INSYS HOLDINGS P. LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 523/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71842 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 11-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 19-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: HIREN P DOSHI; MILIN T DATTANI
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, A CCOUNTANT M EMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ./ I.T.A. NO.522/M/2011 (AY: 2005 - 2006) ./ I.T.A. NO.523/M/2011 (AY: 2007 - 2008) M/S. INSYS HOLDINGS PRIVATE LIMITED, 53, MAKER CHAMBERS - VI, 220 NARIMAN POINT, MUMBAI 21. / VS. DCIT - 3(2), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. ./ PAN : AAACI 6856 M ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI MILIN T DATTANI & MR. HIREN P DOSHI / REVENUE BY : SHRI O.P. MEENA, DR / DATE OF HEARING : 11.11.2013 / DATE OF PRONOUNCEMENT : 06 .12.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION. BOTH THE APPEALS ARE FILED BY THE ASSESSEE ON 19.1.2011 AGAINST THE DIFFERENT ORDERS OF CIT (A) - 7, MUMBAI FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08. SINCE, THE ONLY ISSUE RAISED IN BOTH THE APPEALS IS IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, THESE TWO APPEALS ARE CLUBBED, HEARD COMBINEDLY AND BEING DISPOSED IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS G IVEN IN THE FOLLOWING PARAGRAPHS. 2. SINCE, IN BOTH THESE APPEALS, THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS IDENTICAL EXCEPT THE DIFFERENCE IN THE FIGURES, WE SHALL TAKE UP THE GROUND WITH REGARD TO THE AY 2005 - 06 WHICH READS AS UNDER: THE CI T (A), ERRED IN CONFIRMING DISALLOWANCE U/S 14A OF THE INCOME ACT, 1961 OF RS. 38,59,060. 3. THE ONLY ISSUE EMANATING FROM THE ABOVE GROUNDS IS THE DISALLOWANCE OF RS. 2,28,944/ - U/S 14A MADE BY THE AO AND CONFIRMED BY THE CIT (A). DURING THE 2 ASSESSMENT PROCEEDINGS, AO DISALLOWED 99% OF THE EXPENDITURE APPEARING IN THE P & L ACCOUNT INCLUDING THE DEPRECIATION IN THE AY 2008 - 2009. ENTIRE EXPENDITURE WAS DISALLOWED AS RELATABLE TO THE EXEMPT INCOME. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE THE FIRST APPELL ATE AUTHORITY. DURING THE FIRST APPELLATE PROCEEDINGS, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, CIT (A) DISMISSED THE APPEAL. AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED G ROUND FOR THE TWO AYS 2005 - 06 AND 2007 - 2008. 4. DURING THE PROCEEDINGS BEFORE US, A T THE OUTSET, SHRI MILIN T DATTANI & MR. HIREN P DOSHI , LD COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 AND MENTIONED THAT THE IN VIEW OF THE ABOVE MENTIONED JUDGMENT OF THE, THE ITAT HAS TAKEN THE VIEW THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME. IN THIS REGARD, LD COUNSEL FILED THE DECISION OF THE ITAT, MUMBAI G BENCH IN THE CASE OF M/S. GODREJ AGROVET LTD VS. ACIT VIDE ITA NO. 1629/MUM/2009, DATED 17 TH SEPTEMBER, 2010 IN SUPPORT OF THEIR CONTENTIONS. 5 . ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6 . WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS C ANNOT 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 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSM ENT 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 3 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIB UNAL HAS 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. ' 7. CONSIDERING THE BINDING NATURE OF THE JUDGMEN T OF , WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HONBLE HIGH COURT . ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE IN BOTH THE ASSESSMENT YEARS ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, TWO APP EAL S OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOU NCED IN THE OPEN COURT ON 0 6 T H DECEMBER, 2013. S D / - S D / - ( VIVEK VARMA ) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 6 .12 .2013 . . ./ 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