RAJPAL BROTHERS P.LTD, MUMBAI V. ITO RG 7(2)(1), MUMBAI

ITA 3533/MUM/2012

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8498 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 03-10-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNA MURTHY SR
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC : MUMBAI BEFORE SHRI H.L.KARWA, HONBLE PRESIDENT ITA. NO. 3533/MUM/2012 ASSESSMENT YEAR 2007-2008 RAJPAL BROTHERS PVT. LTD. MUMBAI 400 010 PAN AAACR1793C VS. I NCOME T AX OFFICER - 7 (2) (1) MUMBAI 400 020 (APPELLANT) (RESPONDENT) FOR APPELLANT : SHRI ASHOK J. PATIL FOR RESPONDENT : SHRI V.KRISHNA MURTHY (SR. AR) DATE OF HEARING : 03-10-2012 DATE OF PRONOUNCEMENT : 03-10-2012 ORDER PER H.L.KARWA, PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-13, MUMBAI DATED 05 TH DECEMBER, 2011 RELATING TO THE ASSESSMENT YEAR 2007-2008. THE ONLY EFFECTIVE AMENDED GROUND R AISED BY THE ASSESSEE IN THIS APPEAL READS AS UNDER : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING TOTAL DISALLOWANCE OF RS.64,667 /- UNDER SECTION 14A AS UNDER : I) U/R 8D AMOUNTING TO RS.3,603/-; AND II) RS.61,064/- BEING INTEREST DIRECTLY RELATED TO EARN ING DIVIDEND INCOME; 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE-COMPANY IS AN AUTHORISED DISTRIBUTOR OF HINDUSTAN PETROLEUM CORPO RATION LTD., (HPCL) FOR KEROSENE. AS PER THE ASSESSING OFFICER, DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF RS.1,07,535/-. THE ASSESSING OFFICER REQUIRED THE A SSESSEE TO FURNISH DETAILS OF EXPENSES DISALLOWABLE UNDER SECTION 14A OF THE INCOME TAX ACT, 2 1961 (IN SHORT THE ACT) AND RULE 8D OF INCOME TAX RULES, 1962 (IN SHORT THE RULES). IN RESPONSE TO THE ABOVE QUERY, THE A SSESSEE COMPUTED THE DISALLOWANCE AT RS.3,603/- BEING 0.5% OF AVERAGE VA LUE OF INVESTMENT. DURING THE ASSESSMENT PROCEEDINGS FOR THE ASSESSMEN T YEAR 2006-2007, THE ASSESSING OFFICER NOTICED THAT ALL THE INVESTME NTS MADE DURING THE LAST YEAR HAS BEEN FINANCED FROM THE CASH CREDIT AC COUNT MAINTAINED WITH CANARA BANK ACCOUNT NO. OD-121. THE ASSESSING OFFIC ER OBSERVED THAT THESE INVESTMENTS ARE STILL OUTSTANDING AND DIVIDEN D HAS BEEN RECEIVED DURING THE YEAR FROM THE SAID INVESTMENTS. THE ASSE SSING OFFICER ALSO OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED INTEREST EXPENSES OF RS.95,330/-. THEREFORE , PROPORTIONATE INTEREST @ 9.75% ON THE CLOSING BALANCE OF THE INVE STMENT OF RS.6,26,300/- WHICH CAME TO RS.61,064/- WAS CONSIDE RED AS DIRECTLY RELATED TO EARNING OF DIVIDEND INCOME. ACCORDINGLY, THE DISALLOWANCE UNDER SECTION 14A WAS MADE AT RS.64,667/- (RS.61,06 4/- + RS.3,603/-) AND THE SAME WAS ADDED TO THE TOTAL INCOME OF THE A SSESSEE. 3. ON APPEAL, THE LEARNED CIT(A) UPHELD THE ORDER O F THE ASSESSING OFFICER AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. I HAVE HEARD SHRI ASHOK J. PATIL, LEARNED COUNSE L FOR THE ASSESSEE AND SHRI V.KRISHNAMURTHY, SENIOR DEPARTMENTAL REPRE SENTATIVE AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RE CORD. SHRI ASHOK J. PATIL, LEARNED COUNSEL FOR THE ASSESSEE RELYING ON THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MANUFACTURING CO. LTD. VS. CIT (2010) 328 ITR 81 (BOM.) SUBMITTED THAT THE PROVISIONS OF RULE 8D OF INCOME TAX RULES HAD BEEN NOTIFIED WITH EFFECT FROM 24 TH MARCH, 2008 AND THE SAME IS APPLICABLE WITH EFFECT FROM THE ASSESSMENT YEAR 2008-2009 AND NOT FOR THE YEAR UNDER CONSIDERA TION AND HENCE THE ASSESSING OFFICER WAS NOT JUSTIFIED IN COMPUTING TH E DISALLOWANCE AS PER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL ES. HE FURTHER SUBMITTED THAT THERE WAS NO JUSTIFICATION IN MAKING THE ADDITIONAL DISALLOWANCE OF RS.61,064/- CONSIDERING THE SAME AS DIRECTLY RELATABLE TO 3 EARNING OF DIVIDEND INCOME. IN THIS REGARD SHRI ASH OK J. PATIL, LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT ASSESSEE HAD S UFFICIENT INTEREST FREE FUNDS OF HIS OWN BEING SHARE CAPITAL AMOUNTING TO R S.5 LAKHS + RESERVES AND SURPLUS AMOUNTING TO RS.29,40,185/- = TOTAL RS .34,40,185/- AGAINST WHICH THE ASSESSEE HAS MADE INVESTMENT OF R S.6,26,300/- FOR EARNING EXEMPT INCOME IN THE FORM OF DIVIDEND. ACCO RDING TO SHRI ASHOK J. PATIL, THE ASSESSEE HAD MORE THAN SUFFICIENT INT EREST FREE FUNDS TO MAKE INVESTMENT IN SHARES. HE THEREFORE SUBMITTED THAT I T IS OBVIOUS THAT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS. SHRI ASHOK J. PATIL, LEARNED COUNSEL FOR THE ASSESSEE FURTHER CLAIMED TH AT NO EXPENSES WERE INCURRED FOR EARNING DIVIDEND INCOME. HE ALSO SUBMI TTED THAT BOTH THE AUTHORITIES BELOW HAVE NOT CONSIDERED THE DECISION OF CIT(A) DATED 9 TH JULY, 2010 PASSED IN ASSESSEES CASE FOR ASSESSMENT YEAR 2006-2007, REGARDING THE ISSUE IN HAND. IN VIEW OF THE ABOVE S HRI ASHOK J. PATIL, LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ORD ER OF THE CIT(A) MAY BE SET ASIDE AND REMAND THE MATTER TO THE FILE OF T HE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH ON MERI TS IN ACCORDANCE WITH LAW, AFTER AFFORDING A DUE AND REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. CONSIDERING THE ENTIRE FACTS AND CIRC UMSTANCES OF THE PRESENT CASE, I AM OF THE OPINION THAT THE ASSESSIN G OFFICER SHOULD CONSIDER THE ABOVE SUBMISSIONS MADE ON BEHALF OF TH E ASSESSEE AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW. CON SEQUENTLY, I SET ASIDE THE ORDER OF THE CIT(A) AND REMAND THE MATTER TO TH E FILE OF THE ASSESSING OFFICER FOR DECIDING THE ISSUE AFRESH IN ACCORDANCE WITH LAW. NEEDLESS TO SAY THAT THE ASSESSING OFFICER SHALL GIVE AN OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 4 ITA.NO.3533/MUM/2012 RAJPAL BROTHES PVT. LTD. PRONOUNCED IN THE OPEN COURT, ON 03 RD OCTOBER, 2012. SD/- (H.L.KARWA) PRESIDENT MUMBAI, DATE 03 RD OCTOBER, 2012 VBP/- COPY TO 1. RAJPAL BROTHERS PVT. LTD., SHOP NO.B, 12 PART, LONDHE HOUSE, OPPOSITE DOCKYARD ROAD RAILWAY STATION, REAY ROAD, MUMBA I 400 010 PAN AAACR1793C 2. I NCOME T AX OFFICER, 7 (2) (1), AAYAKAR BHAVAN, MAHARSHI KAR VE MARG, MUMBAI 400020. 3. CIT(A) - 13 , MUMBAI 4. CIT - 7 , MUMBAI 5. DR SMC BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR, I.T.A.T. MUMBAI