A.C.I.T. CENTRAL CIRCLE - 33, MUMBAI V. ESKAY KNIT (INDIA) LTD., MUMBAI

ITA 2888/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0838 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 29-06-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR A K NAYAK
• Assessee Lawyers: M N NANDGAOKAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI C.N. PRASAD, JUDICIAL MEMBER ITA NO. 2888 /MUM/20 12 : (A.Y : 2008 - 09 ) ACIT, CENTRAL CIRCLE - 33, MUMBAI ( APPELLANT ) VS. M/S. ESKAY KNIT (INDIA) LTD., RAGHUVANSHI MILL COMPOUND, GROUND FLOOR, S.B. MARG, LOWER PAREL, MUMBAI 400 013 PAN : AABCS1363G (RESPONDENT) ITA NO. 2566 /MUM/20 12 : (A.Y : 2008 - 09 ) M/S. ESKAY KNIT (INDIA) LTD., RAGHUVANSHI MILL COMPOUND, GROUND FLOOR, S.B. MARG, LOWER PAREL, MUMBAI 400 013 PAN : AABCS1363G ( APPELLANT ) DCIT, CENTRAL CIRCLE - 37, MUMBAI ( RESPONDENT ) ASSESSEE BY : SHRI M.N. NANDGAOKAR REVENUE BY : DR. A.K. NAYAK (DR) DATE OF HEARING : 05/04 /201 7 DATE OF PRONOUNCEMENT : 26 / 04 /201 7 O R D E R PER G.S. PANNU , AM : THESE ARE CROSS - APPEALS FILED BY THE ASSESSEE AND THE REVEN UE AGAINST THE ORDER OF CIT(A) - 41 , MUMBAI DATED 10 . 02 .201 2 , PERTAINING TO THE ASSESSMENT YEAR 200 8 - 0 9 , WHICH IN TURN HAS ARISEN FROM THE ORDER 2 ITA NOS. 2566 & 2888/MUM/2012 M/S. ESKAY KNIT (INDIA) LTD. PASSED BY THE ASSESSING OFFICER DATED 31 . 1 2.20 10 UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. IN THE CAPTIONED CROSS - APPEALS, A COMMON ISSUE RELATES TO THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER U/S 14A OF THE ACT AMOUNTING TO RS.83,87,132/ - . BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT, 1956 AND IS, INTER - ALIA , ENGAGED IN THE BUSINESS OF MANUFACTURE OF YA RN. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSESSEE HAD MADE INVESTMENTS TO THE TUNE OF RS.24,48,93,000/ - IN SHARES AND SECURITIES AND, THEREFORE, DISALLOWANCE WAS REQUIRED TO BE MADE U/S 14A OF THE ACT WITH RESPECT O F EXPENSES RELATABLE TO SUCH INVESTMENTS. ACCORDINGLY, THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE INCOME TAX RULES , 1963 (IN SHORT THE RULES) . THE DISALLOWANCE MADE IN TERMS OF RULE 8D OF THE RULES COMPRISED OF INTEREST EXPENDITURE RS.71,62,667/ - AS PER RULE 8D(2)(II) OF THE RULES AND OVERHEAD EXPENDITURE RS.12,24,465/ - AS PER RULE 8D(2)(III) OF THE RULES. 3. IN THE APPEAL BEFORE THE CIT(A), ASSESSEE RAISED VARIOUS GROUNDS AND THE CIT(A) HAS ALLOWED PARTIAL RELIEF. INSOFAR AS THE DISALLOWANCE OUT OF INTEREST EXPENDITURE IS CONCERNED, THE CIT(A) HELD THAT THE INTEREST ON CASH CREDIT LOAN OBTAINED BY THE ASSESSEE AGAINST HYPOTHECATION O F DEBTORS/STOCK WAS LIABLE TO BE EXCLUDED FOR THE PURPOSE OF DETERMINING THE INTEREST EXPENDITURE RELATABLE TO THE INVESTMENTS AND EARNING OF EXEMPT INCOME. ACCORDINGLY, THE CIT(A) DIRECTED THE ASSESSING OFFICER 3 ITA NOS. 2566 & 2888/MUM/2012 M/S. ESKAY KNIT (INDIA) LTD. TO EXCLUDE THE INTEREST OF RS.965.99 LACS F ROM THE COMPUTATION OF DISALLOWANCE. AGAINST SUCH A DECISION OF CIT(A), REVENUE IS IN APPEAL BEFORE US. 4. AS REGARDS THE DISALLOWANCE OF RS.12,24,465/ - MADE OUT OF EXPENSE S, THE CIT(A) AFFIRMED THE SAME, WHICH HAS BEEN CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL IN THE CROSS - APPEAL . APART THEREFROM, AN ALTERNATE PLEA HAS BEEN RAISED TO THE EFFECT THAT SINCE ASSESSEE IS ELIGIBLE FOR BENEFIT OF SEC. 80IA OF THE ACT, THE INCOME ENHANCED ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE ACT WOULD BE ELIGIBLE FOR DEDUCTION U/S 80IA OF THE ACT. 5. IN THIS BACKGROUND, THE RIVAL COUNSELS HAVE BEEN HEARD. AT THE OUTSET, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IN THE INSTANT CASE NO DISALLOWANCE U/S 14A OF THE ACT IS MERITED IN VIEW OF THE JUDGMENT OF HON'BLE DELHI HIGH COURT IN TH E CASE OF CHEMINVEST LTD. , 378 ITR 33 (DEL) . IT IS CANVASSED THAT IN THE INSTANT YEAR ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME, AN ASPECT WHICH WAS BROUGHT OUT BEFORE THE ASSESSING OFFICER, AND DULY NOTED IN THE ASSESSMENT ORDER AT PAGE 5. IT WAS CONT ENDED THAT IN THE ABSENCE OF ANY RECEIPT OF EXEMPT INCOME, THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT COMES INTO PLAY, WHICH PRESCRIBES THAT IN SUCH AN EVENT NO DISALLOWANCE U/S 14A OF THE ACT IS JUSTIFIED. 6. THE LD. DR HAS NOT OPPOSED THE FACTUAL MATR IX BROUGHT OUT BY THE LEARNED REPRESENTATIVE FOR THE ASSESSEE BUT HAS MERELY REITERATED THE STAND OF THE ASSESSING OFFICER. 4 ITA NOS. 2566 & 2888/MUM/2012 M/S. ESKAY KNIT (INDIA) LTD. 7. AFTER HAVING CONSIDERED THE POINT RAISED BY THE ASSESSEE, WE FIND THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U/S 14A OF THE ACT IN THIS YEAR IS UNTENABLE HAVING REGARD TO THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. (SUPRA). AS A CONSEQUENCE, THE APPEAL OF REVENUE IS DISMISSED AND THE STAND OF ASSESSEE IS ALLOWED. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ENTIRE ADDITION MADE U/S 14A OF THE ACT. THE ALTERNATE PLEA OF ASSESSEE FOR RELIEF U/S 80IA OF THE ACT IS RENDERED ACADEMIC AND IS HEREBY TREATED AS INFRUCTUOUS. 8. RESULTANTLY, WHEREAS THE APPEAL OF REVENUE IS DISMISSED, THAT OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 T H APRIL , 2017. SD/ - SD/ - ( C.N. PRASAD ) JUDICIAL MEMBER ( G.S. PANNU ) ACCOUNTANT MEMBER MUMBAI, DATE : 2 6 T H APRIL , 201 7 * SSL * COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, E BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI