K. UTTAMLAL (EXPORTS ) P.LTD, MUMBAI V. ASST CIT CIR 6(2), MUMBAI

ITA 513/MUM/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2670 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: J
• Assessment Year: 2007-2008
• Appeal Filed On: 22-01-2015
• Court: TRIBUNAL
• Department Lawyers: C W ANGOLWKAR SR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCO ME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER I.T.A. NO. 513/M/2015 (ASSESSMENT YEAR: 2007 - 2008 ) M/S. K. UTTAMLAL (EXPORTS) PVT LTD., 1 ST FLOOR, BHAGWAN BHAVAN, 196 - 198 SAMUEL STREET, MUMBAI 400 009. / VS. ACIT, CIRCLE - 6(2), ROOM NO.504, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. ./ PAN : AAACK9486B ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI SUNIL HIRAWAT / RESPONDENT BY : SHRI C.W. ANGOLWKAR, SR. AR / DATE OF HEARING : 19.07.2016 / DATE OF PRONOUNCEMENT : 19.07.2016 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 22.1.2015 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 3.11.2014 FOR THE ASSESSMENT YEAR 2007 - 2008. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: - 1. ON FACTS AND IN LAW, THE LD CIT (A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,83,477/ - OUT OF INTEREST PAID U/S 14A. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO DELETE THE SAID SUM OF RS. 1,83, 477/ - . 2. ON FACTS AND IN LAW, THE LD CIT (A) HAD ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,47,542/ - OUT OF EXPENSES INSTEAD OF RS. 12,000/ - . UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO RS. 12,000/ - OUT OF EXPENSES. 3. ON FACTS AND IN LAW, THE LD CIT (A) HAD ERRED IN NOT DIRECTING THE AO TO TAX STCG @ 10% AS PER SECTION 111A, INSTEAD OF NORMAL RATE OF TAX LEVIED BY ASSESSING OFFICER. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE DIRECTED THE ASSESSING OFFICER TO TAX SHORT TERM CA PITAL GAIN @ 10%. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 7,23,039/ - FROM ITS INVESTMENTS & LTCG ON SALE OF SHARES. ASSESSEE QUANTIFIED THE DISALLOWANCE U/S 14A OF THE ACT TO RS. 33,292/ - WHEREAS, AO INVOKED 2 THE PROVISIONS OF RULE 8D OF THE IT RULES, 1962 AND QUANTIFIED THE DISALLOWANCE AT RS. 3,52,311/ - . ON APPEAL, CIT (A) CONFIRMED THE DISALLOWANCE MADE BY THE AO. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. DURING THE PROCEEDINGS BEFORE US, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE REVENUE OFFICERS IGNORED THE FACT THAT THE ASSESSMENT YEAR UNDER CONSIDERATION IS BEING 2007 - 2008 NOT COVERED BY THE PROVISIONS OF RULE 8D OF THE IT RULE, 1962 WHICH CAME INTO EXISTENCE IN SUBSEQUENT AY 2008 - 09. ON THESE FACTS, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN VIEW OF THE BINDING JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AGROVE T THE DISALLOWANCE APPLYING THE FLAT RATE OF 2% OF THE EXEMPT INCOME SHOULD MEET THE CONDITIONS OF RULE 8D(III) OF THE IT RULES. HE ALSO SUBMITTED THAT THE SAID JUDGMENT FURTHER EXPANDED TO COVER THE DISALLOWANCE UP TO 5% OF THE EXEMPT INCOME. 4. ON THE O THER HAND, LD DR FOR THE REVENUE VEHEMENTLY ARGUED FOR RESTRICTING THE DISALLOWANCE TO 5% OF THE EXEMPT INCOME. 5. AFTER HEARING BOTH THE PARTIES ON THIS ISSUE AND ON PERUSAL OF THE BINDING JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AGROVET (SUPRA), WE ARE OF THE OPINION THAT DISALLOWANCE OF A PERCENTAGE OF EXEMPT INCOME AS UPHELD BY THE HONBLE HIGH COURT, IS APPROPRIATE. FOR THE SAKE OF COMPLETENESS OF THIS ORDER THE RELEVANT PARA OF THE HIGH COURTS JUDGMENT IS EXTRACTED AS FOLLOW S: ..................... ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.2007 - 08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HA S HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: 4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HA S REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' 4. CONSIDERING THE ABOVE SETTLED POSITION OF THE ISSUE AND ALSO TAKING INTO ACCOUNT THE PECULIAR FACTUAL MATRIX OF THE PRESENT CASE, WE ARE OF THE OPINION THAT THE AO SHOULD BE DIRECTED TO RESTRICT THE DISALLOWANCE TO 5% OF THE TOTAL EXEMPT 3 INCOME IN THE LINES AS DISCUSSED BY THE HONBLE HIGH COURT REFERRED A BOVE. ACCORDINGLY , GROUND GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH JULY, 2016. SD/ - SD/ - ( SANJAY GARG ) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 19.07.2016 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI