ACIT 8(3) (OSD), MUMBAI V. KAMAT HOTELS P. LTD, MUMBAI

ITA 5147/MUM/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62406 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 04-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MAYA NK PRIYADARSHAN
• Assessee Lawyers: R C JAIN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) AND SHRI RAJENDR A SINGH (A.M) ITA NO.5147/MUM/2011 (A.Y. 2007-08) THE DCIT 8(2), ROOM NO.216-A, AAYKAR BHAVAN, MK ROAD, MUMBAI - 20. (APPELLANT) VS. M/S. KAMAT HOTELS INDIA LTD., 70C, NEHRU ROAD, VILE PARLE (EAST), MUMBAI 400 099. PAN: AAACK 2912L (RESPONDENT) APPELLANT BY : SHRI MAYA NK PRIYADARSHAN RESPONDENT BY : SHRI R.C.JAIN DATE OF HEARING : 16/05/2012 DATE OF PRONOUNCEMENT : 16/05/2012 ORDER PER N.V.VASUDEVAN, J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 30/3/2011 OF THE CIT(A)-17, MUMBAI RELATING TO THE ASSESSMENT YEAR 2007-08. THE GROUND OF APPEAL RAISED BY THE REVENUE READS AS UND ER: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) DIRECTING THE A.O TO MAKE A REASONABLE ESTI MATE OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IN RESPEC T OF DISALLOWANCE OF RS. 14,12,298/- U/S. 14A OF THE ACT, R.W.R. 8D, WIT HOUT APPRECIATING THAT IN THE CASE OF M/S. GODREJ AND BOYCE MANUFACTU RING CO. LTD. VS. DCIT (328 ITR 81) (SUPRA), THEIR LORDSHIPS HAD UPHE LD THE CONTENTIONS OF THE UNION OF INDIA THAT RULE 8D IS REASONABLE IN ITS NATURE. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN HOT EL BUSINESS. THE ASSESSEE HAD INVESTMENT OF RS.3,99,28,672/- AND HAD EARNED DIVIDEND INCOME OF RS.16,623/-. THE AO CALLED UPON THE ASS ESSEE TO EXPLAIN AS TO WHY EXPENDITURE INCURRED IN EARNING THE DIVIDEND IN COME WHICH IS NOT ITA NO. 5147/MUM/2011 2 CHARGEABLE TO TAX SHOULD NOT BE DISALLOWED AND ADDE D TO THE TOTAL INCOME IN VIEW OF THE PROVISIONS OF SEC.14-A OF THE INCOME TA X ACT, 1961 (THE ACT), WHICH PROVIDES THAT ANY EXPENDITURE INCURRED IN EAR NING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT SHA LL NOT BE ALLOWED AS DEDUCTION IN COMPUTING TOTAL INCOME. IN RESPONSE T HE ASSESSEE SUBMITTED A WORKING OF THE DISALLOWANCE UNDER SECTION 14A OF TH E INCOME TAX ACT, 1961 (THE ACT). THE A.O HOWEVER, APPLIED RULE 8D OF THE INCOME TAX RULES, 1962 BY FOLLOWING THE DECISION OF THE SPECIAL BENCH OF I TAT IN THE CASE OF DAGA CAPITAL MANAGEMENT, WHEREIN IT WAS HELD THAT RULE 8 D WHICH THOUGH WAS INSERTED FROM 1/4/2008 WAS RETROSPECTIVE IN OPERATI ON. THE A.O ACCORDINGLY WORKED OUT THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT AT RS. 14,12,298/- . 3. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FOL LOWS: 4.3 THE SUBMISSION HAS BEEN CONSIDERED. THE JURISD ICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. LTD THOU GH HELD THAT RULE 8D WAS NOT RETROSPECTIVE IN OPERATION HAD OBSERVED THAT THE AO COULD FOR PRIOR ASSESSMENT YEARS ENFORCE THE PROVISIONS O F SUB SECTION (1) OF SECTION 14A AND MAKE REASONABLE ESTIMATE OF DISALLO WANCE CONSIDERING FACTS OF THE CASE. THE ARGUMENT THAT ONLY DIRECT EX PENDITURE INCURRED CAN BE CONSIDERED FOR THE DISALLOWANCE CANNOT BE AC CEPTED. THE CONTENTION THAT NO PART OF INTEREST CLAIMED WAS DIS ALLOWABLE IS ACCEPTABLE SUBJECT TO VERIFICATION BY THE AO. IN TH E FACTS AND CIRCUMSTANCES THE AO IS DIRECTED TO VERIFY AND MAKE A REASONABLE ESTIMATE OF EXPENSES ATTRIBUTABLE TO EARNING OF EXE MPT IN ACCORDANCE WITH DIRECTIONS ABOVE. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. IN OUR VI EW THE DIRECTIONS OF THE CIT(A) DO NOT CALL FOR ANY INTERFERENCE. THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE LTD. 328 ITR 81(BOM ) HAS HELD THAT RULE 8D ITA NO. 5147/MUM/2011 3 IS NOT APPLICABLE UPTO ASSESSMENT YEAR 2007-08 AND IN THOSE YEARS DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS TO BE MADE ON A REASONABLE BASIS. SINCE THE AO HAD APPLIED RULE-8D OF THE RUL ES WHILE MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE SAME CANNOT BE SUSTAINED. THE CIT(A) WAS, THEREFORE, JUSTIFIED IN DIRECTING T HE AO TO MAKE A REASONABLE DISALLOWANCE AFTER DUE VERIFICATION. WE, THEREFORE , CONFIRM THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. 6. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 16 TH DAY OF MAY 2012 SD/- SD/- (RAJENDRA SINGH ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 16 TH MAY 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.