ACIT 11(1), MUMBAI V. VINOD CHOPRA FILMS P. LTD, MUMBAI

ITA 4019/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49620 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HIRO RAI
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, F BENCH, MUMBAI. BEFORE SHRI D.K.AGARWAL, JUDICIAL MEMBER AND SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER I.T.A NO.4019/ MUM/2010 ASSESSMENT YEAR: 2007-08 ACIT 11(1) .. APPELLANT R.NO.439, AAYAKAR BHAVAN, M.K.MARG, MUMBAI-20 VS VINOD CHOPRA FILMS P.LTD. ,. RESPONDEN T BHAGTANI KRISHNAG, FLAT NO.R.H.2-A, WING, 16-C, DATTATRAY ROAD, SANTACRUZ(W), MUMBAI. PA NO.AACCV 3996 M APPEARANCES: P.C. MAURYA, FOR THE APPELLANT HIRO RAI, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED Q UESTION CORRECTNESS OF CIT(A)S ORDER DATED 3 RD MARCH,, 2010, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELE TE THE DISALLOWANCE MADE U/S.14A OF THE ACT, IGNORING THE F ACT THAT THE ASSESSEE EARNED EXEMPTED INCOME AND INCURRED DIRECT AND INDIRECT EXPENSES TO EARN THE SAID EXEMPTED INCOME. 2. BRIEFLY STATED THE RELEVANT MATERIAL FACTS ARE LIK E THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FILM PRODUCTION. DURING THE RELEVA NT ASSESSMENT YEAR, THE ASSESSEE I.T.A NO.4019/ MUM/2010 ASSESSMENT YEAR: 2007-08 2 HAD INVESTMENT INCOMES, WHICH WERE NOT INCLUDIBLE IN THE TOTAL INCOME. THE ASSESSING OFFICER INVOKED RULE 8D R.W.S.14A OF THE ACT AND COMPUTED THE DISALLOWANCE UNDER SECTION 14A IN RESPECT OF EXPENDITU RE INCURRED FOR MAKING THESE INVESTMENTS. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). THE CIT(A) GAVE A CATEGORICAL FINDING THAT NO INTER EST EXPENSES WERE INCURRED IN RESPECT OF MAKING THE INVESTMENTS IN QUESTION AS INVESTM ENTS WERE MADE OUT OF EARNINGS OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEA R. IT WAS NOTED BY THE CIT(A) THAT THE INVESTMENTS MADE BY THE ASSESSEE ARE OUT OF OWN FUNDS I.E. REALIZATIONS ON ACCOUNT OF SALE OF THE FILMS LAGE RAH O MUNNABHAI AND EKLAVYA AND NO INTEREST BEARING FUNDS WERE UTILIZED FOR MAKING THE E XEMPT INVESTMENTS. IT WAS ALSO NOTED THAT THE FILM LAGE RAHO MUNNABHAI WAS HUGE SUC CESS AND THIS FILM ALONE HAD GENERATED SURPLUS CASH AMOUNTING TO RS. 79.98 CRORES. RELYING ON THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD., 313 ITR 340(BOM), THE CIT(A) WAS OF THE VIEW T HAT WHEN SUFFICIENT INTEREST FREE FUNDS WERE AVAILABLE, PRESUMPTION IS TO BE TAKEN THAT THE INVESTMENTS ARE MADE OUT OF OWN FUND AND IN ANY EVENT, ACCORDING TO THE CIT(A), AS THE INVESTMENTS WERE MADE FROM SURPLUS FUNDS, IT CANNOT BE SAID THAT ANY OF THE INTEREST EXPENSES INCURRED BY THE ASSESSEE WERE RELATABLE TO THE INVESTMENTS MADE. IT WAS IN THIS BACKGROUND THAT THE CIT(A) DELETED THE ENTIRE IMPUGNED DISALLOWANCE OF RS. 81,68,658 MADE UNDER SECTION 14A OF THE ACT. AGGRIEVED, THE ASSESSING OFFICE R IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE HAVE NOTED THAT THE CIT(A) HAS CATEGORICALLY STATED IN THE IMPUGNED ORDER THAT NO INTEREST BEARING FUNDS OF THE ASSESSEE WER E UTILIZED TO MAKE TAX EXEMPT INVESTMENT. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO CONTROVERT THESE FINDINGS. IN ANY CASE, WE HAVE NOTED THAT THE FUNDS G ENERATED BY FILM REVENUES WERE, BEYOND DISPUTE FAR IN EXCESS OF INVESTMENTS. AS R EGARDS APPLICATION OF RULE 8D, HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81), HAS HELD THAT RULE 8D OF THE INCOME TAX RULES, 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM A.Y. 2008-09 AND A REA SONABLE DISALLOWANCE FOR EXPENSES INCURRED IN EARNING DIVIDEND INCOME IS NEVERTHELESS TO BE COMPUTED BY THE AO. I.T.A NO.4019/ MUM/2010 ASSESSMENT YEAR: 2007-08 3 THEREFORE, WE ARE OF THE VIEW THAT SOME ADMINISTRATI VE EXPENSES ARE TO BE ALLOCATED FOR EARNINGS OF DIVIDEND AND AS AGREED BY LEARNED RE PRESENTATIVES, WE ADOPT THE DISALLOWANCE AT 5% OF THE TOTAL EARNINGS FROM DIVIDE ND. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT DISPUTE THAT THIS ALLOCATION FO R ADMINISTRATIVE EXPENSES IS UNFAIR OR UNREASONABLE BUT HE NEVERTHELESS SUBMITS TH AT SOME INTEREST EXPENSES MUST ALSO BE ALLOCATED TO THE INVESTMENTS MADE. WE SEE NO SUBSTANCE IN THIS SUBMISSION OF LEARNED DEPARTMENTAL REPRESENTATIVE. ON CE THERE IS CATEGORICAL FINDING THAT INTEREST FREE FUNDS ARE NOT USING IN MAKI NG THESE INVESTMENTS, THERE CANNOT BE ANY RATIONALE IN MAKING 14A DISALLOWANCE I N RESPECT OF INTEREST. THE 14A DISALLOWANCE FOR ADMINISTRATIVE EXPENSES ON ADHOC BASIS , IN TERMS OF DIRECTION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BO YCE (SUPRA) IS ON PECULIAR FACTS OF THIS AND IN VIEW OF POSITION TAKEN BY THE P ARTIES, AND IT DOES NOT LAY DOWN ANY PRINCIPLES OF GENERAL APPLICATION. THE 14A DISAL LOWANCE ON THE FACTS OF THIS CASE MUST REMAIN RESTRICTED TO THE SAME. ACCORDINGLY, WE DIRECT THE AO TO ADOPT THE DISALLOWANCE U/S.14A AT 5% OF THE TOTAL DIVIDEND EARN INGS. 5. IN THE RESULT, APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2011 SD/- (D.K.AGARWAL) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI, DATED 29 TH JULY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),3, MUMBAI 4. COMMISSIONER OF INCOME TAX, 11 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI