Maharashtra Scooters Limited, Pune V. Assistant Commissioner of Income-tax, Circle - 9, Pune

ITA 3060/PUN/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5861 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 22-06-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 22-12-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: THIS CONSOLIDATED
• Assessee Lawyers: RELATE TO ASSESSMENT YEARS
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH, A PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.3060/PUN/2017 / ASSESSMENT YEAR : 2013-14 MAHARASHTRA SCOOTERS LIMITED, C/O. BAJAJ AUTO LIMITED, AKURDI, PUNE 411 035 PAN : AABCM1799E VS. ACIT, CIRCLE-9, PUNE APPELLANT RESPONDENT . / ITA NO.182/PUN/2018 / ASSESSMENT YEAR : 2014-15 MAHARASHTRA SCOOTERS LIMITED, C/O. BAJAJ AUTO LIMITED, AKURDI, PUNE 411 035 PAN : AABCM1799E VS. ITO, WARD-9(3), PUNE APPELLANT RESPONDENT / ORDER THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE ASSESSMEN T YEARS 2013-14 & 2014-15. SINCE A COMMON ISSUE HAS BE EN RAISED IN THESE APPEALS, WE ARE, ERGO, PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. A.Y.2013-14 : 2. THE ISSUE PROJECTED IN THIS APPEAL IS AGAINST THE CONFIRMATIO N OF DISALLOWANCE OF RS.65,14,825/- UNDER SECTION 14A OF TH E INCOME- TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). ASSESSEE BY SHRI KIRIT KAMDAR & SHRI NIKHIL MUTHA REVENUE BY SHRI A.M. MAHADEVAN KRISHNAN DATE OF HEARING 16-09-2021 DATE OF PRONOUNCEMENT 17-09-2021 ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E RECEIVED DIVIDEND INCOME OF RS.41,43,79,834/- DURING THE YEAR WHICH WAS CLAIMED AS EXEMPT U/S.10(34) OF THE ACT. THE ASSESSEE WAS CALLED UPON TO EXPLAIN AS TO WHY PART OF THE EXPENSES S HOULD NOT BE TREATED AS INCURRED IN RELATION TO THE EXEMPT INCOME. THE ASSESSEE TENDERED ITS EXPLANATION SUBMITTING THAT A SUO MOTU DISALLOWANCE OF RS.5,055/- WAS OFFERED BY THE ASSESSEE U/S.14A OF THE ACT. IT WAS FURTHER STATED THAT FOR THE ASSESSMENT YEAR 2000- 2001, THE DISALLOWANCE MADE U/S.14A BY THE AO WAS RESTRICT ED BY THE LD. CIT(A) TO RS.1.00 LAKH, WHICH CAME TO BE APPROVED BY THE TRIBUNAL. THE DISALLOWANCE, IF ANY, WAS URGED BEFORE THE AO TO BE RESTRICTED TO THIS EXTENT ONLY. THE AO REJECTED THE ASSESSEES CONTENTION AND COMPUTED THE DISALLOWANCE U/S.14A READ WITH RU LE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 AT RS.65,14,825/ -. THE LD. CIT(A) ACCORDED HIS IMPRIMATUR TO THE AOS DECISION ON TH IS SCORE, AGAINST WHICH THE ASSESSEE HAS COME UP IN APPEAL BEFORE TH E TRIBUNAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH TH E RELEVANT MATERIAL ON RECORD. THE ASSESSEE IS ENGAGED IN M ANUFACTURE AND SALE OF SCOOTERS AND PARTS AND ALSO DIES FOR PRESSURE DIE CASTING. IT MADE CERTAIN INVESTMENTS. BALANCE SHEET OF THE ASSESSEE ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 3 COMPANY HAS BEEN PLACED AT PAGE 25 OF THE PAPER BOOK, WHICH INDICATES TOTAL INVESTMENTS OF RS.222.66 CRORE. THE CLAIM O F THE ASSESSEE IS THAT THE EXEMPT INCOME OF RS.41.43 CRORE WAS EARNED IN RESPECT OF SHARES OF FIVE COMPANIES WITH INVESTMENT WORTH RS.155.10 CRORE. THE MAIN EMPHASIS OF THE LD. AR WAS ON THE POINT THAT THE AO FAILED TO RECORD PROPER SATISFACTION IN TERMS OF SE CTION 14A(2) OF THE ACT AND HENCE NO DISALLOWANCE WAS CALLED F OR. THIS PROVISION CATEGORICALLY PROVIDES THAT THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME , IF HE, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF S UCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM OF THE TOTAL UNDER THIS ACT . 5. ADVERTING TO THE ASSESSMENT ORDER, IT IS SEEN THAT THE AO RECORDED THAT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME O F RS.41.43 CRORE IN PARA 5.1. HE CALLED UPON THE ASSESSE E TO FURNISH REASONS FOR NOT MAKING DISALLOWANCE IN RESPECT OF EXPENSE S INCURRED FOR EARNING THE EXEMPT INCOME. AFTER TAKING NOTE OF THE ASS ESSEES EXPLANATION, THE AO, IN PARA NOS. 5.2 AND 5.3, CONCLUDED AS UNDER: 5.2 ON PERUSAL OF THE PROFIT AND LOSS OF THE ASSESSEE CO MPANY IT IS SEEN THAT THE ASSESSEE HAD TOTAL REVENUES OF RS.5992.3 2 LAKHS AND TOTAL EXPENSES AT RS.1108.19 LAKHS. THE RATIO OF THE ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 4 DIVIDEND INCOME TO THE TOTAL REVENUE IS 69.15%. THEREFORE AT THE MOST PART OF 69.15% OF THE INDIRECT EXPENDITURE OF RS.803.49 LAKHS CAN BE SAID TO BE ATTRIBUTABLE TO EARNING THE INCOME FROM DIVIDEND. THE ABOVE SUBMISSIONS OF A.R. OF THE ASSESSEE COMPANY HAVE BEEN CONSIDERED CAREFULLY BUT HIS PLEA STATING THAT THE ASSESSEE COMPANY HAD NOT INCURRED ANY EXPENSE IN RELATION TO EARNING EXEMPT INCOME CANNOT FOUND TO BE ACCEPTABLE AS MAINTAINING PORTFOLIOS DO REQUIRE CONSTANT MONITORING AND CONTROL AND INCIDENTAL EXPENSES ARE INCURRED AND EXPENDITURE HAS BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT. 5.3 THEREFORE IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANC ES AND IN THE ABSENCE OF A ONE-TO-ONE CORRELATION WITH REGARD TO THE EXPENDITURE VIS-A-VIS THE EXEMPT INCOME, I.E. DIVIDEND, DISALLOWANCE UNDER SECTION 14A OF THE ACT IS BEING COMPUTED IN ACCORDANCE WITH THE FORMULA GIVEN UNDER RULE 8D OF THE INCOME TAX RULES AS THE MANDATORY PROVISIONS OF RULE 8D OF THE I.T. RULES, 1961 ARE APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREAFTER, HE INVOKED RULE 8D AND COMPUTED THE DISALLOWANC E UNDER SUB-CLAUSE (III) OF RULE 8D (2) AT RS.65.14 LAKH. 6. FROM THE ABOVE EXTRACTED PORTIONS OF THE ASSESSMENT ORD ER, IT IS MANIFEST SEEN THAT THE RATIO OF DIVIDEND INCOME TO THE TOTAL REVENUE WAS 69.15%. THE AO NOTED THE ASSESSEES EXPLA NATION THAT THE COMPANY HAD NOT INCURRED ANY EXPENSE IN RELATION TO EARNING EXEMPT INCOME AND FOUND THE SAME TO BE UNACCEPTABLE BY FINDING THAT MAINTAINING PORTFOLIOS DO REQUIRE CONSTANT MONITORING AND CONTROL AND INCIDENTAL EXPENSES ARE INCURRED. THEREAFTER, THE AO OBSERVED THAT THERE WAS NO ONE TO ONE CORRELATION WITH REGARD TO THE EXPENDITURE VIS-A-VIS THE EXEMPT INCOME, I.E. DIVIDEND . IN VIEW ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 5 OF THE ABOVE OVERWHELMING SATISFACTION RECORDED BY THE AO AS TO THE CORRECTNESS OF THE ASSESSEES CLAIM IN THIS REGARD, W E ARE NOT IMPRESSED WITH THE LD. ARS SUBMISSION THAT THE AO DID NOT REC ORD SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT. 7. NOW COMING TO THE MERITS OF THE ADDITION, IT HAS BEEN BROUG HT TO OUR NOTICE THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BE FORE THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR 2012-13. VIDE ORDER DATED 15-11-2018, THE TRIBUNAL IN ITA NO.3059/PUN/2017 HAS RESTORED THE MATTER OF SECTION 14A DISALLOWANCE TO THE FILE OF AO WITH CERTAIN DIRECTIONS . IN REACHING THIS CONCLUSION, THE TRIBUNAL RELIED UPON ITS ORDER IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2008-09 TO 2011-12. A COPY OF SUCH ORDER FOR THE FOUR ASSESSMENT YEARS HA S ALSO BEEN PLACED ON RECORD. RELEVANT DIRECTIONS HAVE BEEN GIVEN IN P ARA 10 OF THE TRIBUNAL ORDER, THAT HAVE BEEN ADOPTED BY THE TRIBUNAL IN ITS ORDER FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. NOTH ING HAS BEEN BROUGHT TO OUR NOTICE FOR DEMONSTRATING THAT THE TRIBUNAL ORDERS HAVE BEEN REVERSED OR MODIFIED BY THE HONBLE HIG H COURT IN ANY MANNER. RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL ON THIS ISSUE, WE SET-ASIDE THE IMPUGNED ORDER AN D REMIT THE MATTER TO THE FILE OF THE AO FOR DECIDING THIS ISSUE AFRES H AS PER LAW AFTER COMPLYING WITH THE AFORE REFERRED DIRECTIONS GIVEN BY IT IN ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 6 THE EARLIER ORDERS. NEEDLESS TO SAY, THE ASSESSEE WILL BE A LLOWED ADEQUATE OPPORTUNITY OF HEARING. 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. A.Y. 2014-15 : 9. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED BY THE CONFIRM ATION OF ADDITION OF RS.77,66,770/- MADE BY THE AO U/S.14A OF THE ACT READ WITH RULE 8D(2)(III). BOTH THE SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THIS APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2013-14 . 10. WE HAVE GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE AO. IN THIS YEAR, THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME O F RS.42,35,59,740/-. IN THE SAME MANNER AS FOR THE PR ECEDING YEAR, THE AO REQUIRED THE ASSESSEE TO EXPLAIN THE REASONS AS TO WHY PART OF THE EXPENSES SHOULD NOT BE DISALLOWED. THE ASSESSEE TE NDERED EXPLANATION ON SIMILAR LINES BY STATING THAT IT MADE SUO MOTU DISALLOWANCE OF RS.5,558/- AND FURTHER THAT THE DISALLOWANCE OF RS.1.00 LAKH WAS UPHELD BY THE TRIBUNAL U/S.14A FOR THE AS SESSMENT YEAR 2000-01. THE ASSESSEE FURTHER URGED THAT THE DISALL OWANCE FOR THE INSTANT YEAR SHOULD ALSO BE RESTRICTED TO THE SAME LEVEL. T HE AO RECORDED HIS SATISFACTION IN PARA NOS. 5.3 AND 5.4 IN THE SAME MANNER AS DONE IN HIS ORDER FOR THE ASSESSMENT YEAR 2013-14, R EPRODUCED ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 7 ABOVE. FOLLOWING THE RAISON D`ETRE ASSIGNED HEREINABOVE FOR THE PRECEDING YEAR, WE HOLD THAT THE AO RECORDED PROPER SATISF ACTION BEFORE MAKING DISALLOWANCE U/S.14A. 11. ON MERITS, WE SET-ASIDE THE IMPUGNED ORDER AND REM IT THE MATTER TO THE FILE OF AO FOR COMPUTING THE DISALLOWANCE U/S.14A IN THE HUE OF THE DIRECTIONS GIVEN BY THE TRIBUNAL IN ITS ORDER FO R THE ASSESSMENT YEARS 2008-09 TO 2011-12. 12. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2021. SD/- SD/- ( S.S.VISWANETHRA RAVI ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 17 TH SEPTEMBER, 2021 ITA NOS3060/PUN/2017 & 182/PUN/2018 MAHARASHTRA SCOOTERS LIMITED 8 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-6, PUNE 4. 5. 6. THE PR. CIT-5, PUNE DR, ITAT, A BENCH, PUNE / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 16-09-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 16-09-2021 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *