ATUL RAMNIKLAL THAKKAR, MUMBAI V. DCIT 4(1), MUMBAI

ITA 2839/MUM/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 7851 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 09-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A, MUMBAI BEFORE SHRI S.V. MEHROTRA, A.M. AND SHRI V. DURGA R AO, J.M. ITA NO. 2839/MUM/2010 ASSESSMENT YEAR: 2006-07 ATUL RAMNIKLAL THAKKAR, APPELLANT B-1901, AVALON, HIRANANDANI GARDENS, POWAI, MUMBAI 400 076. (PAN ABUPT5618E) VS. DY. COMMISSIONER OF INCOME-TAX, RESPONDENT 4(1), AAYAKAR BHAVAN, MUMBAI APPELLANT BY : MR. MEHUL SHAH RESPONDENT BY : MR. O.P. SINGH . ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 8, MUMBAI, PASSED ON 22/02/2010 FOR THE ASS ESSMENT YEAR 2006-07 WHEREIN THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUND OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, LEARNED CIT(A) ERRED UPHOLDING DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 77,494/- INVOKIN G PROVISIONS OF RULE 8D READ WITH SECTION 14 AGAINST DIVIDEND IN COME OF RS. 20,403/- IGNORING THE FACT THAT, THE APPELLANT IS A TRADER IN SHARES; DIVIDENDS WERE INCIDENTAL TO HIS HOLDING SH ARES; THE PROVISIONS OF RULE 8D CANNOT PARTAKE CHARACTER OF R ETROSPECTIVE NATURE; AND MECHANICAL APPLICATION OF RULE 8D FETCH ED ABSURD RESULTS. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS A DIRECTOR OF M/S DHARMSHI BROKING PVT. LTD. AND ENGAGED IN THE B USINESS OF TRADING AND DEALING IN SHARES & SECURITIES. THE ASS ESSEE FILED HIS ITA NO. 2839/MUM/09 ATUL RAMANIKLAL THAKKAR 2 RETURN OF INCOME FOR AY 2006-07 ON 09/10/2006 DECLA RING TOTAL INCOME AT RS. 11,72,920/-, WHICH WAS PROCESSED U/S 143(1) ON 31/03/2008. THE CASE WAS SELECTED FOR SCRUTINY AND DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSING OFFIC ER NOTICED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS. 20,403/- AND HAD CLAIMED THE SAME AS EXEMPT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD NOT DISALLOWED THE PROPORTIONATE EXPENSES RELAT ING TO SUCH EXEMPT INCOME, IN VIEW OF SECTION 14A OF THE ACT. T HEREFORE, THE ASSESSING OFFICER COMPUTED THE EXPENDITURE OF RS. 7 7,494/- IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME O N PAGE 2 OF HIS ORDER, AND DISALLOWED THE SAME U/S 14A OF THE ACT. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, THE ASSESSEE CARRIED TH E MATTER IN APPEAL BEFORE THE CIT(A). 3. THE CIT(A) FOLLOWING THE SPECIAL BENCH DECISION OF ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD., ( (ITA NO. 8057/MUM/2003 CONFIRMED THE ACTION OF THE ASSESSEE. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE CIT(A). 4. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. [ 2010] 328 ITR 81 (BOM.) HAS BEEN REVERSED THE SPECIAL BENCH DECISION OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) W HEREIN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE 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 RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED ITA NO. 2839/MUM/09 ATUL RAMANIKLAL THAKKAR 3 TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF MARCH, 2011. (S.V. MEHROTRA) (V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH MARCH, 2011. ITA NO. 2839/MUM/09 ATUL RAMANIKLAL THAKKAR 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI. KV