M/s SPL Industry Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4896/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52611 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 16-08-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : G : NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRESI DENT AND SHRI I.P. BANSAL, JUDICIAL MEMBER ITA NO.4896/DEL/2010 ASSESSMENT YEAR : 2007-08 M/S SPL INDUSTRY LTD., 5/66, KC HOUSE, 3 RD FLOOR, PADAM SINGH ROAD, KAROL BAGH, NEW DELHI. PAN : AAACS0343R VS. ADDL. CIT, RANGE-9, C.R. BUILDING, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI S. MOHANTHY, DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 6 TH SEPTEMBER, 2010 FOR ASSESSMENT YEAR 2007-08. THE GROUNDS OF APPEAL READ AS UNDER:- 1. THE LEARNED CIT (A) ERRED IN DISALLOWING RS.24, 10,267/- U/S 14A READ WITH RULE 8D OF INCOME TAX RULES WITHOUT APPR ECIATING THE FACTS THAT THE ASSESSEE HAS NOT UTILIZED ANY BORROWED FUNDS FOR INVESTMENT IN DIVIDEND EARNING SECURITIES. THE AM OUNT OF RS.83,65,860/- INVESTED DURING THE YEAR IN MUTUAL FUND S WAS MADE OUT OF OLD RESERVE & SURPLUS AND INTERNAL ACCRUA LS. THIS HAS NOT BEEN CONSIDERED BY THE AUTHORITY BELOW. 2. THE AUTHORITY BELOW HAS ERRED IN NOT BRINGING O N RECORD ANY SATISFACTION AS TO HOW THE LOANS WERE USED FOR THE P URPOSE OF THE INVESTMENT WHICH IS CONDITION PRECEDENT BEFORE IN VOKING THE PROVISIONS OF 14A R/W RULE 8D. 3. THE ORDER PASSED BY THE LEARNED CIT (A) IS BAD IN LAW IN VIEW OF THE MANDATE OF THE HONBLE BOMBAY HIGH COURT VI DE THE DECISION IN THE CASE OF GODREJ & BOYCE CO. LTD. VS. D CIT & ANR ITA NO.4896/DEL/2010 2 (234 CTR 1) WHEREIN IT HAS BEEN HELD THAT IN VIEW OF TH E CLEAR ENUNCIATION IN THE MEMORANDUM EXPLAINING THE PROVISION OF THE FINANCE BILL 2006 AND FURTHER CLARIFICATION BY CBDT V IDE CIRCULAR NO.14 OF 2006, SUB-S. (2) OF SEC.14A IS APPLICABLE FROM A.Y. 2007-08 ONWARDS AND PROVISIONS OF RULE 8D WHICH HAV E BEEN NOTIFIED W.E.F. 24 TH MARCH, 2008 ARE APPLICABLE WITH EFFECT FROM A.Y. 2008-09. 4. THE ASSESSEE CRAVES YOUR HONOUR LEAVE TO ADD, DELETE OR MODIFY ANY GROUNDS OF APPEAL DURING THE COURSE OF HE ARING. 2. THE NOTICE OF HEARING WAS SENT TO THE ASSESSEE. HOWEV ER, NONE WAS PRESENT AT THE TIME OF HEARING. THEREFORE, WE PR OCEEDED TO DECIDE THE PRESENT APPEAL ON MERITS EX PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED DR. 3. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TEXTILES, PROC ESSING AND MANUFACTURING AND EXPORT OF GARMENTS. DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT T HE ASSESSEE HAD MADE AN INVESTMENT AMOUNTING TO ` 9,37,84,3 06/- IN THE QUOTED AS WELL AS NON-QUOTED SHARES OF INDIAN COMPANIES FROM WHERE THE DIVIDEND INCOME OF ` 1,14,927/- WAS EARNED. THE ASSESSEE DID NOT ALLOCATE ANY EXPENDITURE FOR EARNING OF THE SAID EXE MPTED INCOME. THEREFORE, REFERRING TO SECTION 14A AND THE DECISION OF THE SPECIAL BENCH OF ITAT IN THE CASE OF ITO VS. DAGA CAPITAL 117 ITD 169 AND ALSO THE DECISION OF ITAT IN THE CASE OF M/S CHEMINVEST LTD. VS. ITO, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A R EAD WITH RULE 8D AND CALCULATED THE DISALLOWANCE OF ` 24,10,267 AN D THE SAID AMOUNT WAS ADDED TO THE INCOME OF THE ASSESSEE. LEARNED CIT (A) HAS APPROVED THE ADDITION MADE BY THE ASSESSING OFFICER BY FOLLOWING THE AFOREMENTIONED DECISION OF THE SPECIAL BENCH. 4. IN THIS APPEAL, THE CASE OF THE ASSESSEE IS THAT THE DI SALLOWANCE U/S 14A COULD NOT BE MADE AS THE INVESTMENT MADE BY TH E ASSESSEE WAS OUT OF OLD RESERVES AND SURPLUS AND INTERNAL ACCRUAL S AND, HENCE, NO PART OF INTEREST EARNED BY THE ASSESSEE COULD BE ATTR IBUTED TO THE ITA NO.4896/DEL/2010 3 INVESTMENT. THE DISALLOWANCE IS MADE ON AD HOC BASIS. THE PROVISIONS OF RULE 8D COULD NOT BE INVOKED IN ACCORDANCE WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BO YCE MFG. PVT. LTD. VS. DCIT 234 CTR 1 (BOM) WHICH HAS RULED THAT RULE 8D COULD NOT BE APPLIED TO THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT Y EAR 2008- 09. ON THESE GROUNDS, THE ASSESSEE HAS AGITATED THE APPLI CABILITY OF RULE 8D AND ALSO THE ADDITION MADE BY THE ASSESSING OFFI CER WHICH HAS BEEN UPHELD BY THE CIT (A). 5. IT WAS SUBMITTED BY THE LEARNED DR THAT THOUGH RUL E 8D HAS NOT BEEN HELD APPLICABLE PRIOR TO ASSESSMENT YEAR 2008-09, BUT, AT THE SAME TIME, A REASONABLE DISALLOWANCE HAS TO BE MADE EVE N AS PER THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA) AND, THUS, HE SUBMITTED THAT TH E ORDER OF THE CIT (A) VIDE WHICH THE AFOREMENTIONED ADDITION HAS BEEN UPHELD SHOULD BE CONFIRMED. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE L EARNED DR AND HAVE ALSO CAREFULLY GONE THROUGH THE ASSESSMENT ORDE R AS WELL AS THE ORDER OF LEARNED CIT (A). IT IS SEEN THAT WHILE COMPUTING THE DISALLOWANCE, THE ASSESSING OFFICER HAS CALCULATED THE SAM E AS PER RULE 8D. THE RULE 8D HAS BEEN HELD TO BE INAPPLICAB LE PRIOR TO ASSESSMENT YEAR 2008-09. THE IMPUGNED ASSESSMENT YEAR IS 20 07-08. THE LEARNED CIT (A) ALSO HAS UPHELD THE DISALLOWANCE O NLY ON THE BASIS OF RULE 8D WHICH HAS BEEN HELD APPLICABLE RETROSPECTI VELY BY THE AFOREMENTIONED DECISION OF THE SPECIAL BENCH. THE A FOREMENTIONED DECISION OF THE SPECIAL BENCH HAS BEEN OVER-RULED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. (SUPRA). THEREFORE, THE VERY BASIS ON WHICH THE DISALL OWANCE HAS BEEN MADE DOES NOT EXIST. HOWEVER, IT IS SEEN THAT THOUGH R ULE 8D IS NOT APPLICABLE, BUT THE ASSESSING OFFICER IS DUTY BOUND TO M AKE THE DISALLOWANCE UNDER SECTION 14A AFTER CONSIDERING ALL THE FACTS AND ITA NO.4896/DEL/2010 4 CIRCUMSTANCES OF THE CASE AS OBSERVED BY HONBLE BOMBAY HIGH COURT IN THE AFOREMENTIONED CASE OF GODREJ & BOYCE MFG. PV T. LTD. (SUPRA). THEREFORE, KEEPING IN VIEW THE FACTS AND CIRCUMSTANCE S OF THE CASE, WE CONSIDER IT JUST AND PROPER TO RESTORE THIS ISSUE TO THE FILE OF ASSESSING OFFICER TO CONSIDER THE ISSUE RAISED IN THE PRESENT APPE AL DENOVO AS PER THE PROVISIONS OF LAW AFTER GIVING THE ASSESSEE A REASONAB LE OPPORTUNITY OF HEARING. THEREFORE, WE RESTORE THIS I SSUE TO THE FILE OF ASSESSING OFFICER TO RECONSIDER AND RE-ADJUDICATE THE SAM E AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF HEARING. WE DI RECT ACCORDINGLY. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . THE ORDER PRONOUNCED IN THE OPEN COURT ON 26.08.20 11. SD/- SD/- [G.E. VEERABHADRAPPA] [I.P. BANSAL] VICE PRESIDENT JUDICIAL MEMBER DATED, 26.08.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES