CEBON APPAREL PVT LTD., MUMBAI V. ACIT CIR 6 (2), MUMBAI

ITA 3765/MUM/2010

• Counselvise Citation: 376519914 RSA 2010
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGRAWAL
• Assessee Lawyers: S S PAREKH; K V PANCHMATIA
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI D. K.AGARWAL (JM) AND SHRI RAJENDRA SI NGH(AM) ITA NO.3765/M/2010 ASSESSMENT YEAR 2007-08 M/S. CEBON APPAREL PVT. LTD. THE ACIT CIRCLE-6(2) , AAYAKAR BHAVAN UNIT NO.1, NIRMAN KENDRA MAHARSHI KARVE MARG, MUM BAI 400 020. DR. E.MOSSES ROAD, MAHALAXMI, MUMBAI 400 011. PAN : AAACC2088B APPELLANT RESPONDENT ASSESSEE BY : MS. S.S.PAREKH & MR. K.V. PANCHMATIA REVENUE BY : SHRI L.K.AGRAWAL ORDER PER RAJENDRA SINGH (AM) THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 19.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08 . THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING DISALLO WANCE OF EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME UNDER SECTION 14A OF THE INCOME-TAX ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED TAX FREE DIVIDEND INCOME OF RS.1,50,04,826/- AND LONG TERM CAPITAL GA IN OF RS.3,23,33,956/- FROM SALE OF INVESTMENTS. AO THEREFORE DISALLOWED T HE EXPENSES IN RELATION TO THE SAID EXEMPT INCOME WHICH WERE COMPUTED UNDER TH E PROVISIONS OF RULE 8D AMOUNTING TO RS.6,38,291/-. IN APPEAL CIT(A) CONFIR MED THE ORDER OF AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 2 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOW ANCE OF EXPENSES RELATING TO EXEMPT INCOME I.E. DIVIDEND INCOME AND LONG TERM CA PITAL GAIN UNDER THE PROVISIONS OF SECTION 14(2) AND 14(3). DISALLOWANCE OF EXPENSES IN RELATION TO EXEMPT INCOME HAS TO BE COMPUTED AS PER PROCEDURE P RESCRIBED BY THE GOVERNMENT. THE GOVERNMENT THEREAFTER PRESCRIBED TH E METHOD IN THE FORM OF RULE 8D FOR COMPUTATION OF EXPENSES IN RELATION TO EXEMPT INCOME. EARLIER THE SPECIAL BENCH OF THE TRIBUNAL IN CASE OF DAGA CAPIT AL MANAGEMENT CO. PVT. LTD. (117 ITD 169) HAD HELD THAT RULE 8D WAS RETROSPECTI VE IN APPLICATION AND HAD TO BE APPLIED TO THE EARLIER YEARS ALSO. THE SAID VIEW OF THE SPECIAL BENCH HAS HOWEVER NOT BEEN UPHELD BY THE HONBLE HIGH COURT O F MUMBAI IN CASE OF GODREJ BOYCE AND MANUFACTURING CO. LTD. (328 ITR 81 ) IN WHICH IT HAS BEEN HELD THAT RULE 8D WOULD APPLY ONLY FROM A.Y.2008-09 . IN RELATION TO THE PRIOR YEARS THE HONBLE HIGH COURT HELD THAT DISALLOWANCE OF EXPENSES BOTH DIRECT AND INDIRECT HAS TO BE MADE ON REASONABLE BASIS AFT ER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSMENT YEAR INVOLV ED IN THE PRESENT APPEAL IS A.Y.2007-08 AND THEREFORE RULE 8D CANNOT BE APPLIED . WE THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER TO THE F ILE OF AO FORE FRESH DECISION AFTER NECESSARY EXAMINATION IN THE LIGHT OF JUDGMEN T OF HONBLE HIGH COURT OF MUMBAI IN CASE OF GODREJ BOYCE MANUFACTURING CO. LT D. (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 3 4. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 0.05.2011. SD/- SD/- ( D. K. AGARWAL ) (RAJENDRA SIN GH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE : 20.05.2011 AT :MUMBAI COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A), MUMBAI CONCERNED 4. THE CIT, MUMBAI CITY CONCERNED 5. THE DR C BENCH, ITAT, MUMBAI // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ALK