SONAL J. KHANDWALA, MUMBAI V. JCIT RG 21(2), MUMBAI

ITA 4759/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49607 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 09-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K GUPTA SR
• Assessee Lawyers: JATIN KHANDELWALA
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SMT. ASHA VIJAY RAGHAVAN, JUDICIAL MEMBER I.T.A.NO.4759/MUM/2010 A.Y 2007-08 SONAL J. KHANDWALA, 4, KRISHNA KUNJ, JVPD SCHEME, N.S.ROAD NO.6, VILE PARLE (W), MUMBAI 400 056. PAN: AFJPK 0816 L VS. JT. COMMISSIONER OF I.T. 21(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JATIN KHANDELWALA. RESPONDENT BY : SHRI R.K.GUPTA, SR. AR DATE OF HEARING: 27/07/2011 DATE OF PRONOUNCEMENT: 29/7/2011 O R D E R PER T.R.SOOD, AM: IN THIS CASE THE HUSBAND OF THE ASSESSEE APPEARED. 2. IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED BUT BASICALLY INVOLVE TWO DISPUTES, NAMELY, 1. CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF INTEREST AMOUNTING TO RS.2,86,324/-, AND 2. CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF EXPENDIT URE U/S.14A. 3. ISSUE NO.1 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD GRANTED INTEREST FREE LOANS TO SHRI ASHOK KHANDWAL, SHRI M. A. KHAND WALA AND ANITA DALAL AMOUNTING TO RS.79,49,218/-. IT WAS ALSO NOTI CED THAT ASSESSEE HAD PAID INTEREST OF RS.27,26,806/-. ON QUERY IT WA S SUBMITTED THAT LOANS WERE GIVEN ON ACCOUNT OF BUSINESS CONSIDERATI ON AS WELL AS ITA NO.4759/M/10 2 ASSESSEE HAD CERTAIN INTEREST FREE FUNDS AVAILABLE. THE AO DID NOT ACCEPT THIS CONTENTION BECAUSE ASSESSEE HAD A NEGAT IVE CAPITAL BALANCE AND SOME OF THE INTEREST FREE LOANS HAD BEEN USED F OR SHARE TRADING PURPOSES AND ACCORDINGLY A SUM OF RS.2,86,324/- WAS DISALLOWED. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED BY THE L D. CIT(A). 4. SHRI JATIN KHANDWALA SUBMITTED THAT THERE WERE C ERTAIN INTEREST FREE FUNDS AVAILABLE AND LOANS HAVE BEEN GIVEN OUT OF THAT AND, THEREFORE, NO INTEREST COULD HAVE BEEN DISALLOWED. 5. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE HAS BEEN RECENTLY DECIDED BY THE HON'BLE BOMBAY HIG H COURT CIT VS. RELIANCE UTILITIES & POWERS LTD. [313 ITR 340] WHER EIN IT HAS BEEN HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT IF THERE WERE FUN DS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN , THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE O UT OF THE INTEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSID ERING THE FINDING OF FACT BOTH BY THE COMMISSIONER (APPEALS) AND THE TRIBUNAL. THE INTEREST WAS DEDUCTIBLE. THEREFORE, IT IS CLEAR FROM THE ABOVE THAT IF ASSES SEE CAN SHOW THAT SOME INTEREST FREE FUNDS ARE AVAILABLE, THEN DEFINI TELY A PRESUMPTION HAS TO BE MADE THAT INTEREST FREE ADVANCES HAVE BEE N GIVEN OUT OF SUCH INTEREST FREE FUNDS. SINCE THESE DETAILS ARE N OT AVAILABLE BEFORE US, THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CI T(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THIS ISSUE IN ITA NO.4759/M/10 3 THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWERS LTD. [SUPRA]/ 7. ISSUE NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT IT W AS NOTICED DURING THE ASSESSMENT PROCEEDINGS THAT ASSE SSEE HAD EARNED DIVIDEND AND LONG TERM CAPITAL GAIN INCOME WHICH WA S EXEMPT AND, THEREFORE, PROVISIONS OF SEC.14A WERE INVOKED AND 2 5% OF SUCH INCOME WAS DISALLOWED AS EXPENDITURE ON EXEMPT INCOME. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE IN VIEW OF THE SP ECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. & ORS. (2008) 119 TTJ (MUM) (S.B) 289. 8. BEFORE US, SHRI JATIN KHANDWALA SUBMITTED THAT T HE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [328 ITR 81] HAS ALREADY HELD THAT RULE 8D WIL L NOT HAVE RETROSPECTIVE APPLICATION, THEREFORE, SAME IS NOT A PPLICABLE FOR THE YEAR 2007-08 WHICH IS BEFORE US. HOWEVER, HE FAIRLY ADMI TTED THAT THE MATTER HAS TO GO BACK TO THE FILE OF THE AO FOR COM PUTING A REASONABLE DISALLOWANCE U/S.14A IN THE LIGHT OF THE DECISION O F THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LT D. VS. DCIT [SUPRA]. 9. ON THE OTHER HAND, LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AO AND THE CIT(A). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO.LTD. VS. DCIT [SUPRA] HAS HELD AS UNDER: ITA NO.4759/M/10 4 HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. 24TH MARCH, 2008 SHALL APPLY W ITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSES SING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOU ND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONA BLE 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 PROCE EDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK T O THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS 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 CONTEMPLATED UNDER S. 14A. THE ASSESSING OFFICER CA N ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PRO VIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. THUS, IT IS CLEAR THAT RULE 8D IS APPLICABLE ONLY F ROM A.Y 2008-09 AND IS NOT APPLICABLE FOR A.YR. 2007-08 WHICH ARE BEFORE U S. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MAT TER BACK TO THE FILE OF THE AO TO RECOMPUTE THE DISALLOWANCE U/S.14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 11. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICA L PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 9/7/2011. SD/- SD/- (ASHA VIJAY RAGHAVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 29/7/2011. P/-*