CONCEPT LABORATORIES P. LTD, MUMBAI V. ITO 10(1)(1), MUMBAI

ITA 5265/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55030 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 25-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASHTRI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C BEFORE SHRI D. MANMOHAN (VP) & SHRI T.R. SOOD (AM) I.T.A.NO. 5265/MUM/2010 (ASSESSMENT YEAR : 2006-07) CONCEPT LABORATORIES P. LTD. 167, C.S.T. ROAD KALINA, SANTACRUZ WEST MUMBAI-400 098. VS. ITO 10(1)(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. PAN/GIR NO. : AAACC2013Q ASSESSEE BY : NONE DEPARTMENT BY : SHRI V.V. SHASHTRI DATE OF HEARING : 30.8.2011 DATE OF PRONOUNCEMENT : 30.8.2011 ORDER PER D. MANMOHAN (VP) :- THIS IS AN APPEAL FILED AT THE INSTANCE OF THE ASS ESSEE-COMPANY AND IT PERTAINS TO A.Y. 2006-07. 2. THOUGH THE NOTICE, FIXING THE CASE FOR HEARING, WAS SENT TO THE ASSESSEE BY RPAD, NONE APPEARED ON BEHALF OF THE AS SESSEE. WE THEREFORE PROCEED TO DISPOSE OF THE APPEAL EX-PARTE, QUA THE ASSESSEE. 3. FACTS NECESSARY FOR THE DISPOSAL OF THE APPEAL A RE STATED IN BRIEF. THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PHARMACEUTICAL BULK DRUGS. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2006-07 THE ASSESSEE RECEIVED A SUM OF ` 2,04,000/- REFERABLE TO DIVIDEND ON SHARES AND MUTUAL FUND. THE ASSESSING O FFICER WAS OF THE OPINION THAT THE ASSESSEE OUGHT TO HAVE INCURRED SO