ACIT 10(2), MUMBAI V. LAWKIM LTD, MUMBAI

ITA 4732/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75510 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 16-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: M L PERUMAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , / , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER . / ITA NO. 4732/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2005-06 . / ITA NO. 4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2006-07 THE ACIT 10(2), MUMBAI. ' ' ' ' / VS. M/S. GODREJ & BOYCE MFG. CO. LTD., (SUCCESSOR TO M/S. LAWKIM LTD. SINCE MERGED), PLANT NO.11, CORPORATE SECRETARIAL DEPARTMENT, PIROJSHANAGAR, LBS MARG, VIKHROLI, MUMBAI 400 079 $ ./ % ./ PAN/GIR NO. : AAACL 2462N ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 M/S. LAWKIM LTD.,(NOW MERGED INTO GODREJ & MFG. CO. LTD.) GODREJ & BOYCE MFG. CO.LTD. - LAWKIM MOTOR GROUP PLANT, PLANT 19A, PIROJSHANAGAR, LBS MARG, VIKHROLI, MUMBAI 400 079 ' ' ' ' / VS. THE INCOME TAX OFFICER, RANGE 10(2)(3), MUMBAI. $ ./ % ./ PAN/GIR NO. : AAACL 2462N ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) ASSESSEE BY : SHRI SONALI GODBOLE RESPONDENT BY : SHRI M.L.PERUMAL . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 2 ' ) *+ / DATE OF HEARING : 17/02/2014 ,# ) *+ / DATE OF PRONOUNCEMENT : 17/02/2014 - / O R D E R PER I.P.BANSAL,JM: ITA NO.4732/MUM/4732/2012 AND 4733/MUM/2012 ARE AP PEALS FILED BY THE REVENUE IN RESPECT OF ASSESSMENT YEAR 2005 -06 AND 2006-07 RESPECTIVELY AGAINST TWO SEPARATE ORDERS PASSED BY LD. CIT(A)-21 MUMBAI DATED 02/04/2012. ITA NO.383/MUM/2011 IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A) DATED 09/09/2010 F OR THE ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL IN ALL THE APPEALS READ AS UNDER: GROUND OF APPEAL IN ITA NO.4732/MUM/2012(REVENUES APPEAL): 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S.14 A OF THE ACT TO RS7.00 LAKHS AS AGAINST RS.23,99,799/- DISALLOWED BY THE ASSESSING OFFICER. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE DISALLOWANCE U/SL4 A OF THE ACT ON THE BASIS OF STAND TAKEN BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENT YEAR. GROUND OF APPEAL IN ITA NO.4733/MUM/2012(REVENUES APPEAL): 1.(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S.14 A OF THE ACT TO RS.6,17,760/- AS AGAINST RS. 41,29,593/- DISALLOWED BY THE ASSESSING OFFICER. (B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW, THE LD. CIT (A) ERRED IN RESTRICTING THE DISALLOWANCE U/SL4 A OF THE ACT ON THE BASIS OF STAND TAKEN BY THE ASSESSING OFFICER IN THE EARLIER ASSESSMENT YEAR. GROUND OF APPEAL IN ITA NO.383/MUM/2011(ASSESSEES APPEAL) THIS APPEAL IS AGAINST THE ORDER OF THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) 21, MUMBAI AND RELATES TO THE ASSESSMENT YEAR 2007-08. 1.0 THE ASSESSING OFFICER ERRED IN HOLDING & THE LE ARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF EXPENSES U/S. 1 4A OF THE ACT INCURRED TOWARDS EARNING OF EXEMPT DIVIDEND INCOME. . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 3 2.0 THE ASSESSING OFFICER ERRED IN HOLDING & THE LE ARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING APPORTIONMENT OF INTEREST OF RS . 29,78,040/- U/S. 14A OF THE ACT AS PURPORTED TO BE INCURRED TOWARDS EARNING OF DIVIDEND INCOME. 3.0 THE LEARNED COMMISSIONER (APPEALS) ERRED IN LAW AND ON FACTS IN HOLDING THAT MANAGERIAL AND ADMINISTRATIVE EXPENSES AGGREGATING TO RS. 3,50,000/- ARE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. 5.0 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) FAILED TO CONSIDER THAT DISALLOWANCE U/S. 14A CAN BE MADE ONLY OF EXPENDITU RE WHICH IS INCURRED IN RELATION TO EXEMPT INCOME. CONSIDERING THE FACTS O F THE CASE NO DISALLOWANCE CAN BE MADE. 2. IT MAY BE MENTIONED HERE THAT THE DEPARTMENTAL A PPEALS FOR A.Y 2005-06 AND 2006-07 ARE IN PURSUANCE TO ORDER PASSED BY A. O UNDER THE PROVISIONS OF SECTION 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 19 61 (THE ACT) I.E. AS PER DIRECTIONS OF THE TRIBUNAL GIVEN IN ITS ORDER FOR T HE RESPECTIVE YEARS. THE AO DISALLOWED THE AMOUNTS UNDER THE PROVISIONS OF SECT ION 14A APPLYING RULE 8D AND THE MATTER WAS RESTORED BACK BY THE TRIBUNAL FO R FRESH CONSIDERATION AS ACCORDING TO BOMBAY HIGH COURTS DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81(BOM) IT WAS HELD THAT RULE 8D WAS NOT APPLICABLE IN RESPECT OF ASSESSMENT YEARS EARLIER TO A.Y 2008-09 . FOR ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS EARNED A DIVIDEND INCOME O F RS.4,42,956/-. THE AO IN THE RESTORED PROCEEDINGS CALCULATED THE DISALLO WANCE AT RS.23,99,799/- CONSISTING TWO COMPONENTS ONE OF INTEREST OF RS.2 3,58,962/- AND OTHER OF EXPENSES OF RS.40,837/-. LD. CIT(A) HAS OBSERVE D THAT IN THE ASSESSMENT ORDER PASSED FOR A.Y 2004-05 THE AO HAD RETURNED A FINDING THAT ASSESSEE DID NOT UTILIZE ANY PART OF THE BORROWED FUNDS WHICH COULD BE ATTRIBUTED TO THE INVESTMENTS ON WHICH ASSESSEE HAD EARNED DIVIDEND INCOME. HOWEVER, ON ACCOUNT OF EXPENDITURE HE ESTIMATED 20% OF THE DIVI DEND INCOME WHICH IN THAT YEAR WAS RS.5,11,956/- AND A SUM OF RS.1,02,390/- W AS DISALLOWED. TAKING CLUE FROM SUCH OBSERVATION OF THE AO FROM ASSESSME NT YEAR 2004-05,LD. CIT(A) HAS HELD THAT TO THE EXTENT INVESTMENTS WERE SHOWN BY THE ASSESSEE AS ON 31/03/2004 NO PART OF THE INVESTMENT WAS ATTRIBUTABLE TO BORROWED FUNDS . HE NOTED THAT SUCH . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 4 CLOSING VALUE OF THE INVESTMENT WAS A SUM OF RS.17 ,00,26,330/-. LD. CIT(A) FURTHER NOTICED THAT THERE WAS FRESH INVESTMENT DUR ING THE ASSESSMENT YEAR 2005-06 TO THE TUNE OF RS.1.00 CRORE IN THE SHARES OF GODREJ UPSTREAM LTD. HE ALSO NOTICED FROM THE WORKING OF DISALLOWANCE MADE BY THE AO THAT AVERAGE RATE OF INTEREST FOR THE ASSESSMENT YEAR 2005-06 WA S 2.37%. TAKING NOTE OF ALL THESE FACTS LD. CIT(A) HAS ARRIVED AT A CONCLUSION THAT INTEREST ATTRIBUTABLE TO FRESH INVESTMENT OF RS.1.00 CRORE WAS LIABLE FOR DI SALLOWANCE AND SUCH DISALLOWANCE WAS COMPUTED AT RS.6.00 LACS BY TAKING AN AVERAGE RATE OF INTEREST AT 6%. OUT OF GENERAL EXPENSES A FURT HER DISALLOWANCE OF RS.1.00 LAC WAS MADE IN PLACE OF DISALLOWANCE MADE BY AO AT RS .40,837/-. THUS FOR ASSESSMENT YEAR 2005-06 THE DISALLOWANCE SUSTAINED BY LD. CIT(A) IS A SUM OF RS.7.00 LACS IN PLACE OF RS.23,99,799/- MADE BY THE AO. THE ASSESSEE HAS NOT FILED ANY APPEAL AGAINST THE SUSTAINED DISALLOWANCE OF RS.7.00 LACS. THE DEPARTMENT IN ITS APPEAL IS AGGRIEVED BY DELETION O F ADDITION TO THE EXTENT OF RS.16,99,799/-. 3. FOR ASSESSMENT 2006-07, ADOPTING THE SIMILAR APP ROACH LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE ON ACCOUNT OF INTEREST A T A SUM OF RS.6,17,760/- AND FURTHER DISALLOWANCE OF RS.1.00 LAC ON ACCOUNT OF EXPENSES. THE TOTAL DISALLOWANCE UPHELD BY LD. CIT(A) IS TO THE TUNE OF RS.7,17,760/- OUT OF THE ADDITION MADE BY THE AO OF RS.33,83,777/-. THE ADDI TION DELETED BY LD. CIT(A) IS A SUM OF RS.26,66,070/-. THE ASSESSEE HAS NOT F ILED ANY APPEAL AGAINST THE SUSTAINED ADDITION AND REVENUE IS AGGRIEVED BY THE DELETION OF A SUM OF RS.26,66,070/-. 4. COMING TO A.Y 2007-08 THE DISALLOWANCE HAS BEEN CALCULATED BY AO UNDER RULE 8D AT A SUM OF RS.37,41,761/-. IT CONSI ST OF TWO COMPONENTS OF RS.29,78,040/- ON ACCOUNT OF INTEREST AND RS.7,63,7 21/- ON ACCOUNT OF EXPENSES. LD. CIT(A) HAS UPHELD THE DISALLOWANCE O F INTEREST AND HAS GIVEN . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 5 PART RELIEF ON ACCOUNT OF OTHER EXPENSES OF A SUM O F RS.4,13,721/- AND ADDITION ON ACCOUNT OF OTHER EXPENSES IS REDUCED TO RS.3,50, 000/-. THE ASSESSEE IS AGGRIEVED BY THE SUSTAINED ADDITION AND HAS FILED A FOREMENTIONED APPEAL. 5. SO FAR AS IT RELATE TO DEPARTMENTAL APPEALS LD. DR RELYING UPON ASSESSMENT ORDER PLEADED THAT DISALLOWANCE WAS RIGH TLY MADE BY THE AO AND IT HAS WRONGLY BEEN PARTLY DELETED BY LD. CIT(A). HE SUBMITTED THAT ORDER PASSED BY LD. CIT(A) SHOULD BE SET ASIDE AND THAT OF AO BE RESTORED. 6. ON THE OTHER HAND, FOR DEPARTMENTAL APPEAL IT W AS SUBMITTED BY LD. AR THAT LD. CIT(A) AFTER PROPER APPRECIATION OF FACTS HAS GRANTED RELIEF TO THE ASSESSEE, THEREFORE, HIS ORDER SHOULD BE UPHELD. 7. COMING TO ASSESSEES APPEAL IT WAS SUBMITTED BY LD. AR THAT CONSIDERING THE FINDINGS OF LD. CIT(A) GIVEN IN EARLIER YEARS A N APPROPRIATE RELIEF SHOULD BE GRANTED TO THE ASSESSEE. HOWEVER, LD. DR RELIED U PON THE ORDER PASSED BY LD. CIT(A). 8. