NAVYUG KRISHI SADHAN P.LTD, MUMBAI V. ACIT 9(2), MUMBAI

ITA 3708/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62291 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P C MAURYA
• Assessee Lawyers: B P PUROHIT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHIRI G.E. VEERABHADRAPPA, HONBLE PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. : 3708/MUM/2011 ASSESSMENT YEAR : 2008-09 M/S. NAVYUG KRISHI SADHAN PVT. LTD. ASPEE HOUSE, B.J. PATEL MARG, MALAD (W), MUMBAI-400 064 PAN NO: AAACN 2326 D VS. ACIT 9(2), AAYKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI B. P. PUROHIT RESPONDENT BY : SHRI P. C. MAURYA DATE OF HEARING : 0 7 .03.2012 DATE OF PRONOUNCEMENT : 13 .0 4 .2012 ORDER PER AMIT SHUKLA (J.M.) : THIS APPEAL HAS BEEN FILED BY THE APPELLANT AGAINS T ORDER DATED 14.03.2011 PASSED BY CIT(A)-20, MUMBAI FOR THE QUAN TUM OF ASSESSMENT FOR THE ASSESSMENT YEAR 2008-09, ON THE FOLLOWING G ROUND OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES O THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOW ANCE MADE BY THE AO APPLYING PROVISIONS OF SECTION 14A READ W ITH RULE 8D ON GROSS INTEREST OUTGOING INSTEAD OF ON THE INT EREST EXPENSES (NET INTEREST PAID). RULE 8D AND SECTION 1 4A ARE APPLICABLE ON RELEVANT EXPENSES AND NOT GROSS OUT GOINGS. YOUR APPELLAT THEREFORE HUMBLY PRAYS THAT THE DISAL LOWANCE BE RESTRICTED TO INTEREST EXPENSES AND THE EXCESS DISA LLOWANCE MADE BY THE AO MAY BE DELETED. ITA NO : 3708/MUM/2011 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 2 2. DURING THE COURSE OF THE HEARING, THE APPELLANT HAS ALSO RAISED FOLLOWING ADDITIONAL GROUND FOR ADJUDICATION. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW DISALLOWANCE OF INTEREST U/S.14A READ WITH RULE 8D CANNOT BE MADE IN VIEW OF THE FACT THAT THE APPELLANT HAD INT EREST FREE FUNDS OF HIS OWN MORE THAN THE AMOUNT OF INVESTMENT . THE DISALLOWANCE OF INTEREST MAY THEREFORE BE DELETED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF AGRICU LTURAL EQUIPMENTS AND IMPLEMENTS. DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, THE ASSESSING OFFICER TOOK NOTE OF THE FACT THAT IT HAD RECEIVED DIVIDEND INCOME OF `. 3,53,800/- WHICH WAS CLAIMED AS EXEMPT INCOME. THE ASSESSING OFFICER, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS WHY THE PROVISIONS OF SECTION 14A READ WITH RULE 8D, MAY NO T BE INVOKED FOR DISALLOWING THE EXPENDITURE IN RESPECT OF SUCH EXEM PT INCOME. IN RESPONSE, THE APPELLANT SUBMITTED THAT NO EXPENSES DIRECTLY OR INDIRECTLY RELATING TO THE EARNING OF DIVIDEND INCOME HAVE BEE N SPENT. THE LEARNED ASSESSING OFFICER HOWEVER, REJECTED THE EXPLANATION OF THE ASSESSEE AFTER RELYING UPON THE JURISDICTIONAL HIGH COURT JUDGEMEN T IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT REPORTED IN 328 ITR 81, AND HELD THAT THE EXPENSES HAS TO BE DISALLOWED U/S.14A IN ACCORDANCE WITH RULE 8D. ACCORDINGLY, HE WORKED OU T THE TOTAL DISALLOWANCE OF RS.4,06,757/- AS PER THE COMPUTATIO N MADE IN PAGE 3 OF THE ASSESSMENT ORDER. 4. IN THE FIRST APPEAL, THE ASSESSEES CONTENTION W AS THAT FIRSTLY, THERE IS NO DIRECT OR INDIRECT NEXUS BETWEEN THE DIVIDEND EARNED AND EXPENSES DISALLOWED BY THE ASSESSING OFFICER AND SECONDLY, W ITHOUT PREJUDICE, ONLY NET INTEREST I.E. AFTER SETTING OFF INTEREST RECEIP T AGAINST INTEREST EXPENSES, SHOULD CONSIDERED IN THE FORMULA GIVEN IN RULE 8D. HOWEVER, SUCH A PLEA HAS BEEN REJECTED BY THE CIT(APPEALS). ITA NO : 3708/MUM/2011 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 3 5. DURING THE COURSE OF HEARING, THE LEARNED AR APP EARING ON BEHALF OF THE ASSESSEE MADE A PRAYER THAT THE ADDITIONAL G ROUND AS HAVE BEEN RAISED SHOULD BE ADMITTED, AS ALL THE FACTS RELEVAN T FOR ADJUDICATION OF ISSUE ARE AVAILABLE FROM THE RECORDS AND NO FRESH I NVESTIGATION OF FACTS ARE REQUIRED. 6. THE LEARNED SR. DR RELYING ON THE ORDERS OF THE AUTHORITIES BELOW CONTENTED THAT IF SUCH AN ADDITIONAL GROUND HAS BEE N RAISED, THE SAME SHOULD BE RESTORED BACK TO THE ASSESSING OFFICER FO R PROPER ADJUDICATION, AS IT INVOLVES VERIFICATION OF THE FACTS. 7. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AND ALSO CONSIDERED THE ADDITIONAL GROUND RAISED BY THE APPELLANT. LOO KING TO THE FACT THAT THE ADDITIONAL GROUND GOES TO THE VERY ROOT OF THE ISSUE OF DISALLOWANCE U/S.14A READ WITH RULE 8D, WE ACCORDINGLY ADMIT THE SAME. HOWEVER, WE AGREE WITH THE CONTENTION OF THE LEARNED DR THAT THIS REQUIRES VERIFICATION OF FACTS BY THE ASSESSING OFFICER WHET HER THE APPELLANT HAD INTEREST FREE FUNDS OF ITS OWN TO MAKE THE INVESTME NTS OR NOT. OTHERWISE ALSO THE ASSESSING OFFICER HAS NOT CONSIDERED THE F UND FLOW STATEMENT AND HAS NOT EXAMINE THE INTEREST COMPONENT SO AS TO SEE WHETHER THE BORROWED FUNDS HAVE BEEN UTILISED FOR THE PURPOSE O F INVESTMENT OR NOT, AS IT WILL HAVE DIRECT NEXUS WITH THE DISALLOWANCE U/S.14A READ WITH RULE 8D. THE ENTIRE MATTER IS, THEREFORE, RESTORE BACK TO THE FILE OF THE ASSESSING OFFICER WHO WILL EXAMINE THE ISSUE AFRESH AFTER TAKING INTO CONSIDERATION THE AVAILABILITY OF FUNDS, EXPENDITUR E INCURRED AND THE GROUND RAISED IN THE ADDITIONAL GROUND. NEEDLESS T O SAY THAT THE ASSESSING OFFICER WILL GIVE DUE AND EFFECTIVE OPPOR TUNITY TO THE APPELLANT TO MAKE ITS REPRESENTATION AND CALL FOR SUCH RECORD S AS MAY BE DEEM FIT FOR EXAMINING THIS ISSUE. ITA NO : 3708/MUM/2011 M/S. NAVYUG KRISHI SADHAN PVT. LTD. 4 8. IN THE RESULT, THE APPEAL FILED BY THE APPELLANT IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 13 TH DAY OF APRIL, 2012. S D/ - S D/ - ( G. E. VEERABHADRAPPA ) ( AMIT SHUKLA ) PRESIDENT JUDICIAL MEMBER MUMBAI, DT: 13.04.2012 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI