Kanika Investment Ltd, New Delhi V. ITO, New Delhi

ITA 4426/DEL/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0599 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 19-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: R M MEHTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES D: NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 4426/DEL/2009 ASSESSMENT YEAR: 2006-07 KANIKA INVESTMENT LIMITED, VS. INCOME TAX OFFICER , 11 TH FLOOR, HANSALAYA, WARD 5(1), 15, BARAKHAMBA ROAD, C.R. BLDG., NEW DELHI. NEW DELHI. AAACK2544E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.M. MEHTA, ADV. RESPONDENT BY : SHRI A. K. MONGA, DR ORDER PER I.P. BANSAL, J.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DI RECTED AGAINST THE ORDER OF CIT(A) DATED 2 ND SEPTEMBER, 2009 FOR A.Y. 2006-07. GROUNDS OF APPEAL READ AS UNDER: - 1(A) THAT THE LD.CIT(A) HAS GROSSLY ERRED IN APPL YING THE PROVISIONS OF SEC. 14A OF THE INCOME TAX ACT, 1961 EVEN THOUGH THE AO HAS NOT RECORDED ANY SATISFACTION IN THE ASSESSMENT ORDER AS TO THE CORR ECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE APPELLANT IN RELATION TO TH E TAX EXEMPT INCOME. 1(B) THAT THE LD. CIT(A) HAS GROSSLY ERRED IN DISA LLOWING THE EXPENDITURE OF RS. 1,08,492/- TOWARDS THE EXPENDITURE ATTRIBUTABLE TO THE EARNING OF TAX ITA NO. 4426/D/09 2 EXEMPT INCOME BY PURPORTEDLY APPLYING THE PROVISION S OF SEC. 14A OF THE I.T. ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES , 1962. 2. THAT THE LD. CIT(A) HAS GROSSLY ERRED IN DIRECT ING THE AO TO DISALLOW THE CLAIM OF THE APPELLANT FOR CARRY FORWARD OF BUSINES S LOSS IN AN AMOUNT OF RS. 1,08,492/-, BEING THE DISALLOWANCE OF EXPENDITURE M ADE U/S 14A OF THE INCOME TAX ACT, 1961. 3. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDIC E TO ONE ANOTHER. 4. THAT THE APPELLANT CRAVES PERMISSION TO ADD, AL TER, VARY OR DELETE ONE OR MORE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEA RING. 2. THE ASSESSEE IS A NON-BANKING FINANCE COMPANY EN GAGED IN THE BUSINESS OF MAKING INVESTMENT IN THE SHARES/SECURIT IES OF THE OTHER COMPANIES/BODIES CORPORATE. DURING THE YEAR UNDER CONSIDERATION IT RECEIVED DIVIDEND INCOME OF RS. 1,49,164/-, AND SUC H INCOME WAS CLAIMED AS EXEMPT U/S 10(34) OF THE INCOME TAX ACT, 1961. 3. THE AO FOUND THAT ASSESSEE HAD NOT EARNED ANY IN COME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION DISALLOWED THE CLAIM OF BUSINESS LOSS OF RS. 2,12,505/- WHICH COMP RISE THE EXPENSES AND RESTRICTED THE RETURN LOSS OF RS. 4,61,341/- TO RS. 2,48,836/- WHICH WAS LONG TERM CAPITAL LOSS CARRY FORWARD FOR THE NEXT YEAR. LD. CIT(A) REFER TO THE A.Y. 05-06 IN THE CASE OF THE ASSESSEE IN WHICH SIMILAR ISSUE WAS DECIDED AND DISALLOWANCE OF EXPENSES WAS RESTRICTED TO 50,000/- ONLY, WHICH WAS LESS THAN 25% OF THE TOTAL EXPENDITURE CLAIMED. LD. CIT (A) FOR THE YEAR UNDER CONSIDERATION REFERRING TO THE EARLIER ORDER PASSED BY HIS PREDECESSOR OBSERVED THAT HIS PREDECESSOR DID NOT HAVE THE BENE FIT OF DECISION OF SPL. ITA NO. 4426/D/09 3 BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. L IMITED 117 ITD 169. THEREFORE, HE CALCULATED THE DISALLOWANCE AS PER RU LE 8D OF INCOME TAX RULES, 1962 AND RESTRICTED THE DISALLOWANCE AT RS. 1,08,492/- AND THUS, HE DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO RS. 1,08,492/- IN PLACE OF DISALLOWANCE OF RS. 2,12,505/- MADE BY THE AO. THE ASSESSEE IS STILL AGGRIEVED, HENCE IN APPEAL. 4. AT THE OUTSET, IT WAS SUBMITTED BY LD. AR THAT T O THE EXTENT THAT RULE 8D IS APPLICABLE RETROSPECTIVELY, THE DECISION OF S PL. BENCH HAS BEEN OVERRULED BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS. DCIT 234 CTR 1 (B OM.). THEREFORE, HE PLEADED THAT LD. CIT(A) IS NOT LEGALLY CORRECT I N MAKING DISALLOWANCE BY REFERRING TO RULE 8D. HE SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR RE-ADJUDICATION OF THE ISSUE AS PER LAW INCLUDING THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COUR T. 5. ON THE OTHER HAND, RELYING UPON THE ORDER OF CIT (A), IT WAS PLEADED BY LD. DR THAT ORDER OF LD. CIT(A) SHOULD BE UPHELD . 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS IN THE LIGHT OF MATERIAL PLACED BEFORE US. THE DISALLOWANCE CANNOT BE MADE AS PER RULE 8D AS THE PRESENT YEAR INVOLVED IS A.Y. 2006-07 AND ACCORDING TO THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COUR T RULE 8D IS NOT ITA NO. 4426/D/09 4 APPLICABLE RETROSPECTIVELY AND IS APPLICABLE TO THE A.Y. 2008-09 ONWARD. AT THE SAME TIME, IT HAS BEEN HELD THEREIN, AO IS DUTY BOUND TO COMPUTE THE DISALLOWANCE BY ADOPTING A REASONABLE METHOD HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, ACCEPTIN G THE REQUEST OF LD. AR, WE RESTORE THIS ISSUE TO THE FILE OF AO FOR RE-ADJU DICATION OF THE ISSUE IN THE LIGHT OF AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT AND ALSO THE LAW AS FOUND APPLICABLE AT THE TIME OF ADJUDICATING THE SAID ISSUE. WE DIRECT ACCORDINGLY. FOR STATISTICAL PURPOSES, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 21.1.11 (A.K. GARODIA) (I.P. BANSAL) ACCOUNTANT MEMBER JUDICIAL MEMBER * KAVITA DATED: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT