LAVGAN DOCKYARD P.LTD, MUMBAI V. ITO 9(2)(2), MUMBAI

ITA 3716/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75265 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-01-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 25-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S J SINGH
• Assessee Lawyers: S N INAMDAR; M C NANIWADEKAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE S/SHRI B.R.MITTAL,(JM) AND N.K.BILLAIYA (AM ) . . , . . , ./I.T.A.NO.7197/MUM/2011 AND ITA NO.3716/MUM/2012 ( / ASSESSMENT YEARS: 2008-09 & 2009-10) LAVGAN DOCKYARD PVT LTD. BHAKTWARAR, 4 TH FLOOR, NARIMAN POINT, MUMBAI-400021. / VS. INCOME TAX OFFICER 9 ( 2 )( 2 ) , AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ./ ./PAN/GIR NO. : AAACL6788P ( ' / APPELLANT) .. ( ( ' / RESPONDENT) ' / APPELLANT BY : S/SHRI S N INAMDAR AND M C NANIWADEKAR ( ' * /RESPONDENT BY : SHRI S J SINGH * - / DATE OF HEARING : 2.1.2014 * - /DATE OF PRONOUNCEMENT : 8.1.2014 / O R D E R PER B.R.MITTAL, JM THESE TWO APPEALS ARE FILED BY ASSESSEE AGAINST TH E ORDER OF LD. CIT(A) DATED 8.8.2011 FOR ASSESSMENT YEAR 2008-09 AND DATED 14.3 .2012 FOR ASSESSMENT YEAR 2009- 10 ON SIMILAR GROUNDS DISPUTING THE DISALLOWANCE/AD DITION CONFIRMED BY LD. CIT(A) OF RS.14,24,975/- AND RS.8,05,315/- U/S 14A OF THE INC OME TAX ACT, 1961 (THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RU LES) RESPECTIVELY FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10. 2. LD. REPRESENTATIVES OF THE PARTIES SUBMITTED THA T THE ISSUE AND FACTS ARE IDENTICAL FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. HENCE, WE HAVE HEARD BOTH THE APPEALS TOGETHER AND DISPOSE OF THE SAME BY THIS CO MMON ORDER, FOR THE SAKE OF CONVENIENCE. 3. RELEVANT FACTS FOR THE ASSESSMENT YEAR 2008-09 ARE THAT THE ASSESSEE MADE AN INVESTMENT OF RS.28,71,26,035/- AS ON 31.3.2008 IN SHARES AND SECURITIES AND EARNED DIVIDEND INCOME OF RS.41,19,051/- WHICH IS EXEMPT U/S 10(34) OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO STATED THA T THE ASSESSEE HAS NOT ALLOCATED ANY EXPENSES FOR EARNING EXEMPT DIVIDEND INCOME. THE AO CONSIDERING THE FACTS THAT ITA NO.7197/MUM/2011 ITA NO.3716/MUM/2012 2 THE ASSESSEE HAS NOT CLAIMED ANY INTEREST, WORKED O UT THE DISALLOWANCE AS PER RULE 8D OF THE RULES AT THE RATE OF 0.5% OF AVERAGE INVES TMENT WHICH COMES TO RS.14,24,975/-. AO STATED THAT AS PER THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (2010) 328 ITR 81 (BOM) RULE 8D IS APPLICABLE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS. THE LD. CIT(A) ALSO CONFIRMED THE ACTION OF AO. 4. SIMILARLY, FOR THE ASSESSMENT YEAR 2009-10, THE AO MADE DISALLOWANCE UNDER RULE 8D READ WITH SECTION 14A OF THE ACT AT THE RAT E OF 0.5% OF THE AVERAGE INVESTMENT WHICH COMES TO RS.8,05,315/- BY CONSIDERING THAT T HE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.35,61,668/- WHICH IS EXEMPT U/S 10(34 ) AND 10(35) OF THE ACT. LD. CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE AO. 5. HENCE, THE ASSESSEE IS IN FURTHER APPEALS BEFOR E US. 6. DURING THE COURSE OF HEARING, THE LD. AR SUBMITT ED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE ON ACCOUNT OF MAKING AFOR ESAID INVESTMENT IN THE SHARES AND SECURITIES. HE FURTHER SUBMITTED THAT IN THE AS SESSMENT YEAR 2009-10, THERE IS A CAPITAL GAIN AND THE ASSESSEE PAID TAXES THEREON. HE FURTHER SUBMITTED THAT THE AO HAS NOT RECORDED ANY SATISFACTION THAT THE ACCOUNT OF THE ASSESSEE ARE NOT CORRECT BEFORE INVOKING THE PROVISIONS OF RULE 8D TO WORK OUT TH E EXPENDITURE. LD.AR REFERRED THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN THE CASE O F J K INVESTORS (BOMBAY) LTD V/S ACIT (OSD) IN ITA NO.7858/MUM/2011 (AY-2008-09) DA TED 13.3.2013 AND SUBMITTED THAT THE AO BEFORE INVOKING THE PROVISIONS OF RUL E 8D HAS TO SATISFY THAT HE IS NOT SATISFIED IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. HE SUBMITTED THAT THE TRIBUNAL RELIED ON THE DECISION OF HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD (SUPRA). LD. AR SUBMITTED THAT THE DISALLOWANCE MADE BY AUTHORITIES BELOW AS PER RULE 8D IS NOT JUSTIFIED . 7. ON THE OTHER HAND, LD. DR SUBMITTED THAT THE AS SESSEE HAS NOT STATED THAT HE HAS DISALLOWED ANY EXPENDITURE ON ACCOUNT OF MAKIN G AFORESAID INVESTMENT. HE SUBMITTED THAT RULE 8D CAN BE APPLIED WHEN NO EXPE NDITURE IS CLAIMED TO EARNED EXEMPT INCOME AND REFERRED SECTION 14A(3) OF THE AC T. HE SUPPORTED THE ORDER OF LD. CIT(A). ITA NO.7197/MUM/2011 ITA NO.3716/MUM/2012 3 8. WE HAVE CAREFULLY CONSIDERED THE ORDERS OF AUTH ORITIES BELOW AND THE SUBMISSIONS OF LD. REPRESENTATIVES OF THE PARTIES. WE HAVE ALSO CONSIDERED THE ORDER OF ITAT DATED 13.3.2013 (SUPRA). WE AGREE WITH THE LD . AR THAT NO SUCH SATISFACTION HAS BEEN RECORDED BY THE AO IN REGARD TO THE CORRECTNES S OF THE CLAIM OF THE ASSESSEE BEFORE INVOKING THE PROVISIONS OF RULE 8D OF THE R ULES WHICH IS REQUIRED AS PER SUB- SECTION(2) OF SECTION 14A OF THE ACT. FURTHER, IT IS ALSO A FACT THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVESTMENT IN THE SHARES AND SECUR ITIES AND THE INCOME THERE FROM IS EXEMPT U/S 10(34)/10(35) OF THE ACT. IT IS A FAC T THAT THE ASSESSEE MUST HAVE SPENT SOME ADMINISTRATIVE EXPENSES TO MAKE AFORESAID IN VESTMENT, IRRESPECTIVE OF THE FACT THAT THE SAID INVESTMENT HAVE BEEN MADE THROUGH POR TFOLIO MANAGEMENT. WE AGREE WITH THE LD. AR THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE TOWARDS THE INTEREST IN ITS PROFIT AND LOSS ACCOUNT FOR BOTH THE ASSESSM ENT YEARS UNDER CONSIDERATION. IT IS NOT IN DISPUTE THAT RULE 8D IS APPLICABLE FROM TH E ASSESSMENT YEAR 2008-09 AND ONWARDS. CONSIDERING THE FACTS OF THE CASE AND TH E INVESTMENT MADE BY ASSESSEE IN SHARES AND SECURITIES IN BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION, AND THE FACTS THAT THE AO HAS NOT STATED BEFORE INVOKING THE RU LE 8D THAT HE IS NOT SATISFIED WITH THE CORRECTNESS IN RESPECT OF THE ACCOUNT OF THE ASSES SEE, WE CONSIDER IT PRUDENT TO RESTORE THIS ISSUE TO THE FILE OF THE AO BY SETTING ASIDE THE ORDERS OF AUTHORITIES BELOW WITH A DIRECTION TO CONSIDER AND DECIDE THE ISSUE AFRESH AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE ASSESSEE BY A REASONED ORDER AS PER LAW. HENCE, WE SET ASIDE THE ORDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FILE OF AO FOR HIS FRESH CONSIDERATION BY A REASONED ORDER IN ACCORDANCE WIT H LAW AFTER GIVING DUE OPPORTUNITY OF HEARING TO THE PARTIES. THEREFORE, GROUNDS OF APP EAL TAKEN BY ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE ALLOWED FOR STATISTICAL PURPOS E. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH DAY OF JANUARY, 2014 * 1 2 8 TH DAY OF JANUARY, 2014 * SD/- SD/- ( . . /N.K.BILLAIYA ) ( . . /B.R.MITTAL) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI : 8/ 1/2014 . . ./ SRL , SR. PS ITA NO.7197/MUM/2011 ITA NO.3716/MUM/2012 4 ! / COPY OF THE ORDER FORWARDED TO : 1. ' / THE APPELLANT 2. ( ' / THE RESPONDENT. 3. > ( ) / THE CIT(A)- 4. > / CIT 5. ? (A , - A , / DR, ITAT, MUMBAI 6. / GUARD FILE. / BY ORDER, (ASSTT. REGISTRAR) - A , /ITAT, MUMBAI