Britannia Industries Ltd, Lucknow V. D.C.I.T Cir - 7,kolkata, Kolkata

ITA 390/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4943 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-03-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 11-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 27-02-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT SHBHRA BISWAS
• Assessee Lawyers: AKKAL DUDHWEWALA ACA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A, KO LKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM] ITA NO390/KOL/2013 ASSESSMENT YEAR : 2008-09 BRITANNIA INDUSTRIES LTD. -VERSUS- D.C.I.T., CIRCLE-7, KOLKATA KOLKATA (PAN:AABCB2066P) (APPELLANT ) (RESPONDENT) FOR THE APPELLANT : SHRI AKKAL DUDHWEWALA, ACA FOR THE RESPONDENT SHRI RAJAT SHBHRA BISWAS, CIT( DR) DATE OF HEARING : 18.02.2016. DATE OF PRONOUNCEMENT : 02.03.2016. ORDER PER SHRI N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 30.1.2013 OF CIT, KOLKATA-III, KOLKATA, PASSED U/S.263 OF THE INCOME TAX ACT, 1961 (ACT) RELATING TO AY 2008-09. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF BAKERY PRODUCTS. FOR AY 2008-09 THE ASS ESSEE FILED RETURN OF INCOME ON 29.9.2008 DECLARING TOTAL INCOME OF RS.99,74,64,581 /-. IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE AO NOTICED THAT THE ASSESSEE HAD ON HIS OWN DISALLOWED A SUM OF RS.26,07,177/- U/S.14A OF THE A CT, BEING EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO CALLED UPON THE ASSESSEE TO EXPLAIN TH E BASIS ON WHICH THE AFORESAID SUM WAS QUANTIFIED BY THE ASSESSEE. THE ASSESSEE G AVE DETAILS OF THE BASIS OF ITS QUANTIFICATION AS BELOW: ITA NO.390/KOL/2013 BRITANNIA INDUSTRIES LTD. A.YR.2008-09 2 POSITION NATURE OF EXPENSES AMOUNT ESTIMATE PERCENTAGE OF TIME DEVOTED ESTIMATED COST THAT CAN BE APPORTIONED OFFICER SALARY TELEPHONE MEDICAL PREMIUM 4,82,278 6,000 4,500 100% THEREOF RS.492,778 492,778 MANAGER SALARY TRAVELLING TELEPHONE MEDICAL PREMIUM 789,443 75,000 18,000 4,500 50% THEREOF RS.443,472 443,472 TREASURY HEAD SALARY TRAVELLING TELEPHONE MEDICAL PREMIUM 6,570,211 100,000,9000 4,500 25% THEREOF RS.1,670,928 1,670,928 TOTAL 8,063,432 2,60,178 3. THE AO WAS OF THE VIEW THAT THE CALCULATION GIVE N BY THE ASSESSEE WAS REASONABLE. HE HOWEVER WAS OF THE VIEW THAT THE TI ME DEVOTED BY THE TREASURE HEAD TOWARDS MONITORING OF INVESTMENTS AND MAINTAINING A CCOUNTING RECORDS THEREOF WAS ON THE LOWER SIDE. HE ESTIMATED THAT 40% OF THE TREAS URY HEAD TIME WAS TO BE CONSIDERED AS HAVING BEEN UTILIZED TOWARDS MONITORING OF INVES TMENTS AND MAINTAINING ACCOUNTING RECORDS THEREOF. THE DISALLOWANCE IN RE SPECT OF TREASURY HEAD WAS WORKED OUT BY THE AO AT 40% OF RS.66,83,711 VIZ., RS.26,73 ,484/-. AS A CONSEQUENCE THE DISALLOWANCE U/S.14A OF THE ACT WAS RECOMPUTED BY T HE AO AT RS.36,09,734/- IN THE ORDER DATED 24.12.2010 PASSED BY THE AO U/S.143(3) OF THE ACT. 4. THE CIT IN EXERCISE OF HIS POWERS U/S.263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO WAS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE. ACCORDING TO HIM ONCE THE BASIS OF ESTIMATION OF DI SALLOWANCE AS DONE BY THE ASSESSEE IS NOT ACCEPTED BY THE AO, THAN THE AO HAS NO OTHER OPTION BUT TO RESORT TO MAKE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES, 1962 (RULES) AND HE COULD NOT SUBSTITUTE THE ESTIMATION OF THE ASSESSEE BY HIS OWN ESTIMATION. ITA NO.390/KOL/2013 BRITANNIA INDUSTRIES LTD. A.YR.2008-09 3 4.1. TO THE SHOW CAUSE NOTICE ISSUED BY THE CIT U/S .263 OF THE ACT, THE ASSESSEE GAVE REPLY POINTING OUT THAT THE VIEW TAKEN BY THE AO WAS A POSSIBLE VIEW AND THE SAME WAS NOT ERRONEOUS OR PREJUDICIAL TO THE INTERE ST OF THE REVENUE. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPR EME COURT IN THE CASE OF MALABAR INDUSTRIAL CO. VS. CIT 243 ITR 83(SC). THE ASSESSE E ALSO SUBMITTED THAT EVEN IN A CASE WHERE THE AO REJECTS THE BASIS OF DISALLOWANCE BY AN ASSESSEE IT IS NOT NECESSARY THAT THE AO SHOULD MANDATORILY RESORT TO RULE 8D OF THE RULES FOR MAKING DISALLOWANCE U/S.14A OF THE ACT. REFERENCE WAS MAD E TO THE DECISION OF ITAT KOLKATA IN THE CASE OF BALARAMPUR CHINI MILLS LTD. VS. DCIT ITA NO.504/KOL/11 DATED 29.7.2011 FOR AY 2008-09. 4.2. THE CIT HOWEVER HELD THAT IF THE AO WAS NOT SA TISFIED WITH THE METHOD OF DISALLOWANCE U/S.14A OF THE ACT AS DONE BY THE ASSE SSEE HE HAS NO OTHER OPTION BUT TO RESORT TO MAKE DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE RULES. HE SET ASIDE THE ORDER OF THE AO AND DIRECTED THE AO TO COMPUTE DISALLOWANCE U/S.14A OF THE ACT BY APPLYING RULE 8D OF THE RULES. 5. AGGRIEVED BY THE ORDER OF THE CIT THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED COU NSEL FOR THE ASSESSEE WHO REITERATED SUBMISSIONS AS WERE MADE BEFORE CIT AND FURTHER PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. DLF LTD. (2013)31 TAXMANN.COM 158(DEL) WHEREIN IT WAS HELD THAT QUANT UM OF DISALLOWANCE TO BE MADE U/S.14A OF THE ACT WAS DEBATABLE AND THEREFORE NO P OWERS OF REVISION CAN BE EXERCISED U/S.263 OF THE ACT ON SUCH ISSUE. THE LEARNED DR RE LIED ON THE ORDER OF THE CIT. 7. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. THE PROVISIONS OF SECTION 14A OF THE ACT AS ORIGINALLY INTRODUCED AND AS AMENDED FROM TIME TO TIME AS WELL AS THE INSERTION OF RULE 8D WAS SUBJECT-MATTER OF SEVERAL DECISIONS RENDERED BY VARIOUS BENCHES OF THE ITAT AS WELL AS THE HONBLE HIGH COURTS. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. V . CIT (2011)203 TAXMAN ITA NO.390/KOL/2013 BRITANNIA INDUSTRIES LTD. A.YR.2008-09 4 364(DEL) AND THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81(BOM.) HAVE TAKEN A VIEW THAT RU LE 8D OF THE I.T. RULES WILL APPLY ONLY FOR A.YS. 2008-09 AND SUBSEQUENT ASSESSM ENT YEARS. IT HAS ALSO BEEN LAID DOWN THAT THE ASSESSEE HAS TO MAKE A CLAIM (INCLUDI NG A CLAIM THAT NO EXPENDITURE WAS INCURRED) WITH REGARD TO EXPENDITURE INCURRED FOR E ARNING INCOME WHICH IS NOT CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND ONLY IF ON AN OBJECTIVE SATISFACTION ARRIVED AT BY THE AO THAT THE CLAIM MADE BY THE AS SESSEE IS NOT CORRECT, CAN THE AO PROCEED TO APPLY THE COMPUTATIO N MODE AS SPECIFIED IN RULE 8D(2) OF THE RULES. IF THE AO COMES TO THE CONCLUSION TH AT CLAIM MADE BY THE ASSESSEE IS NOT CORRECT, IT IS ONLY THEREAFTER THAT THE AO CAN PROC EED TO MAKE THE DISALLOWANCE IN TERMS OF RULE 8D OF THE RULES. EVEN IN A CASE WHERE THE AO REJECTS THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED TO EARN THE EXEMPT INCOME, IT IS NOT MANDATORY FOR HIM TO INVOKE THE METHOD OF CALCULATI ON PRESCRIBED BY RULE 8D(2) OF THE RULES AND IS FREE TO MAKE THE DISALLOWANCE ON A NY REASONABLE BASIS. BY APPLYING THE RULE 8D OF THE RULES BLINDLY SOMETIMES ABSURD D ISALLOWANCES WOULD RESULT. IN OUR VIEW, THEREFORE WHILE EXAMINING THE CLAIM OF THE AS SESSEE REGARDING EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME INCLUDING A C LAIM THAT NO EXPENSES WERE INCURRED, THE AO IS BOUND TO TAKE NOTE OF SUCH ABSU RDITIES AND REFRAIN FROM INVOKING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBE D BY RULE 8D(2) OF THE RULES. IT IS FOR THIS REASON THAT THE SATISFACTION OF THE AO REGARDING EXPENSES INCURRED FOR EARNING EXEMPT INCOME IS TO BE OBJECTIVE SATISFACTION . IN OTHER WORDS, IT IS ONLY WHEN NO REASONABLE AND PROPER PARAMETERS FOR MAKING DISA LLOWANCE CAN BE ARRIVED AT, THAT RESORT TO RULE 8D(2) CAN BE HAD BY THE AO. RULE 8D (2) WILL THUS BE A LAST RESORT WHEN IT BECOMES IMPOSSIBLE TO ARRIVE AT A JUST CONCLUSIO N ON THE AMOUNT OF EXPENSES THAT HAS TO BE DISALLOWED AS ATTRIBUTABLE OR INCURRED IN EAR NING EXEMPT INCOME. IT CANNOT THEREFORE BE SAID THAT ONCE THE AO REJECTS THE MODE OF COMPUTATION OF DISALLOWANCE U/S.14A OF THE ACT AS MADE BY THE ASSESSEE, HE HAS NO OTHER OPTION BUT TO RESORT TO RULE 8D OF THE RULES. 8. BESIDES THE ABOVE, WE ARE ALSO OF THE VIEW THAT THE AO HAS ADOPTED ONE OF THE POSSIBLE COURSE OPEN TO HIM IN LAW. THE CIT CANNOT INVOKE JURISDICTION U/S.263 OF THE ITA NO.390/KOL/2013 BRITANNIA INDUSTRIES LTD. A.YR.2008-09 5 ACT JUST BECAUSE HE DOES NOT AGREE WITH THE VIEW OF THE AO. IN OTHER WORDS U/S.263 OF THE ACT, THE CIT CANNOT SUBSTITUTE HIS VIEW WITH TH AT OF THE AO. THE DECISION RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE CLEARL Y SUPPORTS THE STAND TAKEN BY THE ASSESSEE IN THIS REGARD. 9. WE THEREFORE HOLD THAT THE ORDER OF THE AO WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THEREFORE JURISDICT ION U/S.263 OF THE ACT OUGHT NOT TO HAVE BEEN INVOKED BY THE CIT. WE THEREFORE QUASH T HE ORDER U/S.263 OF THE ACT AND ALLOW THE APPEAL BY THE ASSESSEE. 10. IN THE RESULT APPEAL BY THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 02.03.2016. SD/- SD/- [M.BALAGANESH] [N.V.VASUDEVAN] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 02.03.2016. R.G.(.P.S.) COPY OF THE ORDER FORWARDED TO: 1. BRITANNIA INDUSTRIES LTD., C/O P.K.SARAF, 238B, A.J.C.BOSE ROAD, KOLKATA- 700020. 2 THE D.C.I.T., CIRCLE-7, KOLKATA. 3. THE CIT-III KOLKATA, 4. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES