PATODIA SYNTEX LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 5202/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79416 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-04-2014
• Assessment Year: 2004-2005
• Appeal Filed On: 16-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: SHANKARLAL JAIN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.5202/MUM/2012 (ASSESSMENT YEAR: 2004-05) M/S. PATODIA SYNTEX LIMITED RAHEJA CHAMBERS, 12 TH FLOOR 213, NARIMAN POINT MUMBAI-400 021. VS. DY. COMMISSIONER OF INCOME TAX -3(2) AAYAKAR BHAVAN ROOM NO.601, 6 TH FLOOR MUMBAI-20. (APPELLANT) (RESPONDENT) P ERMANENT ACCOUNT N O. : AAACP 4751 E ASSESSEE BY : SHRI SHANKARLAL JAIN REVENUE BY : SHRI SUNIL KUMAR DATE OF HEARING : 15/07/2014 DATE OF PRONOUNCEMENT : 25/07/2014 O R D E R PER VIJAY PAL RAO, JUDICIAL MEMBER: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 6/6/2012 OF CIT(A) FOR THE ASSESSMENT YEAR 2004-05. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS :- 1. LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.3,5O,OOO/- ON DIVIDEND EARNED OF RS.35,17,368/- U/S.14A STATIN G THAT DISALLOWANCE @10% OF THE EXEMPT INCOME IS VERY REAS ONABLE BECAUSE DEFINITELY CERTAIN AMOUNT OF BORROWED FUNDS AND ADMINISTRATIVE EXPENSES BE ALLOCABLE TO DIVIDEND AC TIVITIES WITHOUT PROPERLY APPRECIATING THE FACTS THAT DISALLOWANCE B Y THE LD. ASSESSING OFFICER IS ONLY FOR ADMINISTRATIVE EXPENS ES AND NOT FOR USER OF ANY BORROWED FUNDS. ITA NO.5202/M/12 AY:04-05 2 2. THE LD. CIT(A) ERRED IN NOT CONSIDERING THE FACT S THAT INVESTMENT MADE CONSISTS OF INVESTMENT IN ASSOCIATE COMPANIES AND SUBSIDIARIES AND INVESTMENTS BEING MADE OUT OF APPELLANT'S OWN FUNDS AND NO INVESTMENTS BEING MADE DURING THE CURRENT YEAR, THE APPELLANT HAS HARDLY SPENT ANY AMOUNT FOR EARNING OF DIVIDEND. 3. APPELLANT PRAY THAT DISALLOWANCE MADE OF RS.3,5O ,OOO/- UNDER THE PROVISION OF SECTION 14A BE DELETED. 2. THIS IS THE SECOND ROUND OF LITIGATION ON THE IS SUE OF DISALLOWANCE UNDER SECTION 14A. IN THE FIRST ROUND OF LITIGATIO N THIS TRIBUNAL REMANDED THIS ISSUE TO THE RECORD OF THE AO ON THIS ISSUE WITH THE DIRECTION TO RE-COMPUTE THE DISALLOWANCE UNDER SECT ION 14A IN THE LIGHT OF THE SPECIAL BENCH DECISION IN THE CASE OF DAGA C APITAL MANAGEMENT PVT. LTD. THE AO PASSED THE GIVING EFFECT ORDER AND COMPUTED THE DISALLOWANCE UNDER SECTION 14A AT RS.3,50,000/- BY CONSIDERING THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSID ERATION IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE(328 ITR 81) . ON APPEAL THE CIT(A) HAS CONFIRMED THE DISALLOWAN CE MADE BY AO ON THE GROUND, THAT DISALLOWANCE IS 10% OF THE EXEMPT INCOME WHICH IS REASONABLE. 3. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT TOTAL INVESTMENT IN SHARES IS RS.8.99 CRORES OUT OF WHICH THE INVESTMENT IN THE SISTER CONCERN IS RS. 8.98 CRORES, THEREFORE, ALMOS T THE ENTIRE INVESTMENT IS IN THE SHARES OF SISTER CONCERN. THE LD. AR HAS RELIED UPON THE DECISION DATED 15/01/2014 OF THIS TRIBUNAL IN THE CASE OF GA RWARE WALL ROPES VS. ACIT IN ITA NO.5408/MUM/2012 FOR ASSESSMENT YEAR 20 09-10 AND SUBMITTED THAT NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A WHEN THE INVESTMENT IS MADE IN THE GROUP CONCERN AND NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. ON THE OTHER HAND THE LD. DR HAS RELIED UPON THE ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE DISALLOWANCE @ 10% OF EXEMPT INCOME IS REASONABLE. ITA NO.5202/M/12 AY:04-05 3 4. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD WE NOTE THAT RULE 8D IS NOT APPL ICABLE FOR THE YEAR UNDER CONSIDERATION WHICH IS ALSO NOT DISPUTED BY T HE REVENUE. THE AO HAS DISALLOWED RS.3,50,000/- UNDER SECTION 10A WHIC H COMES TO 10% OF THE EXEMPT INCOME. AT THE OUTSET WE NOTE THAT 10% O F EXEMPT INCOME IS NOT A REASONABLE DISALLOWANCE UNDER SECTION 14A IN VIEW OF THE SERIES OF DECISIONS OF THE TRIBUNAL ON THIS POINT WHEREIN 2-5 % IS CONSIDERED AS A REASONABLE BASIS FOR DISALLOWANCE UNDER SECTION 14A . HENCE, WITHOUT GOING INTO THE ISSUE OF APPLICABILITY OF SECTION 14 A WE ARE OF THE VIEW THAT 2% OF THE EXEMPT INCOME WOULD BE REASONABLE AND PRO PER AMOUNT OF DISALLOWANCE UNDER SECTION 14A. ACCORDINGLY THE ORD ERS OF AUTHORITIES BELOW ARE MODIFIED TO THAT EXTENT. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH JULY, 2014. SD/- SD/- (D. KARUNAKARA RAO) ACCOUNTANT MEMBER (VIJAY PAL RAO ) JUDICIAL MEMBER MUMBAI, DATED: 25/07/2014. 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.