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTEN TIONS HAVE CAREFULLY BEEN CONSIDERED. IN THE ORDER PASSED FOR ASSESSMEN T YEAR 2005-06 LD. CIT(A) HAS REPRODUCED THE OBSERVATIONS OF THE AO FROM ASSE SSMENT ORDER FOR A.Y 2004-05. IT HAS BEEN ACCEPTED BY THE AO THAT NO PA RT OF THE INVESTMENT MADE AT THE END OF THE ASSESSMENT YEAR 2004-05 COULD BE ATTRIBUTED TO THE BORROWED FUNDS. THESE FACTUAL FINDINGS RECORDED BY LD. CIT( A) HAVE NOT BEEN DISPUTED BY THE REVENUE. NO MATERIAL HAS BEEN BROUGHT ON RECOR D TO SUGGEST THAT SUCH FINDINGS RECORDED BY LD. CIT(A) ARE INCORRECT. LD. CIT(A) HAS FURTHER FOUND THAT IN A.Y 2005-06 ONLY A SUM OF RS.1.00 CRORE WAS FRE SH INVESTMENT MADE BY THE ASSESSEE. ON THE ABOVE SUM OF RS.1.00 CRORE LD. CI T(A) HAS TAKEN RATE OF INTEREST AT 6% IN PLACE OF AVERAGE RATE OF INTEREST OF 2.37%. THE ASSESSEE HAS . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 6 ACCEPTED SUCH DECISION OF LD. CIT(A). CONSIDERING THESE FACTS OF THE CASE, WE ARE OF THE OPINION THAT LD. CIT(A) WAS RIGHT IN GIV ING PART RELIEF TO THE ASSESSEE. BASED ON SIMILAR FACTS, SIMILAR RELIEF WAS GIVEN IN RESPECT OF ASSESSMENT YEAR 2006-07. THE FACTS HAVE BEEN DISCUSSED IN DETAIL I N ABOVE PART OF THIS ORDER. THEREFORE, WE ARE OF THE OPINION THAT SINCE RULE 8D WAS NOT APPLICABLE FOR THE YEARS UNDER CONSIDERATION, LD. CIT(A) WAS RIGHT IN UPHOLDING THE DISALLOWANCE TO THE EXTENT OF RS.7.00 LACS AND RS.7,17,760/- FO R ASSESSMENT YEARS 2005-06 AND 2006-07 RESPECTIVELY. WE DECLINE TO INTERFERE AND DEPARTMENTAL APPEALS ARE DISMISSED. 9. NOW COMING TO APPEAL FILED BY THE ASSESSEE, IF S IMILAR APPROACH IS ADOPTED TO MAINTAIN CONSISTENCY, IT IS THE SUBMISSI ON OF THE ASSESSEE THAT FRESH INVESTMENT MADE DURING YEAR WAS ONLY A SUM OF RS.25 ,000/-. THIS FACT IS RECORDED IN THE IMPUGNED OR OF LD. CIT(A) IN PARA 2 .1. TAKING INTO CONSIDERATION SUCH FACT, THE DISALLOWANCE ON ACCOUN T OF INTEREST WILL BE SUSTAINABLE TO RS.6.00 LACS + RS.1500/- ON ACCOUNT OF ADDITIONAL INTEREST. THE TOTAL DISALLOWANCE WILL BE A SUM OF RS.6,01,500/-. ON ACCOUNT OF OTHER EXPENDITURE RS.1.00 LAC SHALL BE CONSIDERED TO BE D ISALLOWABLE AS PER EARLIER YEARS. THE TOTAL DISALLOWANCE TO BE MADE UNDER SEC TION 14A WOULD BE A SUM OF RS.7,01,500/-. THE BALANCE DISALLOWANCE IS DELETED . 10. IN THE RESULT, THE APPEALS FIELD BY THE REVENUE ARE DISMISSED AND APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/02/2014 - ) ,# . /'0 17/02/2014 ) 1 SD/- SD/- ( / SANJAY ARORA ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; /' DATED 17/02/2014 . / ITA NO. 4732&4733/MUM/2012 ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 . / ITA NO. 383/MUM/2011 ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 7 - - - - ) )) ) '*2 '*2 '*2 '*2 32#* 32#* 32#* 32#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 4 ( ) / THE CIT(A)- 4. 4 / CIT 5. 251 '*' , , / DR, ITAT, MUMBAI 6. 16 7 / GUARD FILE. -' -' -' -' / BY ORDER, (2* '* //TRUE COPY// 8 88 8 / 9 9 9 9 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . ' . ./ VM , SR. PS