RAJ SHIPPIJNG AGENCIES LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 4693/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55654 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 27-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 07-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D , MUMBAI BEFORE SHRI T.R. SOOD, AM AND SHRI SHRI R.S. PADVEK AR, JM I.T.A. NO.4693/MUM/2010 ASSESSMENT YEAR : 2007-08 M/S. RAJ SHIPPING AGENCIES LTD. BANAJI MANSION, 17, BANAJI STREET, FORT, MUMBAI-400 023. PAN NO : AAACR 3051 R VS. ADDL. CIT RANGE 5(3), AAYKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI C.G.K NAIR DATE OF HEARING : 27.10.2011 DATE OF PRONOUNCEMENT : 27.10.2011 ORDER PER T.R. SOOD (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER DATED 26.04.2010 OF COMMISSIONER OF INCOME TAX (APPEALS)- 9, MUMBAI AND RELATES TO THE ASSESSMENT YEAR 2007-08. 2. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS REGARD ING DISALLOWANCE MADE U/S.14A. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD SO ME EXEMPT INCOME FROM MUTUAL FUNDS, THEREFORE, SECTION 14A READ WITH RULE 8D WAS INVOKED AND DISALLOWANCE WAS WORKED OUT AT `. 3,89,773/-. 4. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A) BY FOLLOWING THE DECISION OF DECISION OF THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. REPORTED IN 119 TTJ 289 (MUM). I.T.A. NO.4693/MUM/2010 M/S. RAJ SHIPPING AGENCIES LTD. 2 5. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT FIRST OF ALL RULE 8D OF THE INCOME TAX RULES IS NOT OF RETROSPEC TIVE APPLICATION AS HAS BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT REPORTED IN 328 ITR 81. THEN HE REFERRED TO PAGE NO.14 OF THE PAPER BOOK AND POINTE D OUT THAT ONLY ONE INVESTMENT AMOUNTING OF `. 7,24,79,395/- WAS MADE IN KOTAK LIQUID FUND. THE INVESTMENT WAS MADE IN THIS YEAR ONLY. THEN HE POINTED OUT FROM PAGE NO. 18 OF THE PAPER BOOK THAT EVEN PROFIT ITSELF AF TER TAX WAS MORE THAN 10 CRORES WHICH CLEARLY MEANS THAT INVESTMENT HAS BEEN MADE OUT OF ASSESSEES OWN SURPLUS FUNDS. HE ALSO REFERRED TO PAGE NO. 32 OF THE PAPER BOOK AND POINTED OUT THAT IN THIS CASE SECTION 115V I.E. SPE CIAL PROVISION FOR SHIPPING COMPANY WERE APPLICABLE ON THE PART OF INCOME, AND EXPENDITURE HAS ALREADY BEEN ALLOCATED ON THE BASIS WHERE THE INCOM E IS COVERED BY TONNAGE TAX U/S.115V AND NORMAL INCOME. THIS ALLOCATION HAS BEEN ACCEPTED, THEREFORE, NO FURTHER INTERFERENCE WAS REQUIRED. 6. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT IN ANY CASE THE ASSESSEE HAS MADE SOME BORROWINGS AND THE PROVISION S OF SECTION 14A ARE APPLICABLE TO ALL THE HEADS OF INCOME INCLUDING INC OME ASSESS VIDE U/S.115A. HE ALSO STRONGLY SUPPORTED THE ORDERS OF THE AO AND THE LD. CIT(A). 7. IN THE REJOINDER, THE LD. COUNSEL FOR THE ASSESS EE SUBMITTED THAT THE BORROWINGS HAVE BEEN MADE FOR BUSINESS PURPOSES AND ARE BEING CARRIED OVER FROM THE EARLIER YEAR AND NO FRESH BORROWINGS WERE MADE DURING THE YEAR. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AS HELD BY HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFAC TURING COMPANY LTD. (SUPRA) WHICH IS AS UNDER :- I.T.A. NO.4693/MUM/2010 M/S. RAJ SHIPPING AGENCIES LTD. 3 HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOUL D APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAD TO ENFORCE THE PROVISIONS OF SUB-SECTIO N (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUT Y BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE AS SESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DET ERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CON TEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASON- ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE M AKING THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUN TS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON TH E FACTS AND CIRCUMSTANCES OF THE CASE. 9. FURTHER, IT IS NOT CLEAR WHETHER THE ASSESSEE HA S INVESTED THE SURPLUS FUNDS TOWARDS THE INVESTMENT IN MUTUAL FUNDS OR HAV E ALSO UTILISED THE BORROWED FUNDS. THEREFORE, IN THE INTEREST OF JUSTI CE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FIL E OF THE AO FOR RE- EXAMINATION OF THE ISSUE IN THE LIGHT OF THE DECISI ON OF HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYCE MANUFACTURING COMPA NY LTD. (SUPRA). 10. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ITSELF I.E. ON 27 TH OCTOBER, 2011. SD/- SD/- (R. S. PADVEKAR) (T. R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT: 27/10/2011 I.T.A. NO.4693/MUM/2010 M/S. RAJ SHIPPING AGENCIES LTD. 4 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, D- BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI