Elecon Engineering Co.Ltd., Anand V. The ACIT.,Anand Circle, Anand

ITA 3288/AHD/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63065 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 05-11-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 13-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T SANKAR
• Assessee Lawyers: M K PATEL
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , ! '#, $% $ & BEFORE SHRI MUKUL KR.SHRAWAT, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER ./ I.T.A. NO.3288/AHD/2010 ( ! ) ! ) ! ) ! ) / / / / ASSESSMENT YEAR : 2004-05) ELECON ENGINEERING CO.LTD. ANAND SOJITRA ROAD VALLABH VIDYANAGAR 388 120 ! ! ! ! / VS. THE ASST.CIT ANAND CIRCLE ANAND * $% ./+, ./ PAN/GIR NO. : AAACE 4644 D ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 $ / APPELLANT BY : SHRI M.K. PATEL, A.R. ./*- 1 0 $ / RESPONDENT BY : SHRI T.SANKAR, SR. D.R. !2 1 % / / / / DATE OF HEARING : 05/11/2012 34) 1 % / DATE OF PRONOUNCEMENT : 9.11.12 $5 / O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE WH ICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-IV, BARODA DATED 23.09.2010 AND THE ONLY GROUND IS REPRODUCED BELOW :- THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL)-IV , HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.13,33,504/- MA DE UNDER SECTION 14A READ WITH RULE 8D. THE APPELLANT PRAYS THAT PROVIS IONS OF RULE 8D ARE NOT APPLICABLE TO A.Y. 2004-05. WITHOUT PREJUDICE TO THE ABOVE IT IS SUBMITTED THAT FACTUALLY ALSO THE DISALLOWANCE WORK ED OUT IS NOT CORRECT. ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 2 - 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) R.W.S. 263 AND 147 DATED 24.12.2 009 WERE THAT THE ASSESSEE-COMPANY HAS EARNED DIVIDEND INCOME OF RS.4 7,76,707/-. IT WAS AN EXEMPT INCOME. THEREFORE, BY INVOKING THE P ROVISIONS OF SECTION 14A. OF IT ACT AS ALSO RULE 8D OF IT RULES, THE AO HAD MADE A DISALLOWANCE OF RS.16,00,678/-. WHEN THE MATTER WA S CARRIED BEFORE THE LD.CIT(A), THE ACTION OF THE AO WAS CONFIRMED BY PL ACING RELIANCE ON M/S.DAGA CAPITAL MANAGEMENT PVT.LTD. REPORTED AT 11 7 ITD 169 (MUM.). AS ALSO GODREJ & BOYCE MFG.CO.LTD. VS. DY.C IT REPORTED AT 328 ITR 81(BOM.) 3. ON THIS SHORT ISSUE, WE HAVE HEARD BOTH THE SIDE S. LD.AR MR.M.K.PATEL HAS PLACED RELIANCE ON AN ORDER OF ITA T C BENCH AHMEDABAD IN THE CASE OF EMTICI ENGINEERING LTD. VS . THE JCIT BEARING ITA NO.2546/AHD/2009FOR A.Y. 2006-07 ORDER DATED 21 .4.2011, WHEREIN FOLLOWING CIT VS. GUJARAT POWER CORPORATION LTD. 2 011-TIOL:-219- HIGH COURT-AHM-IT (TAX APPEAL NO.1587 OF 2009)[GUJ. ] AND GODREJ & BOYCE MFG.CO.LTD. VS. DY.CIT, THE MATTER WAS RES TORED BACK TO THE FILE OF THE AO FOR RE-ADJUDICATION. IN THIS REGAR D, IN NUMBER OF DECISIONS, WE HAVE ALSO RESTORED THE MATTER ASSIGNING CERTAIN REASONS, DETAILED AS HEREUNDER. 3.1 THE HONBLE BOMBAY HIGH COURT PRONOUNCED IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. MUMBAI VS. DY.CIT IN INCOME TAX APPEAL NO.626 OF 2010 AND WRIT PETITION NO.758 OF 2010 OR DER DATED 12/08/2010 [ NOW REPORTED AS 328 ITR 81(BOM)]. ON CAREFUL READING OF THIS DECISION, WE HAVE CONCLUDED AS FOLLOWS:- ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 3 - IN THIS JUDGEMENT AT THE END, THE HON'BLE COURT HA S RECAPITULATED THE CONCLUSION AND PRONOUNCED THAT A FINDING IS REQ UIRED WHETHER THE INVESTMENT IN SHARES IS MADE OUT OF OWN FUNDS OR OU T OF BORROWED FUNDS. A NEXUS IS REQUIRED TO BE ESTABLISHED BETWEEN THE I NVESTMENTS AND THE BORROWINGS. IN SECTION 14A OF THE ACT EXPENDITURE INCURRED I N RELATION TO EXEMPTED INCOME IS TO BE DISALLOWED ONL Y IF THE ASSESSING OFFICER IS SATISFIED WITH THE EXPENDITURE CLAIMED B Y THE ASSESSEE PERTAINING TO THE SAID EXEMPT INCOME. RATHER, THE H ONBLE COURT WAS VERY SPECIFIC THAT IN CASE, NO SUCH EXERCISE WAS CARRIED OUT BY THE ASSESSING OFFICER THEN THE MATTER IS TO BE REMANDED BACK FOR AFRESH INVESTIGATION. IT HAS ALSO BEEN MADE CLEAR THAT THE PROVISO TO SE CTION 14A OF THE ACT WAS EFFECTIVE FROM 2001-02. THE HO N'BLE COURT HAS ALSO POINTED OUT THE IMPORTANCE OF RULE 8D OF THE I.T.RU LES, 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 WAS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT), RULE S, 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 ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 4 - 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. 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 : ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 5 - 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; 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 ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 6 - PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT 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) ON THE BASIS OF ABOVE DECISION, WE ARE ALSO OF 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 GUIDELINES , 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. IN THE LIGHT OF THE ABOVE DISCUSSION, THEREFORE, TH E MATTER IS ITA NO.3288/AHD /2010 ELECON ENGINEERING CO.LTD. VS. ACIT ASST.YEAR - 2004-05 - 7 - RESTORED TO BE DECIDED AFRESH, HENCE, THIS GROUND OF THE ASSESSEE MAY BE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 4. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS A LLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- ( ! '# ) ( ) $% ( ANIL CHATURVEDI ) ( MUKU L KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 9 / 11 /2012 6..!, .!../ T.C. NAIR, SR. PS $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7) $5 1 .7 8$7)/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. 9 / CONCERNED CIT 4. 9() / THE CIT(A)-IV, BARODA 5. 7<= .! , , / DR, ITAT, AHMEDABAD 6. = >2 / GUARD FILE. $5! $5! $5! $5! / BY ORDER, /7 . //TRUE COPY// ? ?? ?/ // / + + + + ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DIRECT DICTATION ON COMPUTER DATED 5.11.12 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 6.11.12 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S09.11.12 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 09.11.12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER