DCIT 3(2), MUMBAI V. J.M. MORGAN STANLEY P. LTD, MUMBAI

ITA 3299/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4558 (ITAT-MUMBAI)
• Duration Of Justice: 40 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2010
• Appeal Filed By: Department
• Assessment Year: misc
• Appeal Filed On: 01-01-1970
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J,MUMBAI BEFORE SHRI R.V. EASWAR (PRESIDENT) & SHRI R.K. PAN DA (AM) I.T.A.NO.3299/MUM/2009 (A.Y. 2005-06) DY.COMMR. OF INCOME-TAX- 3(2), ROOM NO.608, 6 TH FLOOR, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. VS. M/S. J.M. MORGAN STANLEY P.LTD., 141, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI-400 021. PAN: AAACM7079C APPELLANT RESPONDENT I.T.A.NO.3590/MUM/2009 (A.Y. 2005-06) M/S.J.M. FINANCIAL CONSULTANTS PVT.LTD. (EARLIER KNOWN AS J.M. MORGAN STANLEY P.LTD.), 141, MAKER CHAMBERS III, NARIMAN POINT, MUMBAI-400 021. PAN: AAACM7079C VS. DY.COMMR. OF INCOME-TAX- 3(2), ROOM NO.608, 6 TH FLOOR, AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020. APPELLANT RESPONDENT DEPARTMENT BY SUREN DRA KUMAR. ASSESSEE BY SHRI DR.K.SHIVA RAM WITH SHRI S.R. PARIKH. O R D E R PER R.V. EASWAR, PRESIDENT : THESE ARE CROSS APPEALS RELATING TO THE ASSTT. YEAR 2005-06. THE ASSESSEE IS A COMPANY ENGAGED IN INVESTMENT BANKING AND FINA NCE ADVISORY. 2. THE BRIEF FACTS GIVING RISE TO THE PRESENT APPEA LS ARE THAT THE ASSESSEE RECEIVED DIVIDEND FROM SHARES AND MUTUAL FUNDS AMOU NTING TO RS.91,75,788/- DURING THE RELEVANT ACCOUNTING YEAR. THE AO, WHILE COMPLETING THE ASSESSMENT, CALLED UPON THE ASSESSEE AS TO WHY THE DIRECT AND I NDIRECT EXPENDITURE FOR EARNING THE DIVIDEND INCOME, WHICH WAS EXEMPT FROM TAX U/S. 10(33) OF THE I.T. ACT, SHOULD NOT BE DISALLOWED U/S.14A OF THE ACT. T HE ASSESSEE REPRESENTED THAT THE INVESTMENTS WERE MADE OUT OF SHORT-TERM SURPLUS FUNDS, THAT THE DIVIDEND ITA 3299 & 3590/M/09 J.M.MORGAN STANLEY P.LTD. 2 GETS REINVESTED AND ADDED TO THE ORIGINAL INVESTMEN TS AND THAT THERE WERE NO EXPENSES INCURRED FOR EARNING THE DIVIDEND INCOME S INCE THERE IS NO EXTRA WORK OR ACTIVITY TO ADMINISTER THE INVESTMENTS. IT WAS A LSO POINTED OUT THAT THE FUNDS INVESTED WERE FROM PROFITS AND INTERNAL ACCRUALS AN D, THEREFORE, NO INTEREST EXPENSES CAN ALSO BE DISALLOWED. ACCORDINGLY, THE P ROPOSAL TO DISALLOW EXPENSES U/S.14A WAS OBJECTED TO. THE AO, FOR REASONS GIVEN BY HIM IN PARA 4.4 OF THE ASSESSMENT ORDER, HOWEVER, HELD THAT SEC. 14A WAS A TTRACTED. HE ACCORDINGLY CALCULATED THE DISALLOWANCE ON THE BASIS OF RULE 8D OF THE I.T. RULES, WHICH CAME TO RS.52,42,165/-, WHICH WAS DISALLOWED. 3. ON APPEAL, THE CIT(A) HELD THAT ONLY A PART OF T HE INVESTMENTS RESULTED IN NON-TAXABLE INCOME. HE CALCULATED SUCH INVESTMENTS IN PARA 1.2 OF HIS ORDER AND HELD THAT SEC. 14A CAN BE APPLIED ONLY WITH REFEREN CE TO THEM. APPLYING 0.5% OF THE AVERAGE OF SUCH INVESTMENTS, HE WORKED OUT THE EXPENSES TO BE DISALLOWED U/S.14A AT RS.20,11,750/-. HE SUSTAINED THE DISALLO WANCE TO THIS EXTENT AND DELETED THE BALANCE. 4. THE ASSESSEE IS IN APPEAL QUESTIONING THE DISALL OWANCE OF RS.20,11,750/- AND THE DEPARTMENT IS IN APPEAL QUESTIONING THE REL IEF GRANTED TO THE ASSESSEE. 5. WE HAVE CAREFULLY CONSIDERED THE FACTS AND THE R IVAL CONTENTIONS IN THE LIGHT OF THE RECENT JUDGEMENT OF THE HONBLE HIGH C OURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT DATED 12-08-2010. IN PA RA 74, THE HONBLE HIGH COURT HAS HELD THAT RULE 8D NOTIFIED W.E.F. 24-03-2 008 WILL ONLY APPLY FROM THE ASSTT. YEAR 2008-09 AND THAT PRIOR TO THE SAID ASSE SSMENT YEAR, WHEN RULE 8D IS NOT APPLICABLE, THE AO HAS TO ENFORCE THE PROVISION S OF SUB-SEC. (1) OF SEC. 14A AND FOR THAT PURPOSE THE AO IS DUTY BOUND TO DETERM INE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER OBSERVED THAT THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND ITA 3299 & 3590/M/09 J.M.MORGAN STANLEY P.LTD. 3 CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON RECORD. RESPECTFULLY FOLLOW ING THE AFORESAID JUDGEMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, WE SET ASID E THE ORDERS OF THE DEPARTMENTAL AUTHORITIES ON THE POINT OF SEC. 14A A ND RESTORE THE ISSUE TO THE FILE OF THE AO WITH DIRECTIONS TO HIM TO FOLLOWING THE D IRECTIONS OF THE HONBLE BOMBAY HIGH COURT IN THE AFORESAID DECISION AND TAKE A FRE SH DECISION REGARDING THE DISALLOWANCE U/S.14A. THE ASSESSEE SHALL BE GIVEN R EASONABLE OPPORTUNITY OF PRODUCING ALL RELEVANT MATERIAL BEFORE THE AO. WITH THESE DIRECTIONS, BOTH THE APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED ON THE 30TH DAY OF SEPT. 2010. SD/- SD/- (R.K. PANDA) (R.V. EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI: 30TH SEPT. , 2010. NG: COPY TO : 1. ASSESSEE. 2.DEPARTMENT. 3 CIT(A)-III,,MUMBAI. 4 CIT-3,MUMBAI. 5.DR,J BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER, ASST.REGISTRAR, ITAT, MUMBAI. ITA 3299 & 3590/M/09 J.M.MORGAN STANLEY P.LTD. 4 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 17-09-2010 SR.PS/ 2 DRAFT PLACED BEFORE AUTHOR 20-09-2010 SR.PS/ 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/ 6. KEPT FOR PRONOUNCEMENT ON SR.PS/ 7. FILE SENT TO THE BENCH CLERK SR.PS/ 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER