THE ITO 3(3)(2), MUMBAI V. M/S. SHREE DHOOT TRADING & AGENCIES LTD, MUMBAI

ITA 3314/MUM/2008

• Counselvise Citation: 331419914 RSA 2008
• Duration Of Justice: 3 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: J
• Next Hearing Date: 23-11-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J,MUMBAI BEFORE SHRI D.K. AGARWAL (JM) & SHRI B. RAMAKOTA IAH (AM) I.T.A. NO.3314/MUM/2008 (A.Y. 2005-06) INCOME-TAX OFFICER-3(2)(2), R.NO.602, AAYKAR BHAVAN, M.K. ROAD, MUMBAI400 020. VS. SHREE DHOOT TRADING & AGENCIES LTD., C-WING, 17 TH FLOOR, MITTAL COURT, NARIMAN POINT, MUMBAI-400 021. PAN: AACCS1621C. APPELLANT RESPONDENT APPELLANT BY SHRI PARTHASARATHI NAIK. RESPONDENT BY SHRI S UNIL NAHTA. DATE OF HEARING 23-11-2011 DATE OF PRONOUNCEMENT 30-11-2011 O R D E R PER D.K. AGARWAL, JM : THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 25-01-2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 20 05-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND INVESTMENT. IT FILED RETURN DECLARIN G TOTAL LOSS OF RS.98,53,182/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS EARNED EXEMPT DIVIDEND OF RS.64,87,940/- OUT OF TOTAL INCOME OF RS.1,02,31,34 7/- SHOWN IN THE PROFIT & LOSS ACCOUNT AND HAS BOOKED OTHER EXPENSES AT RS.41,04,997/-. THE ASSESS EE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S.14A SHOULD NOT BE MADE. IN RESPONS E, IT WAS, INTER ALIA, SUBMITTED BY THE ASSESSEE THAT NO INTEREST HAS BEEN PAID AND MOST OF THE SHARES ARE OLD INVESTMENTS, THEREFORE, NO ITA NO.3314/M/2008 SHREE DHOOT TRADING & AGENCIES LTD. 2 DISALLOWANCE U/S.14A IS WARRANTED. HOWEVER, THE AO, OUT OF THE EXPENSES PROPORTIONATE TO EARNING OF THE DIVIDEND, DISALLOWED RS.26,03,076/- U/S.14A OF THE ACT. ON APPEAL BEFORE THE LD. CIT(A), THE ASSESSEE, INTER ALIA, SUBMITTED AS UNDE R : III. THE DIVIDEND INCOME WAS EARNED BY THE APPELLA NT FROM ONLY 13 COMPANIES/INVESTMENTS WHICH ARE MADE IN EARLIER YEA RS AS CAN BE SEEN FROM THE DETAILS OF DIVIDENDS. THUS, THE APPELLANT COMPANY H AD JUST COLLECTED 13 DIVIDEND WARRANTS AND DEPOSITED THEM IN THE BANK ACCOUNT. SU CH AN ACTIVITY DOES NOT REQUIRE ANY SPECIFIC EXPENDITURE TO BE INCURRED BY THE APPELLANT FOR EARNING THE DIVIDEND INCOME. IV. FURTHER, THE EARNING OF DIVIDEND INCOME IS INCI DENTAL TO HOLDING OF SHARES AND THE QUANTUM AND THE DATE OF DIVIDEND DECLARATI ON DEPENDS SOLELY UPON THE MANAGEMENT OF THE COMPANIES IN WHICH SHARES ARE HEL D AND THE APPELLANT COMPANY HAS NO CONTROL OVER THE SAME. HENCE, NO EXP ENDITURE FROM THE ABOVE EXPENSES CAN BE SAID TO HAVE BEEN INCURRED FOR EARN ING THIS EXEMPT INCOME. V. THE COMPANY HAS INCURRED VARIOUS EXPENSES AMOUNT ING TO RS.41,04,997/- GROUPED UNDER THE HEAD OTHER EXPENSES AS UNDER : SR.NO. OTHER EXPENSES AMOUNT (RS.) 1 ELECTRICITY & WATER 9,975 2 RATES & TAXES 556,331 3 REPAIRS & MAINTENANCE 5,500 4 LEGAL & PROFESSIONAL CHARGES 2,022,040 5 BANK CHARGES 28,133 6 MISCELLANEOUS EXPENSES 1,483,018 TOTAL 4,104,997 AS THE APPELLANT COMPANY IS ENGAGED IN THE PROCESS OF EXPANDING ITS TECHNICAL AND FINANCIAL CONSULTANCY BUSINESS, IT HAS RECRUITED S HRI S. PADMANABHAN, HAVING HIGH QUALIFICATION IN LEGAL AND FINANCIAL FIELD AND A VAST EXPERIENCE. PAYMENT OF PROFESSIONAL FEES AND THE INCREASE IN MISCELLANEOUS EXPENDITURE ARE RELATED TO THE EXPANSION OF THIS LINE OF BUSINESS. THE REMAINING O THER EXPENSES INCURRED ARE RELATED TO THE PROPERTIES OF THE APPELLANT. HENCE, THE ABOVE EXPENSES ARE ADMINISTRATIVE EXPENSES INCURRED DURING THE NORMAL COURSE OF THE BUSINESS AND THUS, THE SAME CANNOT BE DISALLOWED ON THE GROUND T HAT THERE ARE NO CORRESPONDING COMPARABLE RECEIPTS, WHICH MAY NOT AL WAYS BE POSSIBLE IN THIS BUSINESS. ITA NO.3314/M/2008 SHREE DHOOT TRADING & AGENCIES LTD. 3 VI. THE APPELLANT COMPANY HAS TOTAL CURRENT LIABILI TIES AMOUNTING TO RS.2,243,417,421/- WHICH IS INTEREST FREE AND PAID UP CAPITAL AND RESERVES AMOUNTED TO RS.35,97,900/-. THUS, THERE WAS SUFFICI ENT AMOUNT AVAILABLE WITH THE APPELLANT COMPANY FOR MAKING INVESTMENTS. FURTHER, THERE ARE NO LOANS TAKEN BY THE APPELLANT COMPANY IN THE CAPTIONED ASSESSMENT Y EAR. THE ASSESSEE ALSO RELIED ON CERTAIN DECISIONS. THE LD. CIT(A), WHILE EXAMINING THE DETAILS OF EXPENSES OF RS.41,0,4,997/-, OBSERVED THAT THE EXP ENSES AMOUNTING TO RS.5,34,569/- MAY BE CONSIDERED AS COMMON EXPENSES FOR EARNING OTHER INC OME AND DIVIDEND INCOME AND ACCORDINGLY HE ESTIMATED THE DISALLOWANCE U/S.14A AT RS.1,00,00 0/- OUT OF THE ABOVE EXPENSES AND DELETED THE BALANCE DISALLOWANCE OF RS.25,03,076/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE RELIEF ALLOWED B Y THE LD. CIT(A) OUT OF DISALLOWANCE MADE BY THE AO U/S.14A. 4. AT THE TIME OF HEARING, THE LD. D.R. SUPPORTS TH E ORDER OF THE AO. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE RELIED ON THE ORDER OF THE LD.CIT(A). 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE AO HAS MADE DISALLOWANCE U/S.14A OUT OF THE EXPENSES OF RS.41,04,997/-, THE DETAILS OF WHICH HAVE ALREADY BEEN REPRODUCED IN THE EARLIER PARA OF THIS ORDER. WE F URTHER FIND THAT THE LD. CIT(A) EXAMINED THE DETAILS OF THESE EXPENSES OF RS.41,04,997/- AND HEL D VIDE PARA 9 OF HIS ORDER AS UNDER : 9. HOWEVER, AS PER HE DETAILS OF THE OTHER EXPENSE S, IT IS SEEN THAT OUT OF THESE EXPENSES OF RS.41,04,997/-, LEGAL AND PROFESSIONAL FEES OF RS.2,22,040/- PAID TO SHRI S. PADMANABHAN, WHO WAS ENGAGED FOR CONSULTANCY SERVICES, PROPERTY TAX OF RS.75,500/- U NDER THE HEAD RATES AND TAXES AND MANAGEMENT FEES OF RS.14,72,888/- UND ER THE HEAD MISCELLANEOUS EXPENSES CANNOT BE SAID TO HAVE BEEN INCURRED FOR EARNING DIVIDEND INCOME. THESE EXPENSES HAVE BEEN I NCURRED FOR SPECIFIC PURPOSES AND HAVE NO RELATION WITH THE EARNING OF D IVIDEND INCOME. THE REMAINING EXPENSES AMOUNTING TO RS.5,34,569/- ARE T HEREFORE CONSIDERED AS COMMON EXPENSES FOR EARNING OTHER INC OME AND DIVIDEND INCOME. IN THIS REGARD, IT IS FURTHER CLAIMED THAT EARNING OF DIVIDEND ITA NO.3314/M/2008 SHREE DHOOT TRADING & AGENCIES LTD. 4 INCOME DOES NOT INVOLVE ANY EFFORTS EITHER ON THE P ART OF THE MANAGEMENT AND NO RESOURCES ARE SPENT FOR EARNING O F DIVIDEND INCOME. THE DIVIDEND INCOME IS INCIDENTAL TO INVEST MENTS MADE IN EARLIER YEARS WHICH IS DIRECTLY CREDITED IN THE BAN K ACCOUNT OR DEPOSITED BY THE APPELLANT. IN VIEW OF THIS, THEREFORE, IT WA S CLAIMED BY THE APPELLANT THAT THE REMAINING EXPENSES OF RS.5,34,56 9/- ARE MOSTLY RELATED TO THE EARNING OF OTHER INCOME AND NOT THE DIVIDEND INCOME. ALTHOUGH, THE APPELLANTS ARGUMENTS HAVE FORCE STIL L, IT CANNOT BE DENIED THAT ABSOLUTELY NO EXPENSE HAS BEEN INCURRED WHICH CAN BE RELATED TO THE EARNING OF DIVIDEND INCOME, THE PROPORTION OF S UCH EXPENSES, THOUGH MAY BE SMALL. I, THEREFORE, ESTIMATE AN AMOUNT OF R S.1,00,000/- OUT OF REMAINING EXPENSES OF RS.5,34,569/- TO BE RELATABLE TO EARNING OF DIVIDEND INCOME AND THE SAME ARE LIABLE FOR DISALLO WANCE U/S.14A. THE BALANCE OF DISALLOWANCE OF RS.25,03,076/- IS HEREBY DELETED. IN THE ABSENCE OF ANY CONTRARY MATERIAL PLACED ON R ECORD BY THE REVENUE AGAINST THE FINDING OF THE LD. CIT(A) AND KEEPING IN VIEW THAT THE LD. CIT (A) AFTER EXAMINING THE EXPENSES HAS HELD THAT THE EXPENSES AMOUNTING TO RS.5,34,569/- HAVE BEEN I NCURRED BY THE ASSESSEE AS COMMON EXPENSES FOR EARNING OTHER INCOME AND DIVIDEND INCO ME AND HAS RESTRICTED THE DISALLOWANCE U/S.14A TO RS.1,00,000/- IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WE ARE OF THE VIEW THAT THE ORDER PA SSED BY THE LD. CITIA) IS IN LINE WITH THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) AND HENCE DOES NOT CAL L FOR ANY INTERFERENCE. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 7. IN THE RESULT, THE REVENUES APPEAL STANDS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 30TH DAY OF NOVEMBER, 2011. SD/- SD/- (B. RAMAKOTAIAH) (D.K. A GARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI: 30TH NOVEMBER , 2011. NG: COPY TO : 1. DEPARTMENT. ITA NO.3314/M/2008 SHREE DHOOT TRADING & AGENCIES LTD. 5 2.ASSESSEE. 3 CIT(A)-XXXII,,MUMBAI. 4 CIT-3,MUMBAI. 5.DR,J BENCH,MUMBAI. 6.MASTER FILE. (TRUE COPY) BY ORDER , AS ST.REGISTRAR, ITAT, MUMBAI. ITA NO.3314/M/2008 SHREE DHOOT TRADING & AGENCIES LTD. 6 DETAILS DATE INITIALS DESIGNATI ON 1. DRAFT DICTATED ON 23-11-2011 SR.PS/ 2. DRAFT PLACED BEFORE AUTHOR 24-11-2011 SR.PS/ 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/A M 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 O N WHICH FILE GOES TO THE AR 10. DATE OF DISPATCH OF ORDER