DCIT, Pune V. The Indian Card Clothing Co. Ltd., Pune

ITA 520/PUN/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3151 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 30-04-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR AND SHRI D. KARUNAKARA RAO ITA NO. 520/PN/09 (ASSTT. YEAR 2004-05) DCIT CIRCLE 10, PUNE .... APPELLANT VS. THE INDIAN CARD CLOTHING CO. LTD. BOMBAY PUNE ROAD, PIMPRI, PUNE-411018 PAN NO. AAACT6211F . RESPONDENT APPELLANT BY : SHRI ABHAY DAMLE RESPONDENT BY : SHRI NIKHIL PATHAK ORDER PER D. KARUNAKARA RAO AM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER OF THE CIT(A)-III, PUNE DATED 30-01-2009 FOR THE A.Y 2004-05. GROUNDS RAISED IN THE APPEAL ARE AS UNDER:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW THE LD. CIT(A) WAS JUSTIFIED IN NOT UPHOLDING THE DISAL LOWANCE MADE BY THE AO, ON PROPORTIONATE BASIS, IN ACCORDANCE WITH THE PROVISION OF SUBSECTION (2) & (3) OF SEC. 14A OF THE IT ACT 1961 AND IN RED UCING & RESTRICTING THE DISALLOWANCES MADE BY THE AO U/S. 14A FROM RS. 9,71, 870/- TO RS. 25,000/-. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, AND IN LAW THE LD. CIT(A0 WAS JUSTIFIED IN NOT APPLYING THE RATIO OF THE RECENT DECISION OF THE HONBLE ITAT SPECIAL BENCH MUMBAI IN THE CASE O F ITO VS. M/S. DAGA CAPITAL MANAGEMENT PVT. LTD., M/S. MAXOPP INVESTMEN T LIMITED VS. ACIT, M/S. CHEMINVEST INVESTMENT LTD. VS. ITO W.R.T. PROP ORTIONATE DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE IT ACT 1961. 2. DURING THE PROCEEDINGS BEFORE US LD. DR FOR REVENUE MENTIONED THAT ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 1,85,60,504 /- WHICH WAS CLAIMED AS ITA NO. 520/PN/09 A.Y: 2004-05 PAGE 2 OF 3 EXEMPT U/S. 10 OF I. T. ACT. DURING THE ASSESSMENT P ROCEEDINGS, THE AO INVOKED THE PROVISIONS OF SEC. 14A OF THE ACT AND HELD THAT 5% OF THE ADMINISTRATIVE EXPENSE IS ON ESTIMATION BASIS HELD AS EXPENSES INC URRED IN EARNING OF THE SAID EXEMPT INCOME. ACCORDINGLY, AO DISALLOWED THE SUM OF RS. 9,71,870/-. DURING THE FIRST APPELLATE PROCEEDINGS IT WAS SUBMITTED THA T CONCERNED INVESTMENTS WHICH YIELDED DIVIDEND INCOME WAS INVESTED OUT OF O WN FUNDS AND APPELLANT HAS NOT INCURRED ANY EXPENDITURE BY WAY OF SALARIES AND OTH ERS. FINALLY, CIT(A) HELD ONLY RS. 25,000/- IS ENOUGH FOR DISALLOWANCE AND GAV E A PART RELIEF TO THE ASSESSEE. AGGRIEVED WITH THE SAME THE REVENUE FILED A PRESENT APPEAL BEFORE US. 3. LD. DR ARGUED THAT THE ORDER OF THE CIT(A) HAS TO B E REVERSED CONSIDERING THE SPECIAL BENCH DECISION IN THE CASE OF M/S. DAG A CAPITAL MANAGEMENT PVT. LTD CITED IN THE GROUND NO. 2 OF THE APPEAL. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT THE SAID ISSUED HAS TO BE REFERRED TO THE FILES OF THE AO ONCE AGAIN FOR ADJUDICATING ISSUE AFRESH NOT ONLY CONSIDERING THE RATION OF SPECIAL BENCH DECISION IN THE CASE OF M/S. DAGA CAP ITAL MANAGEMENT PVT. LTD. 117 ITD 169 (MUM.)(SB) AND JURISDICTIONAL HIGH COURT JUDGEMENT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (BOM) 328 ITR 81 VIDE ITA NO. 626 OF 2010 AND WRIT PETITION NO. 758 OF 201 0. HE ALSO REFERRED TO RULE 8D WHICH WAS SUBSEQUENTLY INSERTED WITH EFFECT FROM 2 3-03-2008. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE ON ONE SIDE AND THE JUDGEMENT CITED ON THE OTHER, P ARA 83 ONWARDS OF THE HIGH COURT JUDGEMENT IS RELEVANT TO THE FACTS OF THE CASE. IT IS ALSO A FACT THAT RULE 8D WAS NOT IN THE STATUTE AT THE RELEVANT POINT OF TIME . IT IS RELEVANT TO REPRODUCE THE HELD PORTION OF THE SAID BINDING JUDGEMENT OF TH E HONBLE HIGH COURT WHICH READS AS FOLLOWS:- HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APPLY WITH E FFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09 , WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAD TO ENFORC E THE PROVISIONS OF SUB- SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN I NCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD S TAND REMANDED TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN ITA NO. 520/PN/09 A.Y: 2004-05 PAGE 3 OF 3 RELATION TO DIVIDEND INCOME/ INCOME FROM MUTUAL FUN DS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICE SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSE SSEE OF PRODUCING ITS ACCOUNT AND RELEVANT OR GERMANE MATERIAL HAVING A B EARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. CONSIDERING THE ABOVE NEW FACTS RELEVANT FOR DECIDI NG THE ISSUE JUDICIALLY WE ARE OF THE OPINION THAT THIS ISSUE SHOULD BE REFERRE D TO THE FILES OF THE AO FOR RE-ADJUDICATION OF THE ISSUE AFRESH CONSIDERING THE BI NDING JUDGMENTS CITED SUPRA AS WELL AS THE RULE 8D OF THE INCOME TAX RULES 1962 . AO SHALL GRANT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDING LY, GROUNDS RAISED BY THE REVENUE ARE SET ASIDE. 6. IN THE RESULT, APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE . ORDER PRONOUNCED ON 19 TH NOVEMBER, 2010. SD/- SD/- (I.C. SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBE R PUNE DATED THE 19 TH NOVEMBER, 2010 R COPY OF THE ORDER IS FORWARDED TO : 1. DCIT, CIRCLE-10, PUNE 2. ASSESSEE 3. CIT(A)-III, PUNE 4. CIT-V, PUNE 5. D.R. ITAT A BENCH BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE