SCHENECTADY INDIA HOLDINGS P. LTD, MUMBAI V. ITO 3(3)-1, MUMBAI

ITA 4128/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56115 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 01-12-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D S SUNDER SINGH
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, J, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND B.RAMAKOTAIAH(A. M ) ITA NO.3968/MUM/2009 (ASSESSMENT YEAR: 2004-05) DY. COMMISSIONER OF INCOME TAX CIRCLE 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 M/S SCHENECTADY (INDIA) HOLDINGS PVT.LTD., 1003-1006, 10 TH FLOOR, ARCADIA, 195, NCPA MARG, NARIMAN POINT, MUMBAI-400021 PAN:AACCS2571D APPELLANT V/S RESPONDENT ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) M/S SCHENECTADY (INDIA) HOLDINGS PVT.LTD., 1003-1006, 10 TH FLOOR, ARCADIA, 195, NCPA MARG, NARIMAN POINT, MUMBAI-400021 PAN:AACCS2571D DY. COMMISSIONER OF INCOME TAX CIRCLE 3(3), ROOM NO.609, 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI-400020 APPELLANT V/S RESPONDENT DATE OF HEARING : 1.12.2011 DATE OF PRONOUNCEMENT : 9.12.2011 REVENUE BY : SHRI D.S.SUNDER SINGH ASSESSEE BY : SHRI ANKIT AGRAWAL O R D E R PER D.K.AGARWAL (JM) THESE CROSS-APPEALS BY THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 25.2.2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSME NT ITA NO.3968/MUM/2009 ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) 2 YEAR 2004-05. BOTH THESE APPEALS ARE DISPOSED OF B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF NON-BANKING FINANCIAL COMPANY ENGAGED IN INVESTMENT IN SHARES, DEPOSITS, FINANCIAL INSTRUMENTS ETC. DURING THE COU RSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT TH E ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF RS.5,77,71,056/- OUT OF THE TOTAL INCOME OF RS.27,04,91,206/- SHOWN BY THE ASSESSEE IN THE P & L ACCOUNT AND HAS BOOKED INTEREST EXPENSES OF RS.83,33,243/- AND ADMINISTRATIVE EXPENSES OF RS.79,42,228/-. ON BEING ASKED AS TO WHY DISALLOWANCE U/S 14A SHOULD NOT BE MADE, IT WAS INTERALIA SUBMITTED BY THE ASSESSEE THAT THE COMPAN Y HAS NOT PAID/PROVIDED ANY INTEREST ON AMOUNTS INVESTED IN THE ASSETS FROM WHERE TAX FREE INCOME IS EARNED. THE QUESTION OF DISALLOWANCE OF THE SAME DOES NOT ARISE. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION. THE AO WHILE OBSERVING THAT THE ASSESSEES INCOME COMPRISES ONLY OF DIVIDEND AN D INTEREST, THEREFORE, THE ACTIVITY IS ONLY INVESTIN G AND ITA NO.3968/MUM/2009 ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) 3 EARNING DIVIDEND AND INTEREST AND THEREFORE THE EXPENSES INCLUDING ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE-COMPANY ARE OBVIOUSLY FOR EARNING DIVIDEND INCOME AND INTEREST INCOME, DISALLOWED THE EXPENSES U/S 14A OF RS.16,96,228/- AS PER WORKING GIVEN AT PAGE 5 OF THE ASSESSMENT ORDER. ON APPEAL, THE LD. CIT(A) FOLLOWING THE DECISION OF THE SPECI AL BENCH OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. 117 ITD 169 (MUM)(SB) OBSERVED THAT AS PE R RULE 8D OF THE INCOME TAX RULES, 1962, THE DISALLOWANCE COMES TO RS.32,32,050/-. HOWEVER, HE RESTRICTED THE DISALLOWANCE TO RS.16,96,288/- AS MA DE BY THE AO. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE AND REVENUE BOTH ARE IN APPEAL BEFORE US. THE ASSESSEE IN ITS APPEAL IN ALL THE GROUNDS H AS CHALLENGED THE SUSTENANCE OF DISALLOWANCE U/S 14A O F RS.16,96,288/-WHILE THE REVENUE IN ALL THE GROUNDS OF APPEAL HAS OBJECTED TO THE ORDER OF THE LD.CIT(A) I N NOT ENHANCING THE DISALLOWANCE U/S 14A BY RS.65,02,538/- (RS.81,98,824-RS.16,96,288). ITA NO.3968/MUM/2009 ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) 4 4. AT THE TIME OF HEARING, BOTH THE PARTIES HAVE AGREED THAT THIS ISSUE STANDS COVERED BY THE JUDGME NT OF HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BO YCE MFG. CO. LTD., V/S. DCIT (2010) 328 ITR 81 (BOM.) THEREFORE, THE ISSUE MAY BE SET ASIDE TO THE FILE OF THE ASSESSING OFFICER. 5. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RIVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE O N RECORD, WE FIND MERIT IN THE PLEA OF THE PARTIES T HAT THE ISSUE STANDS COVERED BY THE RECENT JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD., V/S. DCIT (SUPRA), WHEREIN TH EIR LORDSHIPS AFTER CONSIDERING THE DECISION OF THE TRIBUNAL IN DAGA CAPITAL MANAGEMENT PVT. LTD. 117 ITD 169 (MUM)(SB), WHILE HOLDING THAT THE PROVISION S OF SUB SECTIONS (2) AND (3) OF SEC.14A OF THE ACT A RE CONSTITUTIONALLY VALID HAVE HELD VIDE PLACITUM 88( VI) APPEARING AT PAGE 138 OF THE 328 ITR AS UNDER : (VI) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL ITA NO.3968/MUM/2009 ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) 5 INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; RESPECTFULLY FOLLOWING THE ABOVE JUDGMENT WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTER TO THE FILE O F THE ASSESSING OFFICER TO DECIDE THE SAME AFRESH I N THE LIGHT OF THE DIRECTIONS OF THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE ABOVE CITED CASE AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AND ACCORDINGLY THE GROUNDS TAKEN BY THE ASSESSEE AND THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 6. IN THE RESULT, REVENUES AND ASSESSEES APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DEC.,2011. SD SD (B. RAMAKOTAIAH ) (D.K.AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 9TH DECEMBER, 2011 ITA NO.3968/MUM/2009 ITA NO.4128/MUM/2009 (ASSESSMENT YEAR: 2004-05) 6 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI