JYOTI CERAMAIC INDUSTRIES P.LTD, MUMBAI V. DCIT 5(2), MUMBAI

ITA 3967/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7950 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-01-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: REJESH KUMAR YADAV
• Assessee Lawyers: AJAY R SINGH
• Keywords: Earning of tax free income
• Section: 143(3); 5(2); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3967/MUM/2016 ASSESSMENT YEAR: 2006 - 07 J Y OTI CERAMIC INDUSTRIES PVT. LTD. ; B - 603, PAREL UDYAN CO - OP HSG SOC LTD., 25, PARK ROAD, VILE PARLE (E), MUMBAI - 400057 VS. DCIT - 5(2) 5 TH FLOOR, ROOM NO. 518, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAACJ0247P APPELLANT RESPONDENT ASSESSEE BY : MR. AJAY R. SINGH , AR REVENUE BY : MR. REJESH KUMAR YADAV , DR DATE OF HEARING : 2 5 /09/2017 DATE OF PRONOUNCEMENT : 13/12/2017 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVANT ASSESSMENT YEAR IS 2006 - 07 . THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISS IONER OF INCOME TAX (APPEALS) - 10 , MUMBAI AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) R.W.S 254 OF THE INCOME TAX ACT 1961, (THE ACT). 2. THE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AGAINST THE ORDER OF THE LD. CIT(A) ESTIMATING 5% OF THE EXEMPT INCOME AS CONSISTENT AND REASONABLE METHOD FOR COMPUTING DISALLOWANCE U/S 14A INSTEAD OF RS.2,13,075/ - CLAIMED BY THE ASSESSEE IN ITS RETURN OF INCOME. JYOTI CERAMIC ITA NO. 3967/MUM/2016 2 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER (AO) FOUND THAT THE ASSESSEE HAS EARNED EXEMPT INCOME ON ACCOUNT OF DIVIDEND, TAX FREE BONDS AND LONG TERM CAPITAL GAIN ON SALE OF SHARES AND MUTUAL FUNDS AMOUNTING TO RS.5 ,20,82,668/ - . THE DETAILS ARE AS UNDER: DIVIDENDS RS. 4,73,99,378 / - TAX - FREE INTEREST ON BONDS RS. 7,05,075 / - LTCG RS. 39,78,215 / - TOTAL RS. 5,20,82,68 / - WHILE FILING THE RETURN OF INCOME, THE ASSESSEE HAS SUO MOTU DISALLOWED RS.2,13,075/ - U/S 14A BEING EXPENDITURE INCURRED TO EARN EXEMPT INCOME. THE AO WAS NOT CONVINCED TO THE ABOVE EXPLANATION OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D AT RS.27,99,532/ - . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE ITAT BENCH, CHENNAI IN THE CASE OF CELEBRITY FASHIONS LTD. (ITA NO. 1318 AND 1319/MDS/2011 DATED 30.04.2012) AND DIRECTED THE AO TO ESTIMATE T HE EXEMPT INCOME @ 5% AND DISALLOW THE SAME U/S 14A. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS IT HAS ALREADY DISALLOWED RS.2,13,075/ - IN ITS RETURN OF INCOME. HE PLEADS THAT AS THE IMPUGNED ASSESSMENT YEAR IS MUCH EARLIER TO THE INSERTION OF RULE 8D, THE DISALLOWANCE MADE BY THE ASSESSEE BE ACCEPTED BY THE AO AS IT IS BASED ON PROPER CALCULATION. ON THE OTHER HAND, THE LD. DR SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). JYOTI CERAMIC ITA NO. 3967/MUM/2016 3 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIA LS ON RECORD . THE ISSUE IN THE INSTANT APPEAL RELATES TO THE AY 2006 - 07. WE NOTICE THAT RULE 8D WAS NOTIFIED BY CBDT BY THE IT (5 TH AMENDMENT) RULES 2008 W.E.F. 24.03.2008. THUS IT IS NOT APPLICABLE FOR THE IMPUGNED ASSESSMENT YEAR. IN A SIMILAR SITUATION IN THE DECISION OF GODREJ AGROVET LTD. VS. ACIT (ITA NO. 1629/MUM/2009 DATED 17 SEPTEMBER 2010) (REFER PAGE NO. TO OF PAPER BOOK), THE HONBLE MUMBAI ITAT HAVE RESTRICTED THE DISALLOWANCE U/S 14A TO 2% OF THE TOTAL EXEMPT INCOME. THE ABOVE CONTENTION OF THE TRIBUNAL HAS ALSO BEEN ACCEPTED BY HONBLE BOMBAY HIGH COURT VIDE THEIR ORDER DATED 08.01.2012 IN IT APPEAL 934 OF 2011 IN THE CASE OF GODREJ AGROVET LTD . THE OBSERVATIONS OF THE HONBLE HIGH COURT ARE AS UNDER: 4. SO FAR AS Q UESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.09.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPOND ENT ASSESSEE ON THE BASIS ITS ORDER DATED 27.02.2009 FOR THE ASSESSMENT YEAR 2003 - 04 AND 2004 - 05 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER, THE TRIBUNAL HAS REMANDED THE MATTER TO THE ASSESSING OFFICER TO VERIFY THE DISALLOW ANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. 7. FACTS BEING SIMILAR, WE FOLLOW THE ABOVE DECISION OF THE HONBLE BOMBAY HIGH COURT AND DIRECT THE AO TO VE RIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE TO 2% OF THE TOTAL EXEMPT INCOME. JYOTI CERAMIC ITA NO. 3967/MUM/2016 4 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/12/2017. SD/ - SD/ - (MAHAVIR SINGH) (N. K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 13/12/2017 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI