1, 64,900/- WERE ALREADY ADDED WHILE COMPUTING THE TOTAL TAXABLE INCOME. T HOSE EXPENSES WERE IN FACT NEVER CLAIMED BY THE ASSESSEE, THEREFORE AS PER LD.CIT(A) SHOULD NOT BE DISALLOWED AGAIN. HE HAS DIRECTED THE AO T O RESTRICT THE DISALLOWANCE ACCORDINGLY. AGAINST THE PART RELIEF GRANTED BY THE LD.CIT(A), NOW THE ASSESSEE IS FURTHER IN APPEAL. 5. FROM THE SIDE OF THE APPELLANT LD.AR MR.VIJAY RA NJAN APPEARED AND ARGUED THAT IN THE YEAR UNDER CONSIDERATION, TH ERE WAS NO EXEMPTED INCOME FROM THE IMPUGNED INVESTMENT IN SHARES, THE REFORE THERE WAS NO SCOPE OF ANY DISALLOWANCE FOR THE YEAR UNDER CONSID ERATION. IN SUPPORT OF THIS ARGUMENT, HE HAS PLACED RELIANCE ON AN ORDER O F ITAT A BENCH CHENNAI IN THE CASE OF M/S.SIVA INDUSTRIES & HOLDI NG LTD. VS. ACIT BEARING ITA NO.2148/MDS/2010 FOR A.Y. 2006-07, DATE D 20 TH MAY-2011. LD.AR HAS ALSO ARGUED THAT BEFORE THE INVOCATION OF SECTION 14A THE AO SHOULD RECORD HIS DISSATISFACTION ABOUT THE CORRECT NESS OF THE CLAIM OF EXPENDITURE. ACCORDING TO HIM, SINCE IN THE PRESEN T CASE, NO SUCH SATISFACTION WAS RECORDED, HENCE THE PROVISIONS OF SECTION 14A WERE WRONGLY INITIATED. RELIANCE WAS PLACED ON MAXOPP I NVESTMENT LTD. VS. CIT 15 TAXMANN.COM 390 (DELHI). HE HAS ALSO REFER RED CIT VS. WALFORT SHARE & STOCK BROKERS (P.) LTD. 192 TAXMAN 211(SC) FOR THE LEGAL ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 6 - PROPOSITION THAT THERE SHOULD BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH HAS ITS RELATIONSHIP WITH TAX EXEMPT INCOME. HE HAS ALSO REFERRED THE DECISION OF HONBLE BOMBAY HIGH COURT PRONOUNC ED IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO.LTD. VS. DY.CIT & ANR. 328 ITR 81 (BOM.). 5.1. FROM THE SIDE OF THE REVENUE, LD.SR.DR MR.SAMI R TEKRIWAL APPEARED AND INFORMED THAT THE DECISION OF ITAT A BENCH CHENNAI IS A PER INCURIAM ORDER BECAUSE THE SAID ISSUE HAS BEE N DECIDED BY THE SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD. VS. IT O VIDE AN ORDER DATED 05/08/2009(SUPRA), WHEREAS THE ORDER OF THE T RIBUNAL IS DATED 20/05/2011. HE HAS ARGUED THAT THE SPECIAL BENCH HAS HELD THAT A DISALLOWANCE U/S.14A CAN BE MADE EVEN IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE. 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH. WE HAVE ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BEL OW IN THE LIGHT OF SEVERAL DECISIONS CITED BEFORE US BY BOTH THE PARTI ES. AS FAR AS THE LD.COUNSELS RELIANCE ON THE ORDER OF THE RESPECTED ITAT CHENNAI BENCH (SUPRA) IS CONCERNED, WE ARE OF THE VIEW THAT SINCE AN ORDER OF THE SPECIAL BENCH HAS ALREADY BEEN PASSED IN THE CASE OF CHEMIN VEST LTD. (SUPRA), THEREFORE THE ORDER OF THE RESPECTED SPECIAL BENCH HAS TO BE FOLLOWED BY US. JUDICIAL PROPRIETY REQUIRES THAT ONCE FOR AN ISSUE A SPECIAL BENCH HAS BEEN CONSTITUTED BY THE TRIBUNAL AND THE ORDER HAS BEEN PRONOUNCED, THEN THE SAID ORDER HAS TO BE FOLLOWED BY ALL THE BENCHE S UNLESS AND UNTIL A HIGHER FORUM DECIDES OTHERWISE. THE RESPECTED SPEC IAL BENCH(DELHI) ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 7 - HAS HELD THAT SUCH AN EXPENDITURE HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF FACT WHETHER ANY INCOME IS EARNED B Y THE ASSESSEE OR NOT. SECTION 14A DO NOT ENVISAGE ANY SUCH EXCEPTION. RE SPECTFULLY FOLLOWING SPECIAL BENCH, WE HEREBY REJECT THIS PART OF THE AR GUMENT OF THE ASSESSEE. 6.1. THE NEXT PLANK OF ARGUMENT OF THE LD.AR IS THA T THERE WAS NO DISSATISFACTION RECORDED BY THE AO ABOUT THE CORREC TNESS OF THE CLAIM OF THE EXPENDITURE. IN THIS REGARD, WE HAVE PERUSED THE IMPUGNED ASSESSMENT ORDER AND HAVE NOTICED THAT A SHOW-CAUSE WAS ISSUED AND THEREAFTER IT WAS OBSERVED THAT THE ASSESSEE HAS NO T DISALLOWED EXPENSES RELATED TO THE INVESTMENT IN SHARES. IN OUR OPIN ION, THE AO WAS JUSTIFIED IN PROCEEDING FURTHER TO CALCULATE THE DI SALLOWANCE AS PRESCRIBED U/S.14A OF IT ACT. WE HAVE FOUND THAT THERE IS NO SEPARATE REQUIREMENT TO INDEPENDENTLY RECORD DISSATISFACTION BY THE AO O R TO RECORD HIS SATISFACTION ABOUT THE INVOCATION OF PROVISIONS OF SECTION 14A OF IT ACT. AS FAR AS THE DECISION OF MAXOPP INVESTMENT LTD.(SU PRA) IS CONCERNED, THE DISTINCTION HAS BEEN DRAWN BY THE HONBLE COURT IN RESPECT OF THE CASES PRIOR TO THE PERIOD OF INTRODUCTION OF RULE 8 D. THE SAID RULE 8D WAS INTRODUCED BY VIRTUE OF A NOTIFICATION NO.45/20 08 DATED 24/03/2008 AND THE SAME IS PROSPECTIVE IN OPERATION. BEFORE THE HONBLE COURT THE ASSESSMENT IN QUESTION WAS A.Y. 2002-03 AND DUE TO THAT REASON THE HONBLE COURT HAS OPINED THAT WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN AO. HE HAS FIRST OF ALL TO ASCERTAIN THE CORRECTNESS OF THE CLAIM IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT AND IF THE AO IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASON THAT AMOUN T OF SUCH EXPENDITURE ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 8 - IS NOT CORRECT, THEN HE IS REQUIRED TO DETERMINE AM OUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPT ABLE METHOD OF APPORTIONMENT. WE ARE THEREFORE THE OF THE VIEW THAT THE HONBLE COURT HAS OPINED THAT THE AO IS EXPECTED ONLY TO ASSIGN C ERTAIN COGENT REASON FOR THE INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE ACT. AS WE HAVE NOTED HEREINABOVE, THE AO HAS NOT ONLY EXPRESS ED IN THE ASSESSMENT ORDER ABOUT THE PROPOSED DISALLOWANCE OF CLAIM OF EXPENDITURE BUT ISSUED A SHOW-CAUSE NOTICE AND ASKED THE ASSESSEE A S TO WHY THE IMPUGNED EXPENDITURE BE NOT DISALLOWED U/S.14A READ WITH RULE 8D OF I.T.RULES. ON THE ANALYSIS OF THE LEGAL AS WELL A S FACTUAL ASPECT OF THIS CASE, WE ARE NOT INCLINED TO ACCEPT THIS ARGUMENT O F LD.AR, HENCE REJECTED. 6.2. THE NEXT ISSUE IS THAT HOW MUCH DISALLOWANCE I S TO BE MADE AND WHAT ARE THOSE EXPENDITURE WHICH ARE HAVING DIRECT NEXUS WITH THE EXEMPTED INCOME. BEFORE LD.CIT(A), THE ASSESSEE H AS FURNISHED THE HEAD-WISE DETAILS OF THE ADMINISTRATIVE EXPENSES. THOSE EXPENSES ARE STATED TO BE SALARY, STAFF WELFARE, PROFESSIONAL TA X, PRINTING AND STATIONERY, INSURANCE EXPENSES, BAD DEBTS, CONVEYANCE EXPENSES, ETC. AS FAR AS THE NEXUS OF THESE EXPENDITURE IS CONCERNED, THERE WAS NO DISCUSSION IN THE ASSESSMENT ORDER BECAUSE THE AO HAS SIMPLY FOLLOWED RULE 8D FOR THE IMPUGNED DISALLOWANCE. HOWEVER, RULE 8D HAS TWO CO MPONENTS; I.E. FIRST COMPONENT IS AS PER RULE 8D(1) WHERE THE AO H AVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE OR THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME AND SECOND COMPONENT IS AS PER RULE 8D(2) THAT THE EXPENDITURE IN RELATION TO INCOME ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 9 - WHICH DOES NOT FALL PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME W HICH DOES NOT FALL PART OF THE TOTAL INCOME. THEN THERE IS RULE 8D(2) (II) IN RESPECT OF AN EXPENDITURE BY WAY OF INTEREST AND FOR THAT PURPOSE A FORMULA HAS BEEN GIVEN. THE FACTS OF THE PRESENT CASE ARE PECULIAR DUE TO THE REASON THAT THE ASSESSEE HAS ITS OWN FUND STATED TO BE RS.264.2 8 CRORES. AS AGAINST THAT INVESTMENT IN SHARES WAS STATED TO BE RS.101.8 3 CRORES. THIS ASPECT HAS STRONG BEARING ON THE IMPUGNED DISALLOWANCE AND ACCORDING TO US YET TO BE LOOKED INTO. THE ANOTHER INTERESTING POINT I S THAT THE ADMINISTRATIVE EXPENSES AND RELATED EXPENSES ARE ONLY RS.16.19 LAC S, WHEREAS THE AO HAD MADE THE DISALLOWANCE OF RS.25.91 LACS. THAT APPROACH OF THE AO CANNOT BE APPROVED AND HENCE WE HAVE AFFIRMED THE V IEW ADOPTED BY LD.CIT(A). IN THIS REGARD, THE ASSESSEES ALTERNA TE PLEA WAS THAT CONSIDERING THE BIFURCATION OF THE ADMINISTRATIVE E XPENSES ONLY A SUM OF RS.2,19,223/- COULD BE SAID TO BE CONNECTED WITH TH E INVESTMENT IN SHARES. HOWEVER, THAT ASPECT AND THE SAID ALTERN ATE PLEA HAS NOT BEEN ADDRESSED BY THE LOWER AUTHORITIES. LD.CIT(A) HAS ONLY DIRECTED THAT THE FILING FEES EXPENDITURE AND REGISTRATION FEES EXPEN DITURE IS TO BE IGNORED BECAUSE THOSE TWO EXPENDITURE HAVE ALREADY BEEN ADD ED BACK BY THE ASSESSEE HIMSELF. BUT THE FACT REMAINED THAT NATUR E OF REST OF THE EXPENDITURE ARE YET TO BE EXAMINED SO AS TO ASCERT AIN THAT THOSE EXPENDITURE WERE DIRECTLY INCURRED IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. WE THEREFORE HOLD THAT THE ENTIRE ISSUE REQUIRES A RE-INVESTIGATION AND RE-CONSIDERATION AT THE STAGE OF THE AO. TO BUTTRESS THIS FINDING, WE ALSO PLACE RELIANCE ON A LATEST DECISION OF HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF M/S. GODREJ & ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 10 - BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT, WHEREIN CERTAIN GUIDELINES HAVE BEEN GIVEN AND THOSE CAN BE SUMMARIZED AS FOLL OWS. 7. HAVING HEARD THE SUBMISSIONS OF BOTH THE SIDE S, AS FAR AS THE DECISION OF DAGA CAPITAL MANAGEMENT (SUPRA) IS CONCERNED, TH E LEGAL VIEW TAKEN THEREIN HAS NOW BEEN REVERSED BY HON'BLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 ORDER DATED 12/08/2010 [ NOW REPORTED AS 328 ITR 81(BOM)]. IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HAS RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQUIRED WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE INVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED IN RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED BY THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATHER, THE HONBLE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE R EMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT THE PROVISO TO SECTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HON'BLE COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF T HE I.T.RULES, 1962. IT WAS MADE CLEAR THAT SUB-SECTION (1) TO SECTION 14A WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 01/04/1962, HOWEVER, SUB- SECTIONS (2) & (3) WERE MADE APPLICABLE WITH EFFECT FROM 01/04/2007. THE PROVISO WAS INSERTED WITH RETROSPECTIVE EFFECT FROM 11/05/2001 , HOWEVER RULE 8D ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 11 - WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULES, 2008 BY PUBLICATION IN THE GAZETTE DATED 24/03/2008, RELEVA NT FINDINGS ARE REPRODUCED BELOW:- A) THE ITAT HAD RECORDED A FINDING IN THE EARLIE R ASSESSMENTS THAT THE INVESTMENTS IN SHARES AND MUTUAL FUNDS HAVE BEE N MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND THAT TH ERE IS NO NEXUS BETWEEN THE INVESTMENTS AND THE BORROWINGS. HOWEVER, IN NONE OF THOSE DECISIONS WAS THE DISALLOWABILITY OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME EARNED OUT OF INVESTMENTS MADE OUT OF OWN FUNDS CONSIDERED. MOREOVER, UNDER SECTION 14A, EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME C AN BE DISALLOWED ONLY IF THE ASSESSING OFFICER IS NOT SAT ISFIED WITH THE CORRECTNESS OF THE EXPENDITURE CLAIMED BY THE ASSES SEE. IN THE PRESENT CASE, NO SUCH EXERCISE HAS BEEN CARRIED OUT AND, THEREFORE, THE TRIBUNAL WAS JUSTIFIED IN REMANDING THE MATTER. B) SECTION 14A WAS INTRODUCED BY THE FINANCE ACT 20 01 WITH RETROSPECTIVE EFFECT FROM 1 APRIL 1962. HOWEVER, I N VIEW OF THE PROVISO TO THAT SECTION, THE DISALLOWANCE THEREUNDE R COULD BE EFFECTIVELY MADE FROM ASSESSMENT YEAR 2001-2002 ONW ARDS. THE FACT THAT THE TRIBUNAL FAILED TO CONSIDER THE APPLI CABILITY OF SECTION 14A IN ITS PROPER PERSPECTIVE, FOR ASSESSMENT YEAR 2001-2002 WOULD NOT BAR THE TRIBUNAL FROM CONSIDERING DISALLO WANCE UNDER SECTION 14A IN ASSESSMENT YEAR 2002-2003. C) THE DECISIONS REPORTED IN SRIDEV ENTERPRISES (SUPRA), MUNJAL SALES CORPORATION (SUPRA) AND RADHASOAMI SATSANG (SUPRA) HOLDING THAT THERE MUST BE CONSISTENCY AND DEFINITE NESS IN THE APPROACH OF THE REVENUE WOULD NOT APPLY TO THE FACT S OF THE PRESENT CASE, BECAUSE OF THE MATERIAL CHANGE INTRODUCED BY SECTION 14A BY WAY OF STATUTORY DISALLOWANCE IN CERTAIN CASES. TH ERE, THE DECISIONS OF THE TRIBUNAL IN THE EARLIER YEARS WOUL D HAVE NO RELEVANCE IN CONSIDERING DISALLOWANCE IN ASSESSMENT YEAR 2002- 2003 IN THE LIGHT OF SECTION 14A OF THE ACT. ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 12 - 73. FOR THE REASONS WHICH WE HAVE INDICATED, WE HA VE COME TO THE CONCLUSION THAT UNDER SECTION 14A(1) IT IS FOR THE ASSESSING OFFICER TO DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED A NY EXPENDITURE IN RELATION TO THE EARNING OF INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE ACT AND IF SO TO QUANTIFY THE EXTE NT OF THE DISALLOWANCE. THE ASSESSING OFFICER WOULD HAVE TO ARRIVE AT HIS DETERMINATION AFTER FURNISHING AN OPPORTUNITY TO TH E ASSESSEE TO PRODUCE ITS ACCOUNTS AND TO PLACE ON THE RECORD ALL RELEVANT MATERIAL IN SUPPORT OF THE CIRCUMSTANCES WHICH ARE CONSIDERE D TO BE RELEVANT AND GERMANE. FOR THIS PURPOSE AND IN LIGHT OF OUR OBSERVATIONS MADE EARLIER IN THIS SECTION OF THE JUDGMENT, WE DEEM IT APPROPRIATE AND PROPER TO REMAND THE PROCEEDINGS BACK TO THE ASSESS ING OFFICER FOR A FRESH DETERMINATION. CONCLUSION : 74. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS ; I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FALLIN G WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TA X ACT 1961, AS WAS APPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASS ESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A (1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115 O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTR IBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF T HE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DIS CHARGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT F OR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS T HE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DO ES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 13 - III) THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF SECTI ON 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES A S INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULTRA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES W HICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 S HALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORC E THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASON ABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE R ECORD; VII) THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHALL S TAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESS ING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES 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 SHALL 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. ( EMPHASIS GIVEN) ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 14 - 7.1. ON THE BASIS OF ABOVE DECISION, WE ARE ALSO O F THE VIEW THAT IT DEPENDS ON THE FACTS OF EACH CASE. ADMITTEDLY , THE FACT OF THE PRESENT CASE WAS THAT THE ASSESSING OFFICER HAD NOT ENQUIRE D THE ISSUE IN THE LIGHT OF THE ABOVE LEGAL PRONOUNCEMENT. SPECIALLY THE PRO NOUNCEMENT OF THE HON'BLE BOMBAY HIGH COURT WAS NOT AVAILABLE AT THAT TIME, HENCE, THE ASSESSING OFFICERS ASSESSMENT ORDER WAS DEVOID OF MERITS AS ALSO THE LAW APPLICABLE . NOW WE HAVE GOT CERTAIN GUIDELINE S, THOUGH CAN NOT BE SAID TO BE EXHAUSTIVE OR COMPLETE, BUT ON THESE LIN ES, THE ASSESSING OFFICER IS EXPECTED HENCEFORTH TO COMPUTE THE CORRE CT DISALLOWANCE, NEEDLESS TO SAY AFTER PROVIDING AN ADEQUATE OPPORTU NITY OF HEARING TO THE ASSESSEE. THEREFORE, THE MATTER IS RESTORED TO BE DECIDED AFRESH, HENCE, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- ( . ! ! ) ( ) '# ( A. MOHAN ALANKAMONY ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIA L MEMBER AHMEDABAD; DATED 16/ 04 /2012 30..!, .!../ T.C. NAIR, SR. PS ITA NO. 2816/AHD/2011 ANAND TRADE MOVERS (GUJ) P.LTD. VS. ITO ASST.YEAR - 2008-09 - 15 - '2 . +4 5'4& '2 . +4 5'4& '2 . +4 5'4& '2 . +4 5'4&/ COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT 3. 6 / CONCERNED CIT 4. 6() / THE CIT(A)-VI, AHMEDABAD 5. 49: +! , , / DR, ITAT, AHMEDABAD 6. :;