PATTANI EXPORT P. LTD, MUMBAI V. ITO 4(3)(1), MUMBAI

ITA 4954/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3763 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P PRASAD
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I.T.A.NO. 4954/MUM/2009 ASSESSMENT YEAR : 2006-07 M/S. PATTANI EXPORT PVT. LTD., 425, PATTANI HOUSE, KALBADEVI, MUMBAI 400 002. PAN: AAACP 2392 K VS. THE INCOME-TAX-4(3)(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SHARAD SHAH RESPONDENT BY : SHRI S.P. PRASAD O R D E R PER N.V. VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 19.06.2009 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XIV, MUMBAI, R ELATING TO THE ASSESSMENT YEAR 2006-07. 2. THE GROUNDS OF APPEAL OF THE ASSESSEE READ AS FO LLOWS: 1. THE CIT(A) ERRED IN LAW AND IN THE CIRCUMSTANCES OF THE CASE BY DISALLOWING EXPENDITURE OF RS.10,61,383/- U/S.14A READ WITH RULE 8D ON DIVIDEND INCOME EARNED OF RS.4,61,205/- WITHOUT TAKING INTO CONSIDERATION DETAILS FILED AND SUBMISSION MADE. 2. THE CIT(A) ERRED IN LAW AND IN THE CIRCUMSTANCES OF THE CASE IN APPLYING SECTION 14A IN CASE OF ASSESSEE WITHOUT ES TABLISHING NEXUS BETWEEN TAX FREE INCOME I.E. DIVIDEND INCOME EARNED AND EXPENDITURE INCURRED TO EARNED TAX FREE INCOME. 3. THE CIT(A) ERRED IN LAW AND IN THE CIRCUMSTANCES OF CASE IN OBSERVING THAT INTEREST BEARING ADVANCE ARE USED FOR GIVING I NTEREST FREE LOAN. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF SHARE TRADING AND INVESTMENTS. THE ASSESSEE WAS IN RECEIPT OF DIVIDEN D INCOME WHICH WAS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE A.O. WHILE COM PLETING THE ASSESSMENT ITA NO.4954/M/2009 PATTANI EXPORT PVT. LTD. 2 INVOKING THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D OF THE I.T.RULES, 1962 DISALLOWED A SUM OF RS. 10,61,3833/- OUT OF THE EXP ENSES DEBITED IN THE PROFIT & LOSS ACCOUNT AS ATTRIBUTABLE TO EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 3. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER GIVING RISE TO THE PRESENT APPEAL BY THE ASSESSEE BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE SUBMISSION OF THE LEARNED D.R. WHO RELIED ON THE ORDER OF THE A.O. THE DISPUTE IS REGARDING DISALLOW ANCE OF EXPENSES RELATING TO THE INCOME WHICH WAS EXEMPT FROM TAX. THERE IS NO DISPU TE THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME FROM INVESTMENTS WHICH WAS E XEMPT FROM TAX AND THAT THE EXPENDITURE RELATABLE TO THE INCOME EXEMPT IS REQUI RED TO BE DISALLOWED UNDER SECTION 14A OF THE INCOME-TAX ACT. THE AUTHORITIES BELOW HAVE COMPUTED THE DISALLOWANCE AS PER RULE 8D. HOWEVER, THE HONBLE BOMBAY HIGH COURT, RECENTLY IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. L TD. VS. DCIT, IN INCOME-TAX APPEAL NO. 626 OF 2010, HAVE HELD THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION AND WOULD APPLY ONLY FROM THE ASSESSMENT YEAR 2008- 09. IN RESPECT OF PRIOR YEARS, THE HONBLE HIGH COURT OF BOMBAY HAVE HELD T HAT THE A.O. IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHETHER DIRECT OR INDIREC T WHICH HAD BEEN INCURRED IN RELATION TO THE EXEMPT INCOME AND THE EXPENDITURE HAD TO BE DETERMINED AFTER ADOPTING A REASONABLE BASIS OR METHOD CONSISTENT W ITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE AFTER ALLOWING OPPORTUNIT Y OF HEARING TO THE ASSESSEE. THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL IS ASSE SSMENT YEAR 2006-07. THEREFORE, RULE 8D IS NOT APPLICABLE. WE, THEREFO RE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A. O. FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY (SUPRA) AND AFTER ALLOWING OPPORTUNITY TO TH E ASSESSEE. ITA NO.4954/M/2009 PATTANI EXPORT PVT. LTD. 3 5. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2010. SD. SD. (RAJENDRA SINGH) (N.V. VASUDEAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED THE 10 TH NOVEMBER, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-IV, MUMBAI 4. THE CIT(A)-XIV, MUMBAI 5. THE DR C BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI