M/s. ACIT - 5(2), MUMBAI V. MID-DAY MULTIMEDIA LTD, MUMBAI

ITA 3379/MUM/2008

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5648 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 06-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL HAKANI IZRFKHZ DH LS
• Keywords: Earning of tax free income
• Section: 5(2); 14A

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K ,Q U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI JH VKJ JH VKJ JH VKJ JH VKJ- -- - LH LHLH LH- -- - 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA 'KEKZ] YS[KK LNL; ,OA JH VFER 'KQDYK JH VFER 'KQDYK JH VFER 'KQDYK JH VFER 'KQDYK] U;KF;D ] U;KF;D ] U;KF;D ] U;KF;D LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER. VK;DJ VIHY LA[;K /ITA NO.3379/MUM/2008 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2005-06. ASSISTANT COMMISSIONER OF INCOME TAX, 5(2) ROOM NO. 571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. CUKE@ VS. M/S MID-DAY MULTIMEDIA LTD. 156-D, J. DADAJEE ROAD, TARDEO, MUMBAI 400034. PAN:- AAACM7512L VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI RAHUL HAKANI IZR;FKHZ DH VKSJ LS @ REVENUE BY SHRI RAVI PRAKASH VKNS'K VKNS'K VKNS'K VKNS'K @ @@ @ ORDER PER R.C. SHARMA, AM. THIS IS AN APPEAL, FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 18-03-2008 FOR A.Y. 2005-06, FOLLOWING THREE GROUNDS HAVE BEEN TAKEN BY THE REVENUE:- 1 ON THE FACTS AND IN THE CIRCUMSTNACES OF HE CASE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF DISALLOWANCE OF FINANCE CHARGES OF RS. 33,47,696/- AS INTEREST BEAR ING FUNDS WERE USED FOR NON-BUSINESS PURPOSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSIN G OFFICER ON ACCOUNT OF DISALLOWANCE OF LQUOKBZ DH RKJH[K @ DATE OF HEARING 23 - 01 - 2014 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 23 - 01 - 2014 - 2 - FOREIGN TRAVELLING EXPENSES TO THE TUNE OF RS. 24,9 2,648/- IGNORING THE FINDINGS OF THE ASSESSING OFFICER IN ASSESSMENT PROCEEDINGS. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RECOMPU TE THE DISALLOWANCE MADE U/S 14A OF RS. 9,22,692/- AS EXPENSES ATTRIBUTABLE TO EXEMPT D IVIDEND INCOME BY RESTRICTING THE DISALLOWANCE OF EXPENSES TO 2% OF THE DIVIDEND INCO ME DECLARED AT RS. 56,23,744/- IGNORING THE FINDINGS OF THE ASSESSING OFFICER IN A SSESSMENT PROCEEDINGS. 2. AT THE OUTSET IT WAS SUBMITTED BY LD. AR THAT EX ACTLY ALL THESE ISSUES HAVE BEEN DEALT BY THE TRIBUNLA IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2003- 04 AND 2004-05, VIDE ORDER DATED 26.07.2013. OUR AT TENTION WAS INVITED TO THE RELEVANT PARAS OF THE TRIBUNAL ORDER WHEREIN THE RE LEVANT ISSUES HAS BEEN DEALT BY THE BENCH. WE FIND THAT ALL THE ISSUES RAISED IN THE REVENUES APPEAL HAVE BEEN DECIDED BY THE TRIBUNAL IN THE APPEAL FILED BY THE REVENUE. CIT(A) HAS ALSO DELTED THE DISALLOWANCE AFTER RELYING ON THE ORDER FOR ASS ESSMENT YEAR 2004-05, WHEREIN SIMILAR GROUNDS WERE RAISED, THE RELEVANT PARA OF C IT(A) ORDER READS AS UNDER:- GROUND NO.1, 2 AND 3 PERTAIN TO THE ISSUE THAT ARE COVERED BY MY OWN DECISION IN THE APPELLANTS OWN CASE FOR A.Y. 2004-05 WHEREIN THE A DDITION WITH RESPECT TO DISALLOWANCE OF INTEREST ON ACCOUNT OF INTEREST FREE ADVANCES AN D DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES WERE DELETED BY PARA 2.2 AND 3.3 OF MY APP ELLATE ORDER DT. 4.01.2008 VIDE APPEAL NO. CIT (A)V/5(2)289/06-07. THERE IS NO MATE RIAL CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE IN THIS YEAR FROM THE LAST YEAR. THEREFORE, SIMILAR ADDITIONS IN THIS YEAR AGITATED THROUGH GROUND NO. 1 AND 2 ARE DELETED AND THE APPEAL IS ALLOWED ON THESE GROUNDS. AS FAR AS GROUND NO. 3 IS CONCERNED, THE DISALLOWABLE AMOUNT U/S 14A WAS RESTRICTED TO ONLY 2% OF THE DIVIDEND I NCOME IN VIEW OF THE HONBLE ITATS DECISION IN THE ASSESSEES OWN CASE VIDE PARA 4.1.1 OF MY SAID APPELLATE ORDER DT. 4.1.2008 FOR A.Y. 2004-05. ACCORDINGL, THE LD. AO IS DIRECTE D TO RESTRICT THE DISALLOWANCE U/S 14A TO 2% DIVIDEND INCOME IN THIS YEAR TOO AND PROVIDE ADE QUATE RELIEF THE APPEAL IS PARTLY ALLOWED ON THIS GROUND. 3. AS THE FACTS AND CIRCUMSTANCES DURING THE YEAR U NDER CONSIDERATION ARE PER MATERIA TO THE FACTS AND CIRCUMSTANCES DISCUSSE D BY THE TRIBUNAL IN ITS ORDER DATED 26-07-2013. 4. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FI ND THAT DISALLOWANCE OF INTEREST HAS BEEN DEALT BY THE AO AT PAGE NO. 224. ITAT IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 DELETED THE SIMILAR DISAL LOWANCE BY RELYING ON THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LIMITED. (313 ITR 340), PRECISE OBSERVATION OF THE TRIBUNAL AT PAGE 4 PARA 6 RADS AS UNDER:- - 3 - AFTER HEARING THE LEARNED DR AND PERUSING THE RELEV ANT MATERIAL ON RECORD AS WELL AS GOING THROUGH THE ORDERS OF THE AUTHORITIES BELOW, WE FIND THAT ASSESSEE BEFORE THE CIT(A) SUBMITTED THAT IT HAD OWN FUNDS OF RS. 126.8 3 CRORES AND INVESTMENT MADE IN EQUITIES AND LOANS GIVEN TO SUBSIDIARIES WERE ONLY RS. 108.75 CRORES. HE FURTHER SUBMITTED THAT ITS OWN FUND FAR EXCEEDS THE INVESTM ENT MADE AND LOANS GIVEN TO SUBSIDIARY COMPANIES. IN THIS CONNECTION, THE ASSES SEE FILED CERTIFICATES OF CHARTERED ACCOUNTANTS TO PROVE THAT ALL BORROWED FUNDS WERE U SED FOR THE BUSINESS OF THE ASSESSEE. FURTHER, THE ASSESSEE RELIED ON THE DECIS IONS OF THE CIT(A) IN THE ASSESSMENT YEAR 2004-05 & 2005-06 TO CLAIM THAT SIMILAR ADDITI ONS MADE BY THE AO IN THOSE YEARS WERE NOT UPHELD BY THE CIT(A). IN THIS CONNECTION, WE REFER TO THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF RE LIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM.) HELD THAT IF THERE WERE FUNDS A VAILABLE BOTH INTEREST-F REE AND OVERDRAF T AND/OR LOANS TAKEN, THEN A PRESUMPTION W OULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE W ITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE SUFF ICIENT TO MEET THE INVESTMENTS. WE FIND THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS, WHICH EXCEEDS THE INVESTMENT MADE AND LO ANS GIVEN TO SUBSIDIARY COMPANIES AND ASSESSEE FILED CERTIFICATES OF CHARTE RED ACCOUNTS TO PROVE THAT ALL BORROWED FUNDS WERE USED FOR THE BUSINESS OF THE AS SESSEE. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN TH E CASE OF RELIANCE UTILITIES AND POWER LTD.(SUPRA) , WE SET ASIDE THE ORDER OF CIT(A ) AND AL LOW THIS GROUND OF APPEAL OF THE ASSESSEE. 5. WITH REGARD TO GROUND TAKEN FOR DISALLOWANCE OF PROFESSIONAL EXPENSES, THE AO HAS DEALT WITH THE ISSUE AT PAGE 426. THIS ISSUE IS ALSO COVERED BY THE ORDER OF TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07, PRECISE OBSERVATION OF THE TRIBUNAL READS AS UNDER:- 16. WE HAVE HEARD THE LEARNED DR, PERUSED THE MATER IAL ON RECORD AND GONE THROUGH THE ORDERS OF THE REVENUE AUTHORITIES. THE AO HELD THAT THE ASSESSEE HAS NOT GIVEN PURPOSE OF EACH FOREIGN VISIT AND THE ASSESSEE HAS NOT BEEN ABLE TO CORRELATE PAPER CUTTING WITH EACH FOREIGN VISIT. THE CIT(A) HELD TH AT I DO NOT AGREE WITH THE AO THAT THE SUPPORTING DOCUMENTARY EVIDENCE IN THE FORM OF PHOT O COPIES AND CUTTINGS OF OLD NEWSPAPER ARE SELF-SERVING DOCUMENTS AND HAVE NO EV IDENTIARY VALUE. HE FURTHER HELD THAT THE ASSESSEE IS IN THE BUSINESS OF PUBLISHING ITS OWN NEWSPAPERS AND INDIVIDUALIZED ITEMS NEED TO BE PUBLISHED IN ITS OWN NEWSPAPERS, W HICH IS THE MAIN SOURCE OF REVENUE GENERATION FOR THE APPELLANT. THE ARTICLES PUBLISHE D IN THIS NEWSPAPER HAVE THE NAMES OF AUTHORS AND THAT ESTABLISHES THE FACT THAT PARTICUL AR AUTHORS ARE WRITING PARTICULAR ARTICLES/NEWS-ITEMS ON PARTICULAR PLACE IN THE NEWS PAPER FROM THE PARTICULAR PLACE IN THE WORLD. THE APPELLANT HAS UNDERTAKEN FOREIGN TRAVEL TO COVER IMPORTANT EVENT IN THE WORLD. THIS IS EVIDENT FROM THE PUBLISHED ARTICLES CANNOT BE SAID TO BE NOT INCURRED WHOLLY AND EXCLUSIVELY FOR BUSINESS PURPOSES AT LEAST IN THE S PECIFIC BUSINESS OF THE APPELLANT. THE FACT SHOULD ALSO NOT BE IGNORED THAT THE OVERAGE OF THE EVENTS HAD HELPED THE APPELLANT TO MAINTAIN THE CIRCULATION DURING THE YEAR UNDER C ONSIDERATION. ON CONSIDERATION OF THE FACTS OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF RS. 19.59,000/- MADE BY THE AO OUT OF FOREIGN TRAVEL EXPENSES.ACCORDINGLY, WE UPHOLD THE ORDER OF THE CI T(A) AND DISMISS THE GROUND RAISED BY THE REVENUE. 6. THE ISSUE OF DISALLOWANCE U/S 14A HAS BEEN DEALT H BY THE AO AT PARA 5 (III) AT PAGE 6. THIS ISSUE IS ALSO COVERED BY TH E DECISION OF TRIBUNAL IN - 4 - ASSESSEES OWN CASE IN ASSESSMENT YEAR 2004-05, WHE REIN DISALLOWANCE HAS BEEN RESTRICTED TO 2.5% OF THE DIVIDEND INCOME. THE RELEVANT OBSERVATION OF THE TRIBUNAL WAS AS UNDER:- THE SEVENTH DISPUTE RAISED IN THE DEPARTMENTAL APP EAL WHICH IS RELEVANT ONLY TO ASSESSMENT YEAR 2002-03 AND ASSESSMENT YEAR 2004-05 IS REGARDING DISALLOWANCE OF EXPENSES U/S 14A OF THE INCOME TAX ACT IN RELATION TO EXEMPT INCOME. THE AO NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME WHICH WAS EXEMPT FROM TAX. AO, THEREFORE, ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE EXPENSES RELATING TO DIVIDEND INCOME SHOULD NOT BE DISALLOWED. THE ASSESSEE SUBMI TTED THAT IT HAD RAISED AN AMOUNT OF RS. 50,00,00,000/- FROM IPO IN MARCH 2001 AND SI NCE THE FUNDS WERE SURPLUS, PART OF IT HAD BEEN INVESTED IN MUTUAL FUND FROM WHICH THE DIVIDEND INCOME HAD BEEN EARNED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD NOT INCURR ED ANY EXPENDITURE IN RELATION TO THE DIVIDEND INCOME. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN AND DISALLOWED ON ESTIMATE 5% OF DIVIDEND INCOME AS EXPENSES INCUR RED IN RELATION TO EARNING OF DIVIDEND INCOME IN ASSESSMENT YEAR 2004-05, HE DISA LLOWED EXPENSES PROPORTIONATE TO DIVIDEND INCOME. HE THUS MADE DISALLOWANCE OF RS. 2 ,99,453/- IN ASSESSMENT YEAR 2002-03 AND RS 16,25,666/- IN ASSESSMENT YEAR 2004- 05. IN APPEAL CIT (A) AGREED WITH THE AO THAT EXPENSES IN RELATION TO DIVIDEND INCOME HAVE TO BE ALLOWED U/S 14A. HE, HOWEVER NOTED THAT DIVIDEND HAD BEEN EARNED OUT OF INVESTMENTS MADE IN MUTUAL FUND AND HAD BEEN RECEIVED THROUGH ECS AND, THEREFORE HE REDUCED THE DISALLOWANCE OF EXPENSES TO 2% OF DIVIDEND INCOME. AGGRIEVED BY THE SAID DECISION THE REVENUE IS IN APPEAL BEFORE TRIBUNAL IN BOTH THE YEARS. 7. AS FACTS AND CIRCUMSTNACES DURING THE YEAR UNDER CO NSIDERATION ARE PER METERIA, RESPECTFULLYL FOLLOWING THE DECISION O F TRIBUNAL IN ASSESSEES OWN CASE AS DISCUSSED ABOVE, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF CIT(A) AND THE SAME IS CONFIRMED . 9. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED ORDER PRONOUNCED ON 23 /01/2014 SD/- SD/- ( AMIT SHUKLA ) (R.C. SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED 23 /01/2014 SKS SR. P.S - 5 - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI