Sri V.P.Nandakumar, Trichur V. ACIT, Trichur

ITA 321/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58299 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: S R RAJASEKHARAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO.321/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 321/COCH/2010 (ASSESSMENT YEAR 2006-07) SHRI V.P. NANDAKUMAR VS THE ADDL.C.I.T. MANAPURAM FINANCE RANGE-2, TRICHUR VALAPPAD PO, TRICHUR PAN : ABGPN8092A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.R. RAJASEKHARAN RESPONDENT BY : SMT. VIJAYAPRABHA DATE OF HEARING : 29-02-2012 DATE OF PRONOUNCEMENT : 09-03-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI DATED 17-02-201 0 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF EXPENDITURE IN RELATION TO DIVIDEND INCOME. 3. SHRI S.R. RAJASEKHARAN, THE LD.REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER MADE ADDITION OF RS.66,2 6,641 U/S 14A READ WITH RULE 2 ITA NO.321/COCH/2010 8D. ACCORDING TO THE LD.REPRESENTATIVE, THE LOWER AUTHORITIES WITHOUT CONSIDERING THE CAPITAL OF THE ASSESSEE DISALLOWED THE EXPENDIT URE INCURRED. THE LD.REPRESENTATIVE SUBMITTED THAT THE IMPUGNED INCOM E HAS BEEN RECEIVED AGAINST THE INVESTMENT IN SHARES. REFERRING TO THE JUDGMEN T OF THE KERALA HIGH COURT IN C.I.T. VS THE CATHOLIC SYRIAN BANK LTD, TRICHUR, IN IT APPEAL NOS 467, 720, 730,843, 479, 1324 & 1045 OF 2009 & 40 OF 2010 JUDGMENT DATE D 21 ST DAY OF OCTOBER, 2010, COPY OF WHICH IS AVAILABLE ON RECORD, THE LD. REPRESENTATIVE SUBMITTED THAT THE HIGH COURT HELD THAT PROVISIONS OF RULE 8D IS A PPLICABLE PROSPECTIVELY AND IS NOT RETROSPECTIVE, IN EFFECT. HOWEVER, THE DISALLO WANCE MADE BY THE ASSESSING OFFICER HAS BEEN ACCEPTED BY THE HIGH COURT, IN PRI NCIPLE AND HELD THAT IN THE ABSENCE OF RULE 8D, THE ASSESSING OFFICER SHOULD CO MPUTE THE DISALLOWANCE ON A RATIONALE BASIS. ACCORDING TO THE LD.REPRESENTATIV E, RULE 8D WAS INTRODUCED IN THE STATUTE BOOK WITH EFFECT FROM 24-03-2008. THEREFORE, IT IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. AS HELD BY THE HIGH COUR T, THE DISALLOWANCE HAS TO BE WORKED OUT ON A RATIONALE AND REASONABLE BASIS. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE INCOME CLAIMED TO BE EXEMPT IS 4 5,06,889 WHEREAS THE DISALLOWANCE WORKED OUT BY THE ASSESSING OFFICER IS RS.65,65,268 WHICH IS MORE THAN THE EXEMPT INCOME. ACCORDING TO THE LD.REPRES ENTATIVE, THE FACT THAT THERE IS NO POSITIVE INCOME BEFORE AND AFTER EXCLUDING TH E INCOME EXEMPT U/S 14A, IS NOT IN DISPUTE. THEREFORE, EVEN IF THE DISALLOWANC E IS WORKED OUT ON A PROPORTIONATE BASIS, THE AMOUNT DISALLOWABLE WOULD BE LESSER THAN THE AMOUNT OF DIVIDEND INCOME RECEIVED. THEREFORE, ACCORDING TO THE LD.REPRESENTATIVE, THE MATTER CAN BE REMITTED BACK TO THE FILE OF THE ASSES SING OFFICER FOR RE-COMPUTING THE DISALLOWANCE AS EXPLAINED BY THE HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD (SUPRA). 3 ITA NO.321/COCH/2010 4. ON THE CONTRARY, SMT. VIJAYAPRABHA, THE LD.DR SU BMITTED THAT THE HIGH COURT AFTER CONSIDERING SECTION 14A AND RULE 8D FOU ND THAT SECTION 14A IS CLARIFICATORY IN NATURE. THEREFORE, IT WOULD BE AP PLICABLE FOR ALL PURPOSES AFTER INTRODUCTION OF THE SAME IN THE STATUTE BOOK WHICH AUTHORIZES THE ASSESSING OFFICER TO MAKE DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME. ACCORDING TO THE LD.DR, THE EXPENDITURE INCURRED FO R EARNING THE TAX FREE INCOME HAS TO BE COMPUTED IN ACCORDANCE WITH FORMULA SUGGE STED BY THE HIGH COURT. THEREFORE THE LD.DR SUBMITTED THAT SHE MAY NOT HAVE ANY OBJECTION TO REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE OF EXPENDITURE ON THE BASIS OF KERALA HIGH COURT JUDGME NT IN THE CASE OF CATHOLIC SYRIAN BANK LTD (SUPRA). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL PLACED BEFORE US. THE KERALA HIGH COUR T AFTER CONSIDERING SECTION 14A AND RULE 8D FOUND THAT WHEN THE ACCOUNTS ARE NO T AVAILABLE, THE DISALLOWANCE COULD BE MADE ONLY OF THE EXPENDITURE INCURRED FOR EARNING THE TAX FREE INCOME ON ESTIMATE BASIS. THE KERALA HIGH COUR T HAS ALSO SUGGESTED A FORMULA. AFTER RULE 8D CAME INTO FORCE IT IS FOR T HE ASSESSING OFFICER TO MAKE DISALLOWANCE BY FOLLOWING SUB SECTION (2) TO SECTIO N 14A OF THE ACT AND RULE 8D OF THE RULES. THEREFORE, BEFORE INTRODUCTION OF RULE 8D, THE ASSESSING OFFICER HAS TO MAKE A REASONABLE ESTIMATE ON RATIONALE BASIS AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE AS SUGGESTED BY THE HIG H COURT. SINCE BOTH THE PARTIES HAVE NO OBJECTION TO GO BACK TO THE ASSESSIN G OFFICER FOR RE-COMPUTATION OF THE DISALLOWANCE OF REASONABLE EXPENDITURE IN AC CORDANCE WITH THE FORMULA SUGGESTED BY THE HIGH COURT, THIS TRIBUNAL IS OF TH E OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE ASSESSING OFFICER IN THE LIGHT OF JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD (SUPRA). ACCORDINGLY THE ORDERS 4 ITA NO.321/COCH/2010 OF LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE OF DISALLOWANCE OF EXPENDITURE U/S 14A READ WITH RULE 8D IS RESTORED TO THE FILE O F THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-CONSIDER THE ISSUE IN THE LIGHT OF JUDGMENT OF THE KERALA HIGH COURT IN THE CASE OF CATHOLIC SYRIAN BANK LTD ( SUPRA) AND THEREAFTER DECIDE THE SAME IN ACCORDANCE WITH LAW AFTER GIVING REASON ABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 09 TH DAY OF MARCH, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 09 TH MARCH, 2012 PK/- COPY TO: 1. V.P. NANDAKUMAR, MANAPURAM FINANCE, VALAPPAD PO, TRI CHUR 2. THE ADDL COMMISSIONER OF INCOME-TAX, RANGE-2, TRICHUR 3. THE COMMISSIONER OF INCOME-TAX(A)-V, KOCHI 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH