ASIT C. MEHTA FINANCIAL SERVICES (FORMERLY KNOWN AS M/S NUCLEUS & GIS(INDIA) LTD., MUMBAI V. DCIT 8(2), MUMBAI

ITA 3635/MUM/2010

• Counselvise Citation: 363519914 RSA 2010
• Duration Of Justice: 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI R.V. EASWAR, HONBLE PRESIDENT AND SHRI R.K. PANDA, A.M. ITA NO.3635/MUM/2010 ASSESSMENT YEAR : 2006-2007 M/S. ASIT C. MEHTA FINANICAL SERVICES LTD. NUCLEUS HOUSE, SAKI VIHAR ROAD, POWAI, ANDHERI (E), MUMBAI-400 072 PAN NO. : AABCN6882D VS. D.C.I.T, 8 (2), AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SATISH MODY RESPONDENT BY : MS. ASHIMA GUPTA O R D E R PER R.K. PANDA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 24.02.2010 OF THE LEARNED CIT(APPEALS)-17, MUMBAI RELATING TO ASSESSMENT YEAR 2006-07. THE ASSESSEE IN ITS GROUNDS OF APPEAL S HAS CHALLENGED THE ORDER OF THE LEARNED CIT(APPEALS) IN CONFIRMING THE ADDITION OF ` .1,69,248/-, MADE BY THE AO U/S.14A OF THE I.T. ACT READ WITH RU LE 8D OF THE I.T. RULES, 1962. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE AO DU RING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE COMP ANY HAS RECEIVED A SUM OF ` .86,06,821/- BY WAY OF DIVIDEND AND CLAIMED THE SAM E AS EXEMPT INCOME. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DISALLOWANCES SHOULD NOT BE MADE IN VIEW OF EXPENDITURE ATTRIBUTA BLE TO INVESTMENT AND EXEMPT INCOME. THE ASSESSEE SUBMITTED ITS EXPLANATI ON BEFORE THE AO WHICH IS AS UNDER:- 2 THE AGGREGATE OF INTEREST PAID (EXCLUDING CAR LOAN ) DURING THE PREVIOUS YEAR ENDED 31.03.2006 WAS ` .1,13,402/-. THIS INTEREST COMPRISED OF : TEMPORARY BANK OVERDRAFT INTEREST (TOD) ` .13,100/- INTEREST ON INTER CORPORATE DEPOSIT (ICD) ` .1,00,302/- THE TOD WAS AVAILED DURING THE YEAR FOR A SHORT TER M PERIOD SINCE COLLECTION FROM DEBTORS WAS DELAYED. THE ICD WAS BORROWED BY THE ERSTWHILE COMPANY NUC LEUS NETSOFT AND GIS (INDIA) LTD., WHICH WAS AMALGAMATED DURING THE YEAR WITHT THE COMPANY. SINCE THE ABOVE INTEREST WAS PAID ON THE FRESH BORR OWINGS DURING THE YEAR AND WHICH WERE NOT UTILIZED FOR MAKING INV ESTMENTS DURING THE YEAR AND AS THE INVESTMENTS WERE ALREADY MADE IN THE PAST, THE INTEREST EXPENDITURE CANNOT BE ATTRIBUTED FOR DISALLOWANCE U/S.14A. THE ASSESSEE COMPANY HAS ALSO FURNISHED THE WORKING OF DISALLOWANCE U/S.14A, WHEREIN THE DISALLOWANCE HAS BEEN WORKED OUT AT ` .1,69,248/-. HOWEVER, THE AO REJECTED THE EXPLANATION GIVEN BY T HE ASSESSEE AND DISALLOWED AN AMOUNT OF ` .1,69,248/- U/S.14A READ WITH RULE 8D OF I.T. RULES. 3. BEFORE THE LEARNED CIT(APPEALS), THE ASSESSEE SU BMITTED THAT THE INVESTMENTS WERE MADE IN EARLIER YEARS OUT OF OWN F UNDS OR RESULTING FROM AMALGAMATION. THE INTEREST CLAIMED WAS EXPENDITURE RELATED TO BANK OVERDRAFT AND INTER-CORPORATE DEPOSIT UTILIZED FOR BUSINESS PURPOSES. FURTHER, THE INTEREST RECEIVED EXCEEDED INTEREST PAID AND HE NCE DISALLOWANCE WAS NOT WARRANTED. MOREOVER, PROVISIONS OF RULE 8D WAS INCO RPORATED W.E.F. 24.03.2008 AND CANNOT BE APPLIED FOR EARLIER ASSESS MENT YEARS. 4. HOWEVER, THE LEARNED CIT(APPEALS), WAS ALSO NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND UPHELD THE AC TION OF THE AO. AGGRIEVED WITH SUCH ORDER OF THE LEARNED CIT(APPEALS), THE AS SESSEE IS IN APPEAL BEFORE US. 3 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE LEARNED CIT(AP PEALS) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. FROM THE SUBM ISSION OF THE ASSESSEE MADE BEFORE THE AO, WE FIND THAT THE INTEREST ON TO D WAS AVAILED DURING THE YEAR FOR A CERTAIN PERIOD AND THE ICD WAS BORROWED BY THE ERSTWHILE COMPANY NUCLEUS NETSOFT AND GIS (INDIA) LTD., WHICH WAS A MALGAMATED DURING THE YEAR WITH THE COMPANY. IT WAS ALSO MENTIONED BEFORE THE AO THAT THE INVESTMENTS WERE ALREADY MADE IN THE PAST. NOTHING HAS BEEN BROUGHT ON RECORD BY THE REVENUE TO CONTROVERT THE ABOVE SUBMI SSIONS OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, NO PART OF THE INTEREST, IN OUR OPINION, COULD HAVE BEEN ATTRIBUTED TO THE AMOUNT BORROWED FOR THE INVE STMENT IN SHARES, THE DIVIDEND INCOME OF WHICH IS EXEMPT FROM TAX. 6. FURTHER IN VIEW, OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LT D. VS. DCIT REPORTED IN 328 ITR 81, RULE 8D IS NOT RETROSPECTIVE AND, THERE FORE, THE ASSESSMENT YEAR IN THE IMPUGNED CASE BEING A.Y. 2006-07, THE PROVIS IONS OF RULE 8D ARE NOT APPLICABLE TO THE ASSESSEE COMPANY. IN THIS VIEW OF THE MATTER, WE HOLD THAT NO DISALLOWANCE U/S. 14A CAN BE MADE IN THE HANDS O F THE COMPANY. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY, ALLOW ED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 27 TH DAY OF APRIL, 2011. SD/- (R.V. EASVAR) HON'BLE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED : 27/04/2011 4 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, A - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI