MIRC ELECTRONICS LTD, MUMBAI V. ASST CIT CEN CIR 36, MUMBAI

ITA 3320/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8604 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T A KHAN
• Assessee Lawyers: RAKESH MOHAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

J IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 3320/ MUM/2016 ( / ASSESSMENT YEAR : 2011 - 12) MIRC ELECTRONICS LTD., G - 1 MIDC ONIDA HOUSE, MAHAKALI CAVES ROAD ANDHERI (E), MUMBAI 400093 / V. ACIT CEN TRAL CIR CLE 36 MUMBAI 400020 ./ PAN : AAACM8055A ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY: SHRI RAKESH MOHAN REVENUE BY : SHRI T.A KHAN / DATE OF HEARING : 25 - 10 - 2017 / DATE OF PRONOUNCEMENT : 09.11.2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 3320/ MUM/2016 FOR ASSESSMENT YEAR 2011 - 12, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 22.02.2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - 53 , MUMBAI (HEREINAFTER CALLED THE C IT(A)), FOR ASSESSMENT YEAR 2011 - 12, APPELLATE PROCEEDINGS HAD ARISEN BEFORE LEARNED CIT(A) FROM THE ASSESSMENT ORDER DATED 28 - 03 - 2014 PASSED BY LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 143 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CA LLED THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE MEMO OF APPEAL FILED WITH THE INCOME - TAX APPELLATE TRIBUNAL, MUMBAI (HEREINAFTER CALLED THE TRIBUNAL) READ AS UNDER: - GROUND NO. 1 I.T.A. NO. 3320/MUM/2016 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE CIT(A), MUMBAI, ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 16,32,406/ - UNDER SECTION 14A OF THE INCOME TAX ACT, 1 961('THE ACT') READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. THE A PPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 16,32,406/ - UNDER SECTION 14A OF THE ACT MAY KINDLY BE DELETED. THE APPELLANT CRAVES THE LIBERTY TO ADD, ALTER, AMEND OR DELETE ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 3. THE ASSESSEE IS A COMPANY ENGA GED IN MANUFACTURING OF TV SETS. I T IS ALSO TRADING IN CERTAIN FMCG . THE ASSESSEE IS ALSO MANUFACTURING WASHING MACHINE AND AIR CONDITIONER. THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 44 ,69,167/ - WHICH WAS CLAIMED AS EXEMPT FROM TAX U/S 10(34). THE ASSESSEE HAS VOLUNTARILY DISALLOWED RS. 34,692/ - U/S. 14A WHICH DISALLOWANCE AS AO OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3) R.W.S. 143(2) WAS NOT MADE IN ACCORDANCE WITH RULE 8D OF INCOME - TAX RULES, 1 962. T HE ASSESSEE WAS ASKED BY THE AO TO EXPLAIN THAT WHY DISALLOWANCE OF EXPENDITURE SHOULD NOT BE MADE U/S. 14A R . W . R . 8D . T HE ASSESSEE SUBMITTED BEFORE THE AO AS UNDER: - IT IS FURTHER SUBMITTED THAT ALL THE INVESTMENTS ON WHICH DIVIDEND WAS EARNED WERE MADE FROM THE ASSESSEES OWN INTERNAL ACCRUALS AND NOT FROM BORROWINGS. CONSEQUENTLY IT IS SUBMITTED THAT NO FINANCE COST IS INCURRED FOR EARNING OF DIVIDEND INCOME. THE A.O KEEPING IN VIEW OF THE STATUTORY PROVISIONS OF THE ACT U/S 14A R.W.R 8D MADE THE DISALLOWANCE OF RS.16,67 , 098 / - UNDER RULE 8D(2)(III) BY APPLYING FORMULA OF 0.5% ON AVERAGE INVESTMENT OF RS. 33,34,19,500/ - AND SINCE THE ASSESSEE HAS DISALLOWED VOLUNTARILY RS. 34,692/ - U/S 14A , THE BALANCE AMOUNT OF RS.16,32,406 / - WAS ADDED BACK TO THE INCOME OF THE ASSESSEE BY THE A.O VIDE ASSESSMENT ORDER DATED 28.03.2014 PASSED U/ S . 143(3) . I.T.A. NO. 3320/MUM/2016 3 4. AGGRIEVED BY THE ASSESSMENT ORDER DATED 28 - 03 - 2014 PASSED BY THE AO U/S 143(3), THE ASSESSEE FILED FIRST APPEAL BEFORE THE LEARNED CI T(A). D URING THE COURSE OF APPELLATE PROCEEDINGS , THE ASSESSEE SUBMITTED THAT ASSESSEE HAS SUO - MOTTO DISALLOWED THE SUM OF RS.34,692/ - ON ACCOUNT O F EXPENDITURE INCURRED TO EARN EXEMPT DIVIDEND INCOME BEING RS.0.5% OF SALARY OF GENERAL MANAGER(FINANCE). T HE ASSESSEE CONTENDED THAT NO EXPENSES WERE INCURRED APART FROM RS.34,692/ - TO EARN DIVIDEND INCOME OF RS.44,69,167/ - . I T WAS SUBMITTED THAT TAX AUDIT OR OF THE ASSESSEE HAD ALSO CONCUR RED WITH THE VIEW OF THE A SSESEE THAT THE COST OF ALLOCATION DONE WAS R EASONABLE . T HE ASSESSEE RELIED UPON THE DECISION OF THE HONBLE MADHYA PRADESH HIGH COURT IN THE CASE OF STATE BANK OF INDORE V. CIT 275 ITR 23 WHEREIN IT HAS BEEN HELD THAT NO NOTIONAL EXPENDITURE CAN BE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF DISALL OWANCE OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. THE ASSESSEE ALSO RELIED ON THE DECISION OF THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT V. HERO CYCLES 323 ITR 518 (P&H). IT WAS SUBMITTED THAT THE DISALLOWANCE U/S 14A REQUIRES F INDING OF INCURRING OF EXPENDITURE BY THE ASSESSEE. I T WAS SUBMITTED BY THE ASSESSEE THAT RULE 8D R.W.S. 14A CAN BE INVOKED ONLY WHEN THE A.O IS NOT SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND SINCE A.O HAS NOT RECORDED DISSATISFACTI ON NO DISALL OWANCE CAN BE MADE BY INVOKING R ULE 8D R.W.S. 14A. IT WAS SUBMITTED THAT THE INVESTMENT IN AKASH ELECTRONI CS TO THE TUNE OF 2624.85 LAKHS IS IN SUBSIDIARY COMPANY/SISTER CONCERN OF THE ASSESSEE WHICH INVESTMENT WAS MADE FOR INCREASING BUSINESS OF THE ASSESSEE IN DOMESTIC INDUSTRY , THUS THIS INVESTMENT IS FOR THE PURPOSE OF THE BUSINESS AND NOT WITH THE INTENTION TO EARN DIVIDEND INCOME. IT WAS SUBMITTED THAT THE AO INCLUDED THIS INVESTMENT ALSO FOR MAKING DISALLOWANCE U/S 14A OF THE ACT R.W.R. RULE 8D(2)(III) . THE ASSESSEE RELIED UPON DECISION OF THE TRIBUNAL IN THE CASE OF GARWARE WALL ROPES LIMITED (ITA NO. 5408/MUM/2012 ) AND ACIT V. SPRAY ENGINEERING DEVICES LIMITED (ITA NO. 646/CHD/2009) . THE LEARNED CIT( A ) REJECTED THE CONTENTION OF THE ASSESSEE AND UPHELD THE DISALLOWANCE OF 0.5% OF THE AVERAGE VALUE OF INVESTMENTS AS IS CONTEMPLATED U/R 8D(2)(III) R.W.S. 14A. T HE LEARNED CIT( A ) RELIED UPON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOOP INVESTMENT LTD. V. CIT 347 ITR 272(DEL) TO HOLD THAT INVESTMENTS IN SUBSIDIARY COMPANIES/STRATEGIC INVESTMENTS SHALL ALSO BE INCLUDED FOR THE PURPOSES OF COMPUTING DISALLOWANCE U/S 14A . THE LEARNED CI T( A ) ALSO OBSERVED THA T ASSESSE E HAS INCURRED PERSONNEL EXPENSES I.T.A. NO. 3320/MUM/2016 4 TO THE TUNE OF RS.92.25 CRORE S, OTHER/ADMINISTRATIVE EXPENSES BY THE WAY OF RENT OF RS. 7.8 CRORES , RATES AND TAXES TO THE TUNE OF RS. 4.44 CRORES AND MISCELLANEOUS /ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 30.85 CRORE WHICH INCLUDED PROFESSIONAL FEE OF RS. 3.20 CRORE S , PRINTING AND STATIONARY EXPENSES OF RS. 1.21 CRORE, TAX - AUDIT F EE OF RS. 4 LACS , AUDITORS REMUNERATION OF RS. 4.68 LACS, INTERNAL AUDIT FEE OF RS. 22.2 LAKHS, SI TTING FEE OF RS.1.25 LAKH ETC WHICH IS A TTRIBUTABLE TO THE INVESTMENT ACTIVITY CARRIED OUT BY THE ASSESSEE . IT WAS OBSERVED BY LEARNED CIT(A) THAT ASSESSEE HA S ONLY VOLUNTARILY DISALLOWED RS.34,692/ - BY APPLYING FORMULA OF 0.5% TO GM(FINANCE) SALARY WHICH IS INAPPROPRIATE AND THUS THE ADDITION S WERE UPHELD BY LEARNED CIT(A) U/S.14A R.W.R. 8D(2)(III) TO THE TUNE OF 0.5% OF AVERAGE VALUE OF INVESTMENTS AS WAS DONE BY THE AO AND THE APPEAL OF THE ASSESSEE WAS DISMISSED BY LEARNED CIT(A) . 5. AGGRIEVED BY THE DECISION OF LEARNED CIT(A) , THE ASSESSEE HAS COME IN APPEAL BEFORE THE TRIBUNAL . THE L D. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLOWANCE AT THE RATE OF 0.5% OF AVERAGE VALUE OF INVESTMENTS HAS BEEN MADE UNDER RULE 8D(2)(III) R.W.S. 14A BY THE AUTHORITIES BELOW WHICH LED TO THE DISA LLOWANCE OF RS. 16,67,09 8 / - WHEREIN THE ASSESSEE HAS VOLUNTARILY DISALLOWED RS. 34,692/ - BY APPLYING DISALLOWANCE @0.5% OF SALARY OF GM(FINANCE). I T WAS SUBMITTED THAT FOR A.Y 2008 - 09 VIDE ITA NO. 6788/MUM/2011 VIDE ORDERS DATED 29 - 05 - 2015 IN ASSESSEES OWN CASE , THE TRIBUNAL HAS HELD THAT SINCE THE AO HAS NOT BROUGHT ON RECORD THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING OF EXEMPT INCOME OTHER THAN DISCLOSED IN THE RETUR N OF INCOME , NO DISALLOWANCE CAN BE MADE U/S 14A. IT IS ALSO SUBMITTED THAT FOR A.Y. 2010 - 11 , THE TRIBUNAL HAS DECIDED THE ISSUE VIDE ITA NO. 4573/MUM/2014 VIDE ORDERS DATED 05.12.2016 IN ASSESSEES OWN CASE, WHEREIN FURTHER DISALLOWANCE OF RS.50,000/ - U/S 14A WAS UPHELD BY THE TRIBUNAL . THE SAID ORDERS OF THE TRIBUNAL ARE PLACED ON RECORD BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE L D. DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE LEARNED CIT( A ) /AO . 6. W E HAVE CONSIDERED RIVAL CONTENTION S AND W E HAVE PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS AND ORDERS OF THE AUTHORITIES BELOW. W E HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TV SETS. I T IS ALSO TRADING IN CERTAIN FMCG . THE ASSESSEE I.T.A. NO. 3320/MUM/2016 5 IS ALSO MANU FACTURING WASHING MACHINE AND AIR CONDITIONER S. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.44,69,167/ - WHICH HAS BEEN CLAIM ED AS EXEMPT FROM TAX U/S 10(34). THE ASSESSEE HAS VOLUNTARILY OFFERED DISALLOWANCE OF RS. 34,692/ - U/S. 14A OF THE ACT COMPUTED ON THE BASIS OF 0.5% OF SALARY OF GM(FINANCE) AND IT IS CLAIMED BY THE ASSESSEE THAT THIS IS THE ONLY EXPENSES INCURRED BY THE ASSESSEE . THE A.O INVOKED RULE 8D R.W.S.14A AND M ADE DISALLOWANCE OF RS.16,67,098 / - . WE HAVE OBSERVED THAT LEARNED CIT( A ) CONSID ERED VARIOUS HEADS OF EXPENSES INCUR RED BY THE ASSESSEE WHICH ARE IN THE NATURE OF PERSONNEL EXPENSES TO THE TUNE OF RS.92.25 CRORE S, OTHER/ADMINISTRATIVE EXPENSES BY THE WAY OF RENT OF RS. 7.8 CRORES , RATES AND TAXES TO THE TUNE OF RS. 4.44 CRORES AND MISCELLANEOUS /ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 30.85 CRORE WHICH INCLUDED PROFESSIONAL FEE OF RS. 3.20 CRORE S , PRINTING AND STATIONARY EXPENSES OF RS. 1.21 CRORE, TAX - AUDIT F EE OF RS. 4 LACS , AUDITORS REMUNERATION OF RS. 4.68 LACS, INTERNAL A UDIT FEE OF RS. 22.2 LAKHS, SI TTING FEE OF RS.1.25 LAKH ETC TO UPHOLD THE DISALLOWANCE BASED ON RULE 8D(2)(III) R.W.S. 14A AFTER ARRIVING AT THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE OF APPLYING 05% TO SALARY OF GM(FINANCE) TO ARRIVE AT DISALLOWANCE U/ S 14A IS NOT CORRECT. WE HAVE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, INVESTMENT S HELD BY THE ASSESSEE AT THE BEGINNING OF THE YEAR WAS RS.40.14 CRORE WHICH HAS COME DOWN TO RS.26.54 CRORE S AS AT THE END OF THE YEAR. THE ASSESSEE HAS SOLD THE INVESTMENTS DURING THE YEAR WHICH COMPRISED MUTUAL FUND WHICH MAINLY LED TO FALL IN INVESTMENTS HELD BY THE ASSESSEE AS AT YEAR END VIS - A - VIS HELD AT THE BEGINNING OF THE YEAR. T HE ASSESSEE HAS OFFERED DISALLOWANCE COMPUTED @ 0 . 5% OF THE SALARY OF GM ( F IN ANCE ) U/S. 14A . THE TRIBUNAL IN THE PRECEDING YEAR I.E. AY 2010 - 11 HAS HELD FURTHER DISALLOWANCE OF RS. 50,000/ - TOWARDS ADMINISTRATIVE EXPENSES WILL MEET THE END OF THE JUSTICE . THE AUTHORITIES BELOW HAVE NOT GONE DEEPLY INTO THE ACCOUNTS AND AFFAIR S OF THE ASSESSEE TO FIND OUT WHO ALL WERE RESPONSIBLE FOR HANDLING INVESTMENT S AND TO IDENTIFY THE EXPENDITURE/ COST INCURRED TOWARDS THE EARNING OF THE EXEMPT INCOME . THE AUTHORITIES BELOW DID NOT CALL FOR MINUTE BOOKS OF DIRECTORS/SHAREHOLDERS , COPIES OF RESOLUTIONS, INVESTMENT RECORDS , BOOKS OF ACCOUNTS AND NO INFORMATION WERE CALLED FROM THE INVESTEE COMPANY/ENTITY WHO HOLDS INVESTMENT IN DEMAT MODE, EVEN IT WAS NO T CONSIDERED APPROPRIATE TO RECORD STATEMENTS OF THE COMPANY SECRETARY/DIRECT ORS AND/OR OTHER PERSONS INCHARGE OF INVESTMENTS BY THE AUTHORITIES BELOW AS I.T.A. NO. 3320/MUM/2016 6 ALSO TO DELVE DEEPLY INTO ACCOUNTS TO ARRIVE AT THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE IN MAKING DISALLOWANCE U/S 14A IS INCORRECT AND RESORT HAS TO BE MADE TO RULE 8D IN THE MIDST OF INCORRECT CLAIM OF THE ASSESSEE . RATHER, A SUPERFICIAL EXAMINATION OF THE EXPENSES OF THE COMPANY WAS MADE BY THE LEARNED CIT(A) TO JUSTIFY THAT FORMULA PRESCRIBED IN RULE 8D(2)(III) IS TO BE APPLIED AND CLAIM OF THE ASSESSEE IS NOT CORRECT . T HE ASSESSEE IS MAINLY DEALING IN THE ELECTRONICS PRODUCT S AND HAS TURNOVER OF MORE THAN RS. 2000 CRORES DURING THE IMPUGNED ASSESSMENT YEAR AND EXEMPT DIVIDEND INCOME IS MERELY RS. 44.69 LACS AS AGAINST THE INVESTMENT OF RS. 26.54 CRORE S HELD AT THE END O F THE YEAR. THE ASSESSEE HAS UNDERTAKEN ACTIVITY/TRANSACTIONS OF SALE OF MUTUAL FUNDS DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR WHICH LED TO DECLINE IN INVESTMENT AS AT YEAR AND NECESSARILY EXPENSES MUST HAVE BEEN INCURRED TOWARDS UNDERTAKING THESE TRANSACTION / ACTIVITY OF SALE OF MUTUAL FUND. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW TRIBUNAL DECISIONS IN THE PRECEDING YEARS IN ASSESSEES OWN CASE , THUS , IN ORDER TO MAINTAIN CONSISTENCY AND JUDICIAL DISCIPLINE , END OF JUST ICE WILL BE MET IN THE INSTANT CASE IF FURTHER DISALLOWANCE OF EXPENDITURE U/S 14A IS KEPT AT AN ADDITIONAL AMOUNT OF RS.1,00,0 00/ - TOWARDS ADMINISTRATIVE/MISC. E XPENSES TO BE ADDED TO THE INCOME OF THE ASSESSEE . THIS IS IN VIEW OF THE NON RECORDING OF PR OPER SATISFACTION BY THE AUTHO RITIES BELOW AS TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEES CLAIM AND ALSO THIS DISALLOWANCE U/S 14A SO UPHELD BY US IS IN CONSONANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFAC TURING COMPANY LTD. V. DCIT (2017) 394 ITR 449(SC). WE ORDER ACCORDINGLY. 7 . IN THE RESULT APPEAL OF THE ASSESSEE IN ITA 3320/MUM/2016 F OR ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 0 9 .11.2017 0 9 .11.2017 S D / - S D / - (SAKTIJIT DEY ) (R AMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER I.T.A. NO. 3320/MUM/2016 7 MUMBAI, DATED: 0 9 .11.2017 COPY TO 1 . THE APPELLANT 2 . THE RESPONDENT 3 . THE CIT(A) CONCERNED, MUMBAI 4 . THE CIT - CONCERNED, MUMBAI 5 . THE DR BENCH, E 6 . MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI