MIRC ELECTRONICS LTD, MUMBAI V. DCIT CEN CIR 5(3), MUMBAI

ITA 4668/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1047 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 08-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: RAKESH MAHANT
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INC OME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SH. SHAMIM YAHAYA , AM & SH. SANDEEP GOSAIN, JM ./ I.T.A. NO . 4668 / MUM/ 2016 ( / ASSESSMENT YEAR: 2012 - 13 ) MIRC ELECTRONICS LTD. G - 1, MIDC ONIDA HOUSE, MAHAKALI CAVES RD, ANDHERI(E), MUMBAI - 400093 / VS. DCIT CEN CIR - 5 (3) , MUMBAI ./ ./ PAN/GIR NO. A AACM 8055 A ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI RAKESH MAHANT / RESPONDENTBY : SHR I M. V. RAJGURU / DATE OF HEARING : 30/10 /201 7 / DATE OF PRONOUNCEMENT : 04/01/2018 / O R D E R PER SANDEEP GOSAIN, J UDICIAL MEMBER : THE P RESENT APPE AL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF LD. CIT (APPEAL ) 53, MUMBAI DATED 31.05 .16 F OR AY 2012 - 13 ON THE GROUNDS MENTIONED HEREIN BELOW: - 2 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HONBLE COMMISSIONER OF INCOME TAX (APPEAL) - , MUMBAI, ERRED IN CONFIRMING THE DISALLOWANCE MAD E BY THE ASSESSING OFFICER AMOUNTING TO RS. 12,87,315/ - UNDER SECTION 14A OF THE I.T. ACT 1961 (THE ACT) R.W.R. 8D OF THE I.T. RULES 1962. THE APPELLANT PRAYS THAT THE DISALLOWANCE OF RS. 12,87,315/ - U/S 14A OF THE ACT MAY KINDLY BE DELETED. `THE APPELLA NT CRAVES THE LIBERTY TO ADD, ALTER OR DELETED ALL OR ANY OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURSE OF HEARING. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A MANUFACTURER, TRADER AND EXPORTER OF TELEVISIONS, AIR CONDITIONERS, WASHING MACHINES AND CERTAIN OTHER FMCGS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR AY 2012 - 13 BY WAY OF E - FILING ON 29.09.12 DECLARING TOTAL LOSS OF RS. 39,19,75,331/ - . SUBSEQUENTLY, THE CASE OF ASSESSEE WAS SELECTED FOR SCRUTINY AND AFTER SERVING STAT UTORY NOTICES AND SEEKING REPLY OF ASSESSEE; THE AO PASSED ASSESSMENT ORDER OF ASSESSMENT U/S 143(3) ON 26.03.15 THEREBY MAKING ADDITIONS /DISALLOWANCES. 3 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. AGGRIEVED BY THE ORDER OF AO, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND LD. CIT(A) AFTER CONSID ERING THE CASE OF BOTH THE PARTIES PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. NOW BEFORE US, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BY RAISING THE ABOVE GROUNDS. GROUND NO. 1 3. THE SOLE GROUND GROUND RAISED BY THE ASSESSEE RELATES TO CHA LLENGING THE ORDER OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AMOUNTING TO RS. 12,87,315/ - UNDER SECTION 14A OF THE I.T. ACT 1961 (THE ACT) R.W.R. 8D OF THE I.T. RULES 1962. 4. AT THE VERY OUTSET, LD. AR APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED BEFORE US THAT THE PRESENT CASE IS FULLY COVERED BY THE OR DER OF HONBLE ITAT IN ITA NO. 3320/MUM/16 FOR AY 2011 - 12 IN ASSESSEES OWN CASE AS THE IDENTICAL GROUNDS RAISED IN THE PRESE NT APPEAL HAVE ALREADY BEEN DECIDED ON MERITS. THE OPERATIVE PORTION OF THE ORDER OF HONBLE ITAT CONTAINED IN PARA NO. 6 TO 7, WHICH IS REPRODUCED BELOW: - 4 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. 6. WE HAVE CONSIDERED RIVAL CONTENTIONS AND WE HAVE PERUSED THE MATERIAL ON RECORD INCLUDING CITED CASE LAWS AND ORDERS OF THE AUTHORITIES BELOW. WE HAVE OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TV SETS. IT IS ALSO TRADING IN CERTAIN FMCG . THE ASSESSEE I IS ALSO MANUFACTURING WASHING MACHINE AND AIR CONDITIONERS. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.44,69,167/ - WHICH HAS BEEN CLAIMED AS EXEMPT FROM TAX U/S 10(34). THE ASSESSEE HAS VOLUNTARILY OFFERED DISALLOWANCE O F RS. 34,692/ - U/S. 14A OF THE ACT COMPUTED ON THE BASIS OF 0.5% OF SALARY OF GM(FINANCE) AND IT IS CLAIMED BY THE ASSESSEE THAT THIS IS THE ONLY EXPENSES INCURRED BY THE ASSESSEE. THE A.O INVOKED RULE 8D R.W.S.14A AND MADE DISALLOWANCE OF RS.16,67,098/ - . WE HAVE OBSERVED THAT LEARNED CIT(A) CONSIDERED VARIOUS HEADS OF EXPENSES INCURRED BY THE ASSESSEE WHICH ARE IN THE NATURE OF PERSONNEL EXPENSES TO THE TUNE OF RS.92.25 CRORES, OTHER/ADMINISTRATIVE EXPENSES BY THE WAY OF RENT OF RS. 7.8 CRORES , RATES AND TAXES TO THE TUNE OF RS. 4.44 CRORES AND MISCELLANEOUS/ADMINISTRATIVE EXPENSES TO THE TUNE OF RS. 30.85 CRORE WHICH INCLUDED PROFESSIONAL FEE OF RS. 3.20 CRORES, PRINTING AND STATIONARY EXPENSES OF RS. 1.21 CRORE, TAX - AUDIT FEE OF RS. 4 LACS , AUDITORS RE MUNERATION OF RS. 4.68 LACS, 5 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. INTERNAL AUDIT FEE OF RS. 22.2 LAKHS, SITTING FEE OF RS.1.25 LAKH ETC TO UPHOLD THE DISALLOWANCE BASED ON RULE 8D(2)(III) R.W.S. 14A AFTER ARRIVING AT THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE OF APPLYING 05% TO SALARY OF G M(FINANCE) TO ARRIVE AT DISALLOWANCE U/S 14A IS NOT CORRECT. WE HAVE OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, INVESTMENTS HELD BY THE ASSESSEE AT THE BEGINNING OF THE YEAR WAS RS.40.14 CRORE WHICH HAS COME DOWN TO RS.26.54 CRORES AS AT THE END OF THE YEAR. THE ASSESSEE HAS SOLD THE INVESTMENTS DURING THE YEAR WHICH COMPRISED MUTUAL FUND WHICH MAINLY LED TO FALL IN INVESTMENTS HELD BY THE ASSESSEE AS AT YEAR END VIS - A - VIS HELD AT THE BEGINNING OF THE YEAR. THE ASSESSEE HAS OFFERED DISALLOWANCE COMP UTED @0.5% OF THE SALARY OF GM ( FINANCE) U/S. 14A . THE TRIBUNAL IN THE PRECEDING YEAR I.E. AY 2010 - 11 HAS HELD FURTHER DISALLOWANCE OF RS. 50,000/ - TOWARDS ADMINISTRATIVE EXPENSES WILL MEET THE END OF THE JUSTICE. THE AUTHORITIES BELOW HAVE NOT GONE DEEP LY INTO THE ACCOUNTS AND AFFAIRS OF THE ASSESSEE TO FIND OUT WHO ALL WERE RESPONSIBLE FOR HANDLING INVESTMENTS AND TO IDENTIFY THE EXPENDITURE/COST INCURRED TOWARDS THE EARNING OF THE EXEMPT INCOME . THE AUTHORITIES BELOW DID NOT CALL FOR MINUTE BOOKS OF D IRECTORS/SHAREHOLDERS , COPIES OF RESOLUTIONS, INVESTMENT RECORDS , BOOKS OF ACCOUNTS AND NO 6 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. INFORMATION WERE CALLED FROM THE INVESTEE COMPANY/ENTITY WHO HOLDS INVESTMENT IN DEMAT MODE, EVEN IT WAS NOT CONSIDERED APPROPRIATE TO RECORD STATEMENTS OF THE COM PANY SECRETARY/DIRECTORS AND/OR OTHER PERSONS INCHARGE OF INVESTMENTS BY THE AUTHORITIES BELOW AS ALSO TO DELVE DEEPLY INTO ACCOUNTS TO ARRIVE AT THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE IN MAKING DISALLOWANCE U/S 14A IS INCORRECT AND RESORT HAS TO BE MADE TO RULE 8D IN THE MIDST OF INCORRECT CLAIM OF THE ASSESSEE. RATHER, A SUPERFICIAL EXAMINATION OF THE EXPENSES OF THE COMPANY WAS MADE BY THE LEARNED CIT(A) TO JUSTIFY THAT FORMULA PRESCRIBED IN RULE 8D(2)(III) IS TO BE APPLIED AND CLAIM OF THE ASSESS EE IS NOT CORRECT. THE ASSESSEE IS MAINLY DEALING IN THE ELECTRONICS PRODUCTS AND HAS TURNOVER OF MORE THAN RS.2000 CRORES DURING THE IMPUGNED ASSESSMENT YEAR AND EXEMPT DIVIDEND INCOME IS MERELY RS. 44.69 LACS AS AGAINST THE INVESTMENT OF RS. 26.54 CRORES HELD AT THE END OF THE YEAR. THE ASSESSEE HAS UNDERTAKEN ACTIVITY/TRANSACTIONS OF SALE OF MUTUAL FUNDS DURING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR WHICH LED TO DECLINE IN INVESTMENT AS AT YEAR AND NECESSARILY EXPENSES MUST HAVE BEEN INCURRED TOWARDS UNDERTAKING THESE TRANSACTION / ACTIVITY OF SALE OF MUTUAL FUND. UNDER THESE CIRCUMSTANCES AND KEEPING IN VIEW TRIBUNAL DECISIONS IN THE PRECEDING YEARS IN 7 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. ASSESSEES OWN CASE , THUS , IN ORDER TO MAINTAIN CONSISTENCY AND JUDICIAL DISCIPLI NE , END OF JUSTICE WILL BE MET IN THE INSTANT CASE IF FURTHER DISALLOWANCE OF EXPENDITURE U/S 14A IS KEPT AT AN ADDITIONAL AMOUNT OF RS.1,00,000/ - TOWARDS ADMINISTRATIVE/MISC. EXPENSES TO BE ADDED TO THE INCOME OF THE ASSESSEE . THIS IS IN VIEW OF THE NON RECORDING OF PROPER SATISFACTION BY THE AUTHORITIES BELOW AS TO THE INCORRECTNESS OF THE CLAIM OF THE ASSESSEES CLAIM AND ALSO THIS DISALLOWANCE U/S 14A SO UPHELD BY US IS IN CONSONANCE WITH THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. V. DCIT (2017) 394 ITR 449(SC). WE ORDER ACCORDINGLY. 7. IN THE RESULT APPEAL OF THE ASSESSEE IN ITA 3320/MUM/2016 FOR ASSESSMENT YEAR 2011 - 12 IS PARTLY ALLOWED. 5. WE HAVE HEARD THE COUNSELS FOR BOTH THE PARTIES AND ALSO PERUSED THE ORDERS PASSED BY LD. CIT (A) AS WELL AS ORDERS OF HON BLE ITAT AS MENTIONED ABOVE IN ASSESSEES O WN CASE. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS FOR AY 2011 - 12. FURTHER THERE IS NO MOVEMENT OF INVESTMENT IN CURREN T YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF HONBLE ITAT IN ITA NO. 3320 / MUM/16 FOR 8 I.T.A. NO. 466 8 /MUM/201 6 MIRC ELECTRONICS LTD. AY 2011 - 12 IN ASSESSEES OWN CA SE AND IN ORDER TO MAINTAIN JUDICIAL CONSISTENCY WHICH IS APPLICABLE MUTATIS MUTAND IS IN THE CASE OF THE ASSESSEE, END OF JUSTICE WILL BE MET IN THE INSTANT CASE IF FURTHER DISALLOWANCE OF EXPENDITURE U/S 14A IS KEPT AT AN ADDITIONAL AMOUNT OF RS.1,00,000/ - TOWARDS ADMINISTRATIVE/MISC. EXPENSES TO BE ADDED TO THE INCOME OF THE ASSESSEE . WE ORDER ACCORDINGLY. 6 . IN THE NET RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH JAN, 2018 SD/ - SD/ - ( SHAMIM YAHYA ) (SANDEEP GOSAIN) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 04 . 01 .201 8 SR.PS . DHANANJAY / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F I LE / BY ORDER, . / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI