M/s Munjal Sales Corporation, Ludhiana V. Addl. CIT, Ludhiana

ITA 374/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5387 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: S S KHEMWAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 374/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S MUNJAL SALES CORPORATION, V THE ADDL. CIT , LUDHIANA RANGE V, LUDHIANA PAN NO. AAIFM3750F (APPELLANT) (RESPONDENT) APPELLANT BY : NONE RESPONDENT BY: SHRI S.S.KHEMWAL ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A)-II, LUDHIANA DATED 24.2.2011 RELATING TO ASSESSMENT YE AR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ONLY GROUND OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER;- THAT THE LD. CIT(A)-II LUDHIANA HAS WRONGLY CONFIRMED ADHOC DISALLOWANCE OF INDIRECT EXPENSES AT RS. 50,000/- UNDER RULE 8D. 3. DESPITE SERVICE OF NOTICE, NONE APPEARED ON BEHA LF OF THE ASSESSEE AND LOOKING AT THE ISSUE INVOLVED, THE MATTER WAS CONSIDERED AFTER HEARING THE LD. DR FOR THE REVENUE. 4. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS I N CONNECTION WITH DISALLOWANCE OF RS. 50,000/- ON ACCOUNT OF INDIRECT EXPENSES RELATABLE TO THE EARNING OF EXEMPT INCOME. THE ASSESSING OFFICE R NOTED THE ASSESSEE 2 TO HAVE SHOWN DIVIDEND INCOME OF RS. 3.35 CRORES. AS PER THE BALANCE SHEET, THE INVESTMENT IN EQUITY ON WHICH INTEREST F REE INCOME WAS REFLECTED WAS RS. 12.97 CRORES AS ON 31.3.2006 AND RS. 6.81 CRORES AS ON 31.3.2007. THE ASSESSEE HAD CLAIMED THE DIVIDEND I NCOME AS EXEMPT UNDER THE PROVISIONS OF SECTION 10(34) / 10(35) OF THE ACT. THE ASSESSING OFFICER INVOKING THE PROVISIONS OF SECTION 14A OF T HE ACT, SHOW CAUSED THE ASSESSEE TO POINT OUT THE EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME. THE EXPLANATION OF THE A SSESSEE WAS THAT THERE WERE NO FRESH INVESTMENTS IN SHARES DURING THE YEAR AND ONLY EIGHT DIVIDEND WARRANTS WERE RECEIVED DURING THE YEAR UND ER CONSIDERATION. IT WAS CLAIMED THAT NO EXPENDITURE WAS INCURRED IN REL ATION TO THE SAID INVESTMENT DURING THE YEAR. THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE AND APPLYING RULE 8-D O F INCOME TAX RULES COMPUTED THE DISALLOWANCE AT RS. 4,94,720/- BEING E XPENSES RELATABLE TO THE EARNING OF DIVIDEND INCOME. THE CIT(A) FOLLOWI NG THE ORDER OF HIS PREDECESSOR RELATING TO ASSESSMENT YEAR 2006-07, RE STRICTED THE DISALLOWANCE TO RS. 50,000/- HOLDING THAT RULE 8-D WAS NOT APPLICABLE TO THE YEAR UNDER APPEAL. THE DISALLOWANCE WAS MADE I N VIEW OF THE PAST HISTORY OF DISALLOWANCE MADE BY THE ASSESSING OFFIC ER IN EARLIER YEARS I.E. ASSESSMENT YEARS 2002-03, 2004-05 & 2005-06. THE A SSESSEE IS IN APPEAL AGAINST THE SAID DISALLOWANCE OF RS. 50,000/-. 6. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS IN CONNECTION WITH DISALLOWANCE OF EXPENSES UNDER RULE 8-D OF THE ACT. ADMITTEDLY, THE PROVISIONS OF RULE 8-D ARE NOT APPLICABLE TO THE YE AR UNDER APPEAL. THE CONSTITUTIONAL VALIDITY OF SECTION 14A(2)&(3) OF I. T.ACT AND RULE 8D OF THE INCOME TAX RULES WAS CHALLENGED BEFORE THE HON 'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG.CO.LTD V DCIT & ANR, [ 234 CTR 1 (BOM)]. THE COURT HELD THAT THE PROVISIONS OF RULE 8D WERE NOT ULTRA 3 VIRUS THE PROVISIONS OF SECTION 14A AND IT WAS ALSO HELD THAT THE SAME DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION. IT W AS FURTHER HELD THAT THE PROVISION OF RULE 8D WAS TO BE APPLIED PROSPECT IVELY W.E.F. 01.04.2007 I.E. IN RELATION TO ASSESSMENT YEAR 2008 -09 AND SUBSEQUENT YEARS AS THE MEMORANDUM EXPLAINING THE PROVISIONS O F THE FINANCE BILL 2006 STATES THAT THIS AMENDMENT WOULD TAKE EFFECT F ROM 01.04.2007. THE COURT FURTHER HELD THAT EVEN IN THE ABSENCE OF SUB-SECTION (2) AND (3) OF SECTION 14A AND RULE 8D, THE ASSESSING OFFIC ER WAS NOT PRECLUDED FROM MAKING APPORTIONMENT ON ACCOUNT OF E XPENDITURE RELATABLE TO EARNING OF EXEMPT INCOME. 7. THE CIT(A) WHILE DECIDING THE PRESENT ISSUE HAD ALSO OBSERVED THAT THE PROVISIONS OF RULE 8-D WERE NOT APPLICABLE BUT HAD DISALLOWED A SUM OF RS. 50,000/- BEING RELATABLE TO THE EARNING OF E XEMPT INCOME. 8. FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE BO MBAY HIGH COURT, WE UPHOLD THE DISALLOWANCE OF RS. 50,000/- BEING EX PENDITURE RELATABLE TO THE EARNING OF THE EXEMPT INCOME BY INVOKING THE PR OVISIONS OF SECTION 14A OF THE ACT. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS DISMISSED . 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 4