HINDUSTAN DIAMOND CO. P.LTD, MUMBAI V. ADDL CIT 3(1), MUMBAI

ITA 4827/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54863 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2006-2007
• Appeal Filed On: 10-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: MITESH N SHAH
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H, MUMBAI BEFORE SHRI P.M. JAGTAP (A.M.) AND SHRI VIJAY PAL R AO (J.M.) ITA NO.4827/MUM/2010 ASSESSMENT YEAR : 2006-07 M/S. HINDUSTAN DIAMOND CO. PVT. LTD. 15 TH FLR., ATLANTA, NARIMAN POINT, MUMBAI 400 021. PAN : AAACH0400Q VS. ADDL. C.I.T. 3 (1) R.NO.620, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MITESH N. SHAH RESPONDENT BY : SHRI V.V. SHASTRI (AR) O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE LEARNED CIT (A)-VII, MUMBAI DATED 18.03.2010 AND TH E SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OF RS.1 7,21,562/- MADE BY THE AO AND CONFIRMED BY THE LD CIT(A) U/S.14A READ WITH RULE 8D OF THE INCOME TAX RULE, 1962. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF TRADING IN ROUGH DIAMOND. IN THE RETU RN OF INCOME FILED FOR YEAR UNDER CONSIDERATION, THE ASSESSEE HAD CLAIMED EXEMP TION IN RESPECT OF INCOME EARNED IN THE FORM OF DIVIDEND ON SHARE. I N THE COMPUTATION OF TOTAL INCOME, THE ASSESSEE COMPANY HAD MADE DISALLOWANCE OF RS.62,860/-ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME AS PER THE PROVISION OF SECTION 14A. IN THE ASSESSMENT COMPLETED U/S.143(3), THE AO WORKED OUT SUCH EXPENSES INCURRED BY THE ASSESSE E IN RELATION TO EXEMPT INCOME BY APPLYING RULE 8D OF INCOME TAX RULE, 1962 AT RS.17,21,562/- AND DISALLOWANCE OF THE SAID AMOUNT WAS MADE BY HIM U/S.14A. ON APPEAL, THE LD CIT(A) CONFIRMED THE SAID DISALLOWANCE MADE BY THE AO U/S.14A READ ITA NO.4827/MUM/2010 A.Y. : 2006-07 2 WITH RULE 8D RELYING ON THE DECISION OF SPECIAL BEN CH OF I.T.A.T. IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. 117 ITD 169 WH EREIN IT WAS HELD THAT RULE 8D OF INCOME TAX RULE, 1962 HAS A RETROSPECTIV E OPERATION. AGGRIEVED BY THE ORDER OF THE LD CIT(A), THE ASSESSEE HAS PRE FERRED THIS APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LD REPRESENTATIVE OF BOTH THE SIDES, THE ISSUE INVOLVED IN THIS APPEAL NOW STAND SQUARELY COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ BOYCE LTD. (2010) 234 CTR (BOM) 1, WHEREIN IT IS HELD THAT RUL E 8D OF INCOME TAX RULE, 1962 IS APPLICABLE ONLY FROM A.Y.08-09. AS FURTHE R HELD BY THE HONBLE BOMBAY HIGH COURT, DISALLOWANCE U/S.14A FOR THE YEA RS PRIOR TO ASSESSMENT YEAR 08-09 HAS TO BE MADE BY ADOPTING SOME REASONAB LE METHOD. RESPECTFULLY FOLLOWING THE SAID DECISION OF THE HON BLE JURISDICTIONAL HIGH COURT, WE SET ASIDE THE IMPUGNED ORDER OF THE LD CI T(A) ON THE ISSUE UNDER CONSIDERATION AND RESTORE THE MATTER TO THE FILE OF THE AO WITH A DIRECTION TO RECOMPUTE THE DISALLOWANCE OF THE EXPENSES WHICH HA S TO BE MADE U/S.14A BY APPLYING SOME REASONABLE METHOD AFTER GIVING THE ASSESSEE A PROPER AND SUFFICIENT OPPORTUNITY OF BEING HEARD. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 12 TH DAY OF AUGUST, 2011. SD/- (VIJAY PAL RAO) (JUDICIAL MEMBER) SD/- (P.M. JAGTAP) (ACCOUNTANT MEMBER) MUMBAI, DATED 12.08.2011 JANHAVI ITA NO.4827/MUM/2010 A.Y. : 2006-07 3 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUMBAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH , MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI