MAHARASHTRA STEELS ROLLING MILLS P.LTD, MUMBAI V. ACCC 35, MUMBAI

ITA 3326/MUM/2013

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8525 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 30-04-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR MISHRA
• Assessee Lawyers: S SANJUKTA CHOWDHURY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL , HON'BLE ACCOUNTANT MEMBER ITA NO S . 3326 & 3327 /MUM/201 3 (A.Y S : 2007 - 08 & 2009 - 10) M/S. MAHARASHTRA STEELS ROLLING MILLS PVT. LTD., 190, LBS MARG, BHANDUP (WEST), MUMBAI 400 078 PAN: AA BCM 6109 Q V. A.C.I.T CENTRAL CIRCLE 35 MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : M R S. SANJUKTA CHOWDHURY DEPARTMENT BY : SHRI RAJESH KUMAR MISHRA DATE OF HEARING : 13.12.2018 DATE OF PRONOUNCEMENT : 31 .12 .2018 O R D E R PER C. N. PRASAD (JM) 1. THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGAINST THE DIFFERENT ORDER S OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) - 41, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 04.02.2013 F OR THE ASSESSMENT YEAR S 2007 - 08 & 2009 - 10. 2 ITA NOS. 3326 & 3327/MUM/2013 M/S. MAHARASHTRA STEELS ROLLING MILLS PVT. LTD., 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2007 - 08 IS REGARDING THE DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE I.T. RULES. 3. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF RULE 8D HAVE NO APPLICATION PRIOR TO THE ASSESSMENT YEARS 2008 - 09 AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD. V. DCIT [328 ITR 1] . IT IS FURTHER SUBMITTED THAT DURING TH IS ASSESSMENT YEAR ASSESSEE EARNED DIVIDEND INCOME OF .42,527/ - ONLY AND DISALLOWANCE CANNOT EXCEED THE DIVIDEND INCOME. 4. LD. DR VEHEMENTLY SUPPORTED THE OR DERS OF THE AUTHORITIES BELOW. 5. ON HEARING THE RIVAL SUBMISSIONS AND PERUSING THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT THE ASSESSING OFFICER APPLIED RULE 8D WHILE COMPUTING THE DISALLOWANCE U/S. 14A OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. 2007 - 08. HOWEVER, THE PROVISIO NS OF RULE 8D HAVE NO APPLICATION AS FAR AS THE ASSESSMENT YEAR 2007 - 08 IS CONCERNED IN VIEW OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. LTD., V. DCIT (SUPRA). IN THE ABSENCE OF RULE 8D FOR THE PURPOSE OF DISALLOWANCE U/S. 14A OF THE ACT A REASONABLE ESTIMATION SHALL BE MADE ATTRIBUTING THE EXPENSES FOR EARING THE DIVIDEND INCOME. THEREFORE, FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE 3 ITA NOS. 3326 & 3327/MUM/2013 M/S. MAHARASHTRA STEELS ROLLING MILLS PVT. LTD., CASE OF CIT V. M/S. GODREJ AGROVET LTD, IN I.T. APPEAL NO. 934 OF 2011 DATED 8.1.2013, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF THE DIVIDEND INCOME AS THE EXPENSES ATTRIBUTABLE FOR EARNING DIVIDEND INCOME. ITA NOS. 3327/MUM/2013 (A.Y: 2009 - 10) 6. COMING TO THE APPEAL FOR THE ASSESSME NT YEAR 2009 - 10, IT IS THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALL THE INVESTMENTS WERE MADE IN EARLIER YEARS AND NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING THESE INVESTMENTS. REFERRING TO PAGE NO. 56 OF THE PAPER BOOK , IT IS SUBMITTED THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS FOR MAKING INVESTMENTS AND T HEREFORE NO INTEREST DISALLOWANCE UNDER RULE 8D ( 2 ) (II) SHALL BE MADE. IT IS FURTHER CONTENDED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME ONLY T O THE EXTENT OF .42,520/ - AND T HEREFORE IN ANY CASE THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPT INCOME. 7. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE BALANCE SHE ET REFERRED TO BY THE LD. COUNSEL FOR THE ASSESSEE. FROM THE BALANCE SHEET IT IS CLEAR THAT THE SHARE CAPITAL AND RESERVES AND SURPL U S O F THE ASSESSEE FOR THE YEAR ENDED 31.03.2009 STOOD AT .19.30 CRORES AND THE INVESTMENTS WERE AT .11.14 CRORES. 4 ITA NOS. 3326 & 3327/MUM/2013 M/S. MAHARASHTRA STEELS ROLLING MILLS PVT. LTD., THEREFORE, INTEREST FREE FUNDS WERE UNDOUBTEDLY MORE THAN THE INVESTMENTS MADE BY THE ASSESSEE. IN SUCH CIRCUMSTANCES THE PRESUMPTION SHALL B E THAT THE INVESTMENTS WERE MADE ONLY FROM OUT OF INTEREST FREE FUNDS AND NOT FROM BORROWED FUNDS. RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD [366 ITR 505], WE DIRECT THE ASSESSING OFFI CER TO DELETE THE INTEREST DISALLOWANCE MADE UNDER RULE 8D ( 2 ) (II) OF I.T. RULES . 9. COMING TO DISALLOWANCE UNDER RULE 8D(2)(III) OF I.T. RULES I.E. 0.5% OF THE AVERAGE INVESTMENTS, WE NOTICE FROM THE SCHEDULES TO THE BALANCE SHEET THAT THE ASSESSEE HAS EARNE D DIVIDEND OF .42,520/ - WHICH WAS CLAIMED AS EXEMPT. THUS, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(III) OF I.T. RULES TO .42,520/ - AND RECOMPUTE THE DISALLOWANCE ACCORDINGLY. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST DECEMBER , 2018 SD/ - SD/ - ( MANOJ KUMAR AGGARWAL ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 31 / 12 / 2018 GIRIDHAR , S R. PS 5 ITA NOS. 3326 & 3327/MUM/2013 M/S. MAHARASHTRA STEELS ROLLING MILLS PVT. LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM