ACIT 6(3), MUMBAI V. LAXMI VENTURES INDIA LTD, MUMBAI

ITA 5089/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62310 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-05-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 30-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K B MENON
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A, MUMBAI BEFORE SHRI N.V. VASUDEVAN, J.M. AND SHRI RAJENDRA SINGH, A.M. ITA NO. : 5089/MUM/2011 ASSESSMENT YEAR : 2007-08 ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-6(3) ROOM NO.522, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. VS. M/S. LAXMI VENTURES INDIA LIMITED 36/40, MAHALAXMI BRIDGE ARCADE, MAHALAXMI MUMBAI-400 034. PAN NO: AAACL 1082 G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P.K.B. MENON RESPONDENT BY : NONE DATE OF HEARING : 14.5.2012 DATE OF PRONOUNCEMENT : 14.5.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDE R DATED 10.1.2011 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. T HE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING DISALLOWANCE O F EXPENSES UNDER SECTION 14A IN RELATION TO EXEMPT INCOME. ITA NO. 5089/M/11 A.Y.07-08 2 2. THE FACTS IN BRIEF ARE THAT THE AO DURING THE ASSESSM ENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.3,20,716/- AND LONG TERM CAPITAL GAIN OF RS.56,20,1 13/- FROM SALE OF MUTUAL FUND UNITS AND RS.7,72,688/- FROM SALE OF SHA RES WHICH WAS EXEMPT FROM TAX. THE ASSESSEE HAD HOWEVER NOT DISALLOWE D ANY EXPENSES RELATING TO EXEMPT INCOME, THOUGH THE ASSESSEE HA D ALSO INCURRED INTEREST EXPENSES OF RS.2,27,96,734/- ON BORROW INGS. THE AO THEREFORE COMPUTED DISALLOWANCE OF INTEREST UNDER SECTIO N 14A AT RS.94,54,025/- AND OTHER EXPENSES AT RS.1,50,917/- UNDE R RULE 8D. IN APPEAL, CIT(A) OBSERVED THAT RULE 8D WAS NOT APPLI CABLE IN VIEW OF THE JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CA SE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 81) IN WHICH IT WAS HELD THAT RULE 8D WAS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND IN RESPECT OF PRIOR YEARS EXPENSES BOTH DIRECT AND INDIRECT RELATIN G TO EXEMPT INCOME HAVE TO BE DISALLOWED ON A REASONABLE BASIS. CI T(A) HELD THAT IN HIS OPINION EXPENSES RELATING TO EXEMPT INCOME WOULD BE 10% OF DIVIDEND INCOME. HE, THEREFORE, DIRECTED THE AO TO D ISALLOW EXPENSES @ 10% OF DIVIDEND INCOME AGGRIEVED BY WHICH REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING OF THE APPEAL NO ONE APPE ARED ON BEHALF OF THE ASSESSEE TO REPRESENT THE CASE THOUGH NOTICE OF HEA RING HAD BEEN GIVEN WELL IN ADVANCE NOR ANY ADJOURNMENT APPLI CATION WAS ITA NO. 5089/M/11 A.Y.07-08 3 RECEIVED. WE, THEREFORE, PROCEED TO DECIDE THE APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD AND AFTER HEARING THE L D. DR WHO PLACED RELIANCE ON THE ORDER OF AO. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EX PENSES RELATING TO EXEMPT INCOME UNDER SECTION 14A OF THE IT ACT. UNDER THE PROVISIONS OF SECTION 14(2) AND 14(3), EXPENSES RELATING TO EXEMPT INCOME ARE REQUIRED TO BE COMPUTED AS PER METHOD PRESCRI BED BY THE GOVERNMENT. THE GOVERNMENT HAS SINCE NOTIFIED THE ME THOD IN THE FORM OF RULE 8D W.E.F. 1.4.2008. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. VS. DCIT (328 ITR 81) HAVE HELD THAT RULE 8D WAS APPLICABLE ONLY FROM ASSESSMENT YE AR 2008-09 AND IN RESPECT OF PRIOR YEARS, DISALLOWANCE HAD TO BE MA DE ON A REASONABLE BASIS, OF BOTH DIRECT AND INDIRECT EXPENSES AFT ER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THE AO HAD DISA LLOWED THE INTEREST AND OTHER EXPENSES AS PER RULE 8D, WHICH IS NOT APPLICABLE. CIT(A) HAS HELD THAT IT WILL BE REASONABLE TO TAKE EX PENSES @ 10% OF DIVIDEND INCOME. HE HAS NOT GIVEN ANY BASIS FOR THE SAME . THE AO HAD NOT GONE INTO THE REASONABLENESS OF THE EXPENSES AS HE APPLIED RULE 8D. IN OUR VIEW, THE REASONABLENESS OF EXPENSES REQ UIRES FRESH EXAMINATION AT THE LEVEL OF AO. WE, THEREFORE, SET A SIDE THE ORDER OF CIT(A) AND RESTORE THE ORDER TO THE FILE OF AO FOR P ASSING A FRESH ORDER ITA NO. 5089/M/11 A.Y.07-08 4 AFTER NECESSARY EXAMINATION AND AFTER ALLOWING OPPORTU NITY OF HEARING TO THE ASSESSEE. 5. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FO R STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14.5.2012. SD/- SD/- (N.V. VASUDEVAN ) JUDICIAL MEMBER (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 14.05.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.