DCIT 5(1)(1), MUMBAI V. BGH EXIM LTD, MUMBAI

ITA 3703/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8051 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-03-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 16-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANUPAMA SINGLA
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUM BAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER I.T.A. NOS.3703,3704 &3705/MUM/2015 ASSESSMENT YEARS: 2009-10,2010-11 &2011-12 DCIT 5(1)(1) R.NO.568,5 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI PIN 400020 / VS. BGH EXIM LTD 213,2 ND FLOOR, TV INDL ESTATE 52 S.K. AHIRE MARG, WORLI MUMBAI PIN:400030 ./ ./ PAN/GIR NO AABCB6755B ( / APPELLANT ) : ( / RESPONDENT ) APPELLANT BY : MS. ANUPAMA SINGLA( D. R.) RESPONDENT BY : SHRI RONAK G. DOSHI & RITU PUNJABI (A.R.) / DATE OF HEARING : 21/02/2017 / DATE OF ORDER : 03 /03/2017 / O R D E R PER ASHWANI TANEJA, A.M.: THE PRESENT APPEALS HAVE BEEN FILED BY THE REVENUE IN THE CASE OF SAME ASSESSEE FOR DIFFERENT ASSESSMENT YEARS INV OLVING IDENTICAL ISSUE. THE SOLITARY ISSUE INVOLVED IN ALL THE THREE APPEALS IS WITH REGARD TO DISALLOWANCE MADE BY AO U/S-14A WHICH WAS DELETED BY THE LD. CIT(A) PASSED IN ASSESSMENT YEARS 2008-09, 2010-11 AND 2011- 12. 2 M/S. BGH EXIM LTD. MUMHAI 2. IN THIS CASE, THE BRIEF BACKGROUND IS THAT THE LD. AO MADE DISALLOWANCE U/S14A READ WITH RULE-8D(2) AND (3) ONLY. NO DISALLOWANCE HAS BEEN MADE UNDER RULE 8D (2) (I) AND (III). IT IS NOTED THAT ASSESSMENT YEAR 2008-09, LD . CIT(A) RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF EXEMPT INCOME OF DIVIDEND RECEIVED IN THE SAID YEAR UNDER CONSIDERATION BY OBSERVING AS UNDER.: (A) I HAVE GONE THROUGH THE FINDINGS OF THE A.O. AS WELL THE CONTENTIONS MADE BY THE A/R FOR THE APPELLANT. KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE IT IS HELD THAT THE A.O. WAS NOT CORRECT IN APPLYING RULE 8D BY DISALLOWING THE EXPENDITURE OF RS.2,84,11,415/- UNDER RULE 8D(III). IT WAS INCUMBENT ON THE ASSESSING OFFICER TO ESTABLISH A NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME WHICH WAS EXEMPT UNDER THE ACT. FACTS CLEARL Y DO NOT SUPPORT THE ACTION OF THE A.O. AS ASSESSEE HAS RECEIVED DIV IDEND OF RS.37,83,000/- DURING THE SUBJECT YEAR. DISALLOWANC E UNDER CLAUSE RULE 8D (III) IS ACCORDINGLY RESTRICTED TO RS.37,83,000/ -. THE A.O. IS DIRECTED TO RECOMPUTE THE INCOME ACCORDINGLY. 3. LIKEWISE, FOR ASSESSMENT YEAR 2010-11, IT WAS HELD BY THE LD. CIT(A) THAT NO EXEMPT INCOME HAS BEEN RECEIVED BY THE ASSE SSEE, THEREFORE ENTIRE DISALLOWANCE MADE BY THE A.O. WAS DELETED BY OBSERVING AS UNDER.: AFTER CAREFUL PERUSAL OF THE ASSESSMENT ORDER AND WRITTEN SUBMISSIONS FILED BY THE A/R OF THE APPELLANT IT HAS BEEN OBSERVED THAT THE A.0 HAS DISALLOWED RS.2,83,73,000/- U/S-14A WHI LE APPLYING THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 AGAINST WHICH THE APPELLANT HAS FILED AN APPEAL BECAUSE IT HAD DISALL OWED RS.25,000/- WHILE MAKING COMPUTATION OF INCOME. THE A.O. WHILE MAKING DISALLOWANCE U/S-14A HAS GIVE N THE FINDING IN THE ASSESSMENT ORDER THAT THE TERM 'EXPENDITURE' OCCURRING IN SECT ION 14A WOULD TAKE IN ITS SWEEP NOT ONLY DIRECT EXPENDITURE BUT ALSO ALL FORMS OF EXPENDITURE REGARDLESS OF WHETHER THEY ARE FIXED, VARIABLE, DIRECT, 3 INDIRECT, ADMINISTRATIVE, MANAGERIAL OR FINANCIAL. THE A.O. HAS FURTHER RELIED UPON THE JUDGMENT OF CITICORP FINANC E (I) LTD. IN WHICH IT HAS BEEN HELD THAT IT IS NO LONGER OPEN TO THE ASSESSING OFFICER TO APPLY HIS DISCRETION IN COMPUTING THE DI SALLOWANCE OR MAKE ADHOC DISALLOWANCE 14A. HE HAS ALSO RELIED ON THE O RDER OF SPECIAL BENCH OF HON'BLE ITAT IN THE CASE OF CHEMINVEST LIMITED V S. ITO AND TECHNIPAK ADVISOR PRIVATE LIMITED FOR HIS FINDING THAT EVEN IF NO EXEMPT INCOME IS ACTUALLY EARNED OR RECEIVED DURING THE YEAR THE DISALLOWANCE U/S-14A CAN BE MADE. THE APPELLANT DURING THE COURSE OF APPELLATE PROCEEDINGS HAS RELIED ON THE FOLLOWING FACTS:- (I) NO DIRECT EXPENDITURE 'IN RELATION TO EARNING DIVID END INCOME' HAS BEEN INCURRED. THE DISALLOWANCE OF RS.25,000/- WAS MADE SUO MOTO. NO DIVIDEND INCOME HAS BEEN EARNED DURING THE YEAR. THE APPELLANT RELIED ON THE JUDGMENTS DISCUSSED SUPRA IN SUPPORT OF ITS CONTENTION THAT NO DISALLOWANCE CAN BE MADE U/S-14A WHERE NO INCOME HAS BEEN CLAIMED EXEMPT. THE CASE LAWS CITED BY THE A/R OF THE APPELLANT HAS BEEN CAREFULL Y CONSIDERED AND IT HAS BEEN OBSERVED THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF DELITE ENTERPRISES HAS HELD THAT SINCE THERE IS NO EXEMPTED PROFIT FOR THE RELEVANT ASSESSMENT YEAR NO DISALLOWANCE U/S-14A CAN BE MADE. THE JURISDICTIONAL BENCH OF THE HON'BLE ITAT IN CASE OF AVSHESH MERCANTILE (P) LTD. HAS FOLLOWED THE ABOVE SAID JUD GMENT OF THE JURISDICTIONAL HIGH COURT. THE ALLAHABAD/GUJARAT HIGH COURT HAS ALSO DECIDED THE IDENTICAL ISSUE ON IDENTICAL LINES IN THE CASE OF SHIVAM MOTOR (P) LTD. AND CORR TECH ENERGY PVT. LTD. THE HON'BLE GUJARAT HIGH COURT HAS FOLLOWED THE JUDGMENT OF WINSOME TEXTILE INDUSTRIES DELIVERE D BY HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT. LTD. IN WHICH IT HAS BEEN HELD THAT WHERE THE APPELLANT HAS NOT CLAIMED ANY EXEMPT INCOME, NO 4 DISALLOWANCE U/S-14A CAN BE MADE. THE HON L BLE PUNJAB & HARYANA HIGH COURT HAS AGAIN DECIDED THIS ISSUE IN THE CASE OF LAKHANI MARKETING INC. THE ARGUMENT OF THE A/R O F THE APPELLANT THAT IN THE CASE OF M BHASKARAN THE CHENNAI 'B' BENCH OF THE HON'BLE ITAT HAS HELD THAT THE DEC ISION OF CHEMINVEST LIMITED OF MUMBAI BENCH STANDS OVERRULED BY THE JUDGMENTS OF VARIOUS HIGH COURTS. THE A/R OF TH E APPELLANT HAS FURTHER RELIED ON THE ORDERS OF THE D IFFERENT BENCHES OF THE HON`BLE ITAT WHICH HAVE ALSO BEEN CA REFULLY PERUSED. MOREOVER, THE LAW OF BINDING PRECEDENT PROVIDES THA T THE JUDGMENT OF THE JURISDICTIONAL BENCH OF THE HIGH COURT IS BINDING ON THE INCOME TAX AUTHORITIES WORKING IN THE TERRITORIAL JURISDICTION OF A HIGH COURT. THE REFERENCE CAN BE MADE TO THE DECISION OF THE HON I BLE BOMBAY HIGH COURT IN THE CASE OF K SUBRAMANIAN V. SIEMENS INDIA LTD.(198 3) 15 TAXMAN 594{PAGE 23 TO 24 OF JUDGMENT INDEX) THAT THE ITO IS BOUND BY THE DECISION OF A SINGLE JUDGE OR DIVISION BENCH OF THE COURT WITHIN WHOSE JURISDICTION IS OPE RATING. THE ABOVE SAID JUDGMENT HAS BEEN FOLLOWED BY THE HYDERABAD BENCH 'A' OF THE HON`BLE ITAT IN THE CASE OF KMC CONSTRUCTION LTD. (2013) 36 TAXMANN.COM 416 [PAGE 7 TO 22 OF JUDGMENT INDEX] IN WHICH IT HAS BEEN HELD AS UNDER;- 'AT THIS JUNCTURE, IT IS PERTINENT TO MENTION THE OBSERVATIONS OF THE HIGH COURT, BY PLACING RELIANCE ON THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF K. SUBRAMANIAN, ITO V. SIEMENS INDIA LTD. [1985) 156 I TR 11/15 TAXMAN 594 (BOM), WHICH ARE AS FOLLOWS. 'REFERENCE MAY ALSO BE INVITED TO THE DECISION OF THE BOMBAY HIGH COURT IN SUBRAMANIAN, ITO V. SIEMENS INDIA LTD. [1985] 156 ITR 11. THE QUESTION THAT AROSE FOR CONSIDERATION IN THIS CASE IS WHETHER THE INCOME-TAX OFFICER IS BOUND BY THE DECISION OF A SINGLE JUDGE OR A DIVISION BENCH OF THE COURT WITHIN WHOSE JURISDICTION HE IS OPERATING EVEN IF AN APPEAL HAS BEEN PREFERRED AGAINST SUCH DECISION 5 AND IS PENDING. THE FOLLOWING OBSERVATIONS OF THE B OMBAY HIGH COURT MAY BE EXTRACTED: 'SO FAR AS THE LEGAL POSITION IS CONCERNED, THE ITO WOULD BE BOUND BY A DECISION OF THE SUPREME COURT AS ALSO BY A DECISION OF THE HIGH COURT OF THE STATE WITHIN WHOSE JURISDICTION HE IS (FUNCTIONING, IRRESPECTIVE OF TH E PENDENCY OF ANY APPEAL OR SPECIAL LEAVE APPLICATION AGAINST THAT JU DGMENT (EMPHASIS SUPPLIED). RESPECTFULLY FOLLOWING THE JUDGMENT OF HON'BLE BOMB AY HIGH COURT/THE ORDERS OF JURISDICTIONAL ITAT AND ALSO TH E JUDGMENTS OF OTHER HON'BLE HIGH COURTS/BENCHES OF THE HON'BLE IT AT AND KEEPING IN VIEW THE FACTS AND LAW, SUPRA, THE A.O. IS DIRECTED TO DELETE THE DISALLOWANCE MADE U/S-14A BY THE A.O. TH E GROUND OF APPEAL NO.2 IS TREATED AS ALLOWED. 4. SIMILARLY FOR ASSESSMENT YEAR 2011-12 ALSO, LD. CIT (A) DELETED DISALLOWANCE FULLY ON THE GROUND THAT NO EX EMPT INCOME HAS BEEN RECEIVED BY THE ASSESSEE DURING THE SAID YEAR BY MA KING IDENTICAL OBSERVATION WHICH WERE MADE IN ASSESSMENT YEAR 2010-11. 5. DURING THE COURSE OF HEARING, LD. COUNSEL OF THE AS SESSEE DREW OUR ATTENTION UPON THE RELEVANT PAGES OF THE P APER BOOK AND CONTENDED THAT THE BALANCE-SHEET IN ALL THE 3 YEARS IS IN SUPPORT OF THE FACT THAT NO DIVIDEND INCOME OR EXEMPT INCOM E HAS BEEN CREDITED BY THE ASSESSEE IN THE PROFIT AND LOSS ACC OUNT. IT WAS ALSO SUBMITTED THAT NO DISALLOWANCE U/S14A CAN BE MADE I N ABSENCE OF ANY EXEMPTED INCOME. RELIANCE WAS PLACED BY HIM ON THE FOLLOWING JUDGMENTS IN SUPPORT OF HIS CLAIM. 6 SR.NO PARTICULARS PAGE NO. DISALLOWANCE U/S-14A, IF ANY, SHOULD BE RESTRICTED TO EXEMPT INCOME 1 JOINT INVESTMENTS PVT. LTD. V. CIT (372 ITR 694) 1-3 2 M/S DAGA GLOBAL CHEMICALS PVT. LTD. V. ACIT (I.T.ACT NO.5592/MUM/2012) 4-8 3 NIMBUS COMMUNICATIONS LTD. V. ACIT (I.T.NO.1424/MUM/2014 9-24 4 ACIT V. M/S CLARIDGES HOTELS PVT. LTD (I.T.ACT NO 2733/DEL/2012) 25-55 NO DISALLOWANCE IS TO BE MADE WHEN CAPITAL GAINS ARE CHARGEABLE TO TAX 5 CIT V. HOLCIM INDIA P. LTD. (272 CTR 282) (DEL. HIGH COURT) 56-62 6 SUNDARAM ASSET MANAGEMENT CO. LTD. V. DCIT (145 ITD 17) (CHENNAI) 63-73 NO DISALLOWANCE U/S. 14A WHEN NO DIVIDEND 7 INCOME IS EARNED 7 CIT V. DELITE ENTERPRISED (INCOME TAX APPEAL NO. 110 OF 2009 (BOM) 74-85 8 CHEMINVEST LTD.V. CIT (378 ITR 33) (DEL) (HIGH COURT) 86-92 9 AVSHESH MERCANTILE P. LTD. V. DCIT(26 TAXMANN.COMM43) (MUM) 93-103 10 WIND WORLD WIND FARMS (INDIA) LTD. V. DCIT (I.T. ACT NO. 2712/MUM.2014) 104-110 11 ACIT V. M. BASKARAN (152 ITD 844) (CHENNAI) 115- 116 6. LD. COUNSEL SUBMITTED THAT THE CASE WAS COVERED IN HIS FAVOUR IN VIEW OF THE AFORESAID JUDGMENT, THEREFORE, ORDER PASSED BY THE LD. IT(A)IS TO BE UPHELD. 7. PER CONTRA LD. D.R. SUBMITTED THAT ASSESSEE IS HAVI NG PREFERENCE SHARES AS PART OF INVESTMENT AS SHOWN IN THE BALANC E-SHEET, THEREFORE, IT CANNOT BE SAID THAT NO INCOME HAS ACC RUED TO THE ASSESSEE BECAUSE PREFERENCE SHARES CARRY FIXED RATE OF DIVIDEND. 8. IN RESPONSE, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT PERUSAL OF THE 8 MIS. BGH EXIM LTD. MUMBAI NO DIVIDEND INCOME HAS BEEN DECLARED BY THESE COMPA NIES ON THE PREFERENCE SHARES HELD BY THE ASSESSEE, NO INCOME HAS ACCRUED TO THE ASSESSEE. THEREFORE, LD. CIT(A) HAS DELETED THE DISALLOWANCE BASED UPON A FACTUAL FINDING. IT WAS ALSO ARGUED THAT IN THE ASSESSMENT YEAR UNDE R CONSIDERATION ALSO THE A.O. HAS NOT BROUGHT OUT ANY SUCH FACTS AND HAS NOT MENT IONED ANY SUCH THINGS TO INDICATE ANY TYPE OF RECEIPT OF EXEMPT INCOME BY TH E ASSESSEE DURING A.Y. 2010-11 & 2011-12. THEREFORE, ORDER OF THE LD. CIT(A) IS TO BE UPHELD. IT WAS ALSO SUBMITTED THAT NOTHING HAS BEEN BROUGHT ON RECORD B Y THE LD. D.R. TO SHOW THAT THE CASE OF THE ASSESSEE IS NOT SQUARELY COVERED IN ITS FAVOUR BY THE AFORESAID JUDGMENTS AS HAS BEEN RELIED UPON BY LD. CIT(A) AND HAS BEEN CITED BY THE LEARNED COUNSEL BEFORE US. 9. WE HAVE GONE THROUGH THE ORDERS PASSED BY THE A .O. AS WELL AS BY THE LD. CIT(A). IT IS NOTED THAT LD. CIT(A) RECORDED CATEGO RICAL FINDING IN HIS ORDER THAT NO EXEMPT INCOME HAS BEEN RECEIVED BY THE ASSESSEE IN A.Y. 2010-11 & 2011-12. IT HAS BEEN MENTIONED BY LD. CIT(A) THAT DIVIDEND INCO ME OF RS.37,83,000/- WAS RECEIVED DURING A.Y. 2008-09, ACCORDINGLY DISALLOWA NCE MADE UNDER SECTION 14A WAS RESTRICTED TO THE EXTENT ATTRIBUTABLE TO SAID A MOUNT. HOWEVER, IN THE REMAINING TWO YEARS SINCE NO INCOME WAS RECEIVED, D ISALLOWANCE WAS DELETED FULLY. IT IS NOTED THAT LD. CIT(A) HAS FOLLOWED VARIOUS JU DGMENTS WHEREIN IT WAS HELD THAT 9 IN CASE NO EXEMPT HAS BEEN RECEIVED BY THE ASSESSEE DURING YEAR ) THEN NO DISALLOWANCE U/S 14A READ WITH RULE 8D (2)(III) SHA LL BE REQUIRED TO BE MADE. IT IS FURTHER NOTED THAT LD. COUNSEL HAS ALSO CITED VARIO US JUDGMENTS AS REPRODUCED IN EARLIER PART OF ORDER. NO CONTRARY JUDGMENTS HAV E BEEN CITED BY THE LD. D.R. ON THIS ISSUE. THUS, TAKING FACTS AND CIRCUMSTANCES OF THE CASE AND WELL SETTLED LEGAL POSITION INTO ACCOUNT AS HAS BEEN SUBMITTED BY THE LD. COUNS EL OF THE ASSESSEE, WE FIND THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE LD. CIT(A). THUS, HIS ORDERS ARE UPHELD FOR ALL THE 3 YEARS. 10. AS A RESULT, THE APPEALS FILED BY THE REVENUE I N ALL THE THREE ASSESSMENT YEARS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/03/2017. SD/- SD /- (C.N. PRASAD) (ASHWANI TAN EJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 03 RD MARCH, 2017 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ! ( ) / THE CIT(A) 4. ! / CIT - CONCERNED 5. % , % , / DR, ITAT, MUMBAI 6. () / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI