M/S,. INFOCYBER INDIA PVT. LTD, MUMBAI V. THE ITO WD 9(2)(1), MUMBAI

ITA 491/MUM/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3603 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 01-11-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 22-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI P. M. JAGTAP, A.M I.T.A. NO.491/M/2008 ASSESSMENT YEAR: 2004-05 M/S. INFOCYBER INDIA PVT. LTD. C/O. KARNAVAT & CO. 2A KITAB MAHAL, 192, DR. D. NAORAJI ROAD, FORT MUMBAI-400 001 PAN NO: AAAC16427J INOCME TAX OFFICER WD 9(2)(1), MUMBAI (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI SUNIL HIRAWAT RESPONDENT BY : SHRI S.K. SINGH ORDER PER P.M. JAGTAP (AM) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF LEARNED CIT(APPEALS)-IX, MUMBAI DATED 18.10.2007 AN D THE SOLITARY ISSUE ARISING OUT OF THE SAME RELATES TO THE DISALLOWANCE OUT OF INTEREST MADE BY THE AO U/S.14A WHICH HAS BEEN SUSTAINED BY THE LEARNED CIT(APPEALS) TO THE EXTENT OF RS.21,06,446/-. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 28.10 .2004, DECLARING LOSS OF RS.2,43,610/-. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS NOTICED BY THE AO THAT THE ASSESSEE HAS MADE SUBSTANTIAL INVES TMENT OF RS.1,30,01,130/- IN 2 SHARES OF VARIOUS COMPANIES. SINCE THE DIVIDEND INC OME ON THE SAID INVESTMENT MADE IN SHARES WAS EXEMPT FROM TAX, THE ASSESSEE WA S CALLED UPON BY THE AO TO EXPLAIN AS TO WHY INTEREST EXPENDITURE ATTRIBUTABLE TO THE SAID INVESTMENT SHOULD NOT BE DISALLOWED IN VIEW OF THE PROVISION OF SECTI ON 14A. THE EXPLANATION OFFERED BY THE ASSESSEE IN THIS REGARD WAS NOT FOUN D ACCEPTABLE BY THE AO AND HE PROCEEDED TO MAKE DISALLOWANCE OF RS.42,12,982/- OUT OF TOTAL INTEREST EXPENDITURE OF RS.81,83,817/- CLAIMED BY THE ASSESS EE ON PRORATA BASIS. ON APPEAL, THE LEARNED CIT(APPEALS) UPHELD THE ACTION OF THE AO IN MAKING THE DISALLOWANCE OUT OF INTEREST UNDER SECTION 14A IN P RINCIPLE. HE, HOWEVER, HELD THAT THE QUANTUM OF SUCH DISALLOWANCE MADE BY THE A O WAS ON THE HIGHER SIDE KEEPING IN VIEW THAT SEGREGATION OF MIXED FUNDS INT O BORROWED FUNDS AND OWN FUNDS WAS A DIFFICULT PROPOSITION AND CO-RELATING T HE FUNDS WITH THE INVESTMENT IN SHARES WAS ALSO EQUALLY DIFFICULT. HE, THEREFORE , SUSTAINED THE DISALLOWANCE OF RS.42,12,982/- MADE BY THE AO OUT OF INTEREST EXPEN DITURE U/S.14A TO THE EXTENT OF 50% I.E. RS.21,06,446/-. STILL AGGRIEVED BY THE ORDER OF THE LEANED CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEA L BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE CASE OF GOD REJ & BOYCE MANUFACTURING COMPANY LTD. (ITA NO.626 OF 2010 DATED 12.08.2010), THE HONBLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D OF INCOME TAX RULE S, 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM ASSESSMENT YEAR 2008-09 AND QUANTUM OF DISALLOWANCE U/S.14A FOR THE YEARS EARLIER TO ASSESSMENT YEAR 20 08-09 HAS TO BE WORKED OUT BY ADOPTING SOME REASONABLE METHOD. KEEPING IN VIE W THE SAID DECISION OF HONBLE BOMBAY HIGH COURT, THE LEARNED REPRESENTATI VES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN THE PRESENT APPEA L NEEDS TO BE SENT BACK TO THE ASSESSING OFFICER FOR COMPUTING THE QUANTUM OF DISA LLOWANCES TO BE MADE OUT 3 OF INTEREST EXPENDITURE U/S.14A BY ADOPTING SOME RE ASONABLE METHOD. ACCORDINGLY, THE IMPUGNED ORDER OF THE CIT(APPEALS) ON THIS ISSUE IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF THE AO FO R COMPUTING THE DISALLOWANCE TO BE MADE OUT OF INTEREST EXPENDITURE U/S.14A BY A DOPTING SOME REASONABLE METHOD. NEEDLESS TO OBSERVE THAT THE AO SHALL OFFER SUFFICIENT OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THIS 15 TH DAY OF DECEMBER, 2010. SD/- SD/- ( D. MANMOHAN ) ( P.M. JAGTA P ) VICE PRESIDENT ACCOUNTANT MEMB ER MUMBAI, DATED : 15/12/2010 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, I - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI