M/s Oriole Exports Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 4541/DEL/2009

• Counselvise Citation: 454120114 RSA 2009
• Duration Of Justice: 1 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 20-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 02-12-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VN MA RWAH
• Assessee Lawyers: R S NEGI
• Keywords: Business income; Business expenditure; Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE G.D. AGRAWAL, HON'BLE VICE-PRESIDENT AND SHR I RAJPAL YADAV: HONBLE JUDICIAL MEMBER ITA NO.4541/DEL/2009 ASSESSMENT YEAR: 2005-06 M/S. ORIOLE EXPORTS PVT. LTD. VS. ASSISTANT CIT, 75-E, HIMALAYA HOUSE, CIRCLE 13(1), 23-KG MARG, N.DELHI NEW DELHI. (PAN: AAACO0087A) (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI VN MA RWAH, FCA ASSESSEE BY: SHRI RS NEG I, SR.DR ORDER PER RAJPAL YADAV:JUDICIAL MEMBER THE ASSESSEE IS IN APPEAL BEFORE US AGAINST THE OR DER OF LEARNED CIT(APPEALS) DATED 16 TH SEPTEMBER,2009 PASSED FOR ASSESSMENT YEAR 2005- 06. THE ASSESSEE HAS TAKEN FOUR GROUNDS OF APPEAL, HOWEVER, ITS GRIEVANCE REVOLVE AROUND A SINGLE ISSUE WHEREIN IT IS IMPUGNI NG THE ADDITION OF RS.21,41,385 MADE BY THE LEARNED CIT(APPEALS) UNDER SEC. 14A OF THE INCOME-TAX ACT, 1961. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY HAS FILED ITS RETURN OF INCOME ON 29.10.2005 DECLARING INCOME OF RS.1,15,59,380. ON SCRUTINY OF THE ACCOUNTS, IT REVEALED TO THE ASSESS ING OFFICER THAT IT HAS SHOWN BUSINESS INCOME AT RS. 81,006, INCOME FROM HO USE PROPERTY AT 2 RS.93,73,408, SHORT TERM CAPITAL GAIN AT RS.14,64,3 20 AND INCOME FROM OTHER SOURCES AT RS.6,40,643. ASSESSING OFFICER FOUND THA T ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.3,39,140 WHICH IS EXEMPT FROM TAX UNDER SEC. 10(34) OF THE ACT. THE ASSESSEE HAS NOT SHOWN ANY EXPENDIT URE ATTRIBUTABLE TO EARNING OF TAX FREE INCOME. HE, THEREFORE, ON AN AN ALYSIS OF THE SURROUNDING CIRCUMSTANCES, ESTIMATED 10% OF THE DIVIDEND INCOME WOULD BE SUFFICIENT FOR COVERING ANY EXPENDITURE OUGHT TO HAVE BEEN INC URRED BY THE ASSESSEE TOWARDS EARNING OF TAX FREE INCOME. THE BRIEF DISCU SSION MADE BY THE ASSESSING OFFICER READS AS UNDER: DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPA NY RECEIVED DIVIDEND INCOME OF RS.3,39,140 AND SAME WAS CLAIMED EXEMPT U/S. 10(34) OF THE IT ACT. NO INCOME CAN BE EARNED WITHO UT INCURRING ANY EXPENDITURE. ASSESSEE COMPANY HAS CLAIMED THAT IT H AD NOT INCURRED ANY DIRECT EXPENDITURE FOR EARNING THE DIVIDEND. TH IS CONTENTION IS NOT ACCEPTABLE AS ASSESSEE COMPANY HAS MAINTAINED INVES TMENT PORTFOLIO IN SHARES AND WITH APPLICATION OF MIND BY THE DIREC TORS OR EMPLOYEES THE DECISION TO SALE OR PURCHASE IN SECURITIES/SHAR ES WERE TAKEN. SAME STAFF WAS USED TO KEEP TRACK OF THE TRANSACTIONS. T HE EXPENDITURE IN NATURE OF TELEPHONE, DE-MAT CHARGES, ACCOUNTING CHA RGES, ELECTRICITY CHARGES, SALARY AND DIRECTORS REMUNERATION ETC. WE RE COMMON TO THE ACTIVITY OF SHARE TRADING/INVESTMENT. ACTIVITY RELA TED TO INVESTMENT/TRADING IN SHARES WOULD RESULT IN INCOME UNDER THE HEAD BUSINESS, CAPITAL GAINS AND DIVIDEND. NO EXPENDITUR E IS ADMISSIBLE UNDER THE HEAD CAPITAL GAINS AND DIVIDEND INCOME IS EXEMPT. 3 THEREFORE, IT CANNOT BE SAID, THAT NO PART OF EXPEN DITURE DEBITED AS BUSINESS EXPENDITURE IS ALLOCABLE TO THE ACTIVITY O F INVESTMENT. IN ABSENCE OF SEPARATE ACCOUNTS FOR BOTH THE ACTIVITIE S I AM LEFT WITH NO ALTERNATIVE BUT TO ESTIMATE THE EXPENDITURE RELATAB LE TO EXEMPT INCOME. IT WILL REASONABLE TO TAKE 10% OF DIVIDEND RECEIVED AS THE EXPENDITURE INCURRED FOR EARNING THIS INCOME. THEREFORE, DISALL OWANCE U/S. 14A IS WORKED OUT AT RS.33,914 (BEING 10% OF DIVIDEND OF R S.3,39,140. 3. ON APPEAL, LEARNED FIRST APPELLATE AUTHORITY WAS OF THE OPINION THAT THE ASSESSING OFFICER HAS ERRED IN WORKING OUT THE DISALLOWANCE AT 10% OF THE TOTAL DIVIDEND INCOME. ON THE STRENGTH OF SPECI AL BENCH DECISION OF THE ITAT IN THE CASE OF ITO VS. DAGGA CAPITAL MANAGEMEN T (P) LTD. REPORTED IN 117 ITD 169, HE FORMED AN OPINION THAT DISALLOWANCE OUGHT TO HAVE BEEN COMPUTED ON THE BASIS OF RULE 8D OF IT RULES, 1962. HE ACCORDINGLY WORKED OUT A DISALLOWANCE OF RS.21,41,385. 4. THE LEARNED COUNSEL FOR THE ASSESSEE AT THE VERY OUTSET SUBMITTED THAT THIS ISSUE HAS BEEN CONSIDERED BY THE HON'BLE MUMBA I HIGH COURT IN THE CASE OF M/S. GODREJ & BOYCE REPORTED IN 328 ITR 81. HON'BLE MUMBAI HIGH COURT HAS HELD THAT RULE 8D HAS BEEN INTRODUCED W.E .F. 24.3.2008. IT IS NOT APPLICABLE WITH RETROSPECTIVE EFFECT. IT IS APPLICA BLE FROM ASSESSMENT YEAR 2008-09. THUS, ON THE STRENGTH OF THIS DECISION, LE ARNED COUNSEL FOR THE 4 ASSESSEE POINTED OUT THAT DISALLOWANCE CANNOT BE WO RKED OUT ON THE BASIS OF RULE 8D IN THE PRESENT ASSESSMENT YEAR. HE PRAYED T HAT DISALLOWANCE BE DELETED. ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES BELOW. 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. HON'BLE MUMBAI HIGH COURT HAS HEL D THAT RULE 8D ISNOT APPLICABLE RETROSPECTIVELY. THUS, IT IS NOT APPLICA BLE IN THE PRESENT ASSESSMENT YEAR 2005-06. IN THE ABSENCE OF THIS RUL E, THE DISALLOWANCE FOR THE EXPENDITURE ATTRIBUTABLE TO EARNING TAX FREE IN COME HAS TO BE MADE ON THE BASIS OF SURROUNDING FACTS AND CIRCUMSTANCES. THIS EXERCISE OUGHT TO BE CARRIED OUT BY THE ASSESSING OFFICER. HE WOULD BE R EQUIRED TO LOOK INTO WHETHER ASSESSEE HAS INCURRED ANY INTEREST EXPENDIT URE ON THE BORROWED CAPITAL WHICH WAS USED FOR INVESTMENT RESULTING INT O DIVIDEND INCOME. ASSESSING OFFICER ALSO REQUIRED TO LOOK INTO OTHER FACTORS. FROM PERUSAL OF THE ASSESSMENT ORDER, ON THIS ISSUE (EXTRACTED SUPR A), IT REVEALS THAT ASSESSING OFFICER HAS LOOKED INTO THESE ASPECT AND THEREAFTER WORKED OUT AN ESTIMATED EXPENDITURE AT RS.33,914 WHICH IN HIS OPINION REASO NABLE FOR EARNING TAX FREE INCOME. AT THE TIME OF HEARING WHEN WE CONFRON TED THE LEARNED COUNSEL FOR THE ASSESSEE AS TO WHY THIS ISSUE SHOULD NOT BE REMITTED TO THE FILE OF THE 5 ASSESSING OFFICER FOR RE-EXAMINATION, HE SUBMITTED THAT ASSESSING OFFICER HAS ALREADY LOOKED INTO THIS ASPECT AND HE HAS NO G RIEVANCE IF THE ASSESSMENT ORDER IS RESTORED ON THIS ISSUE. CONSIDERING ALL TH ESE FACTS AND CIRCUMSTANCES, WE ALLOW THE APPEAL OF THE ASSESSEE PARTLY AND REST RICT THE DISALLOWANCE UNDER SEC. 14A TO RS.33,914. DECISION PRONOUNCED IN THE OPEN COURT ON 20.10.2011 SD/- SD/- ( G.D. AGRAWAL ) ( RAJPAL YADAV ) VICE- PRESIDENT JUDICIAL MEMBER DATED: 20/10/2011 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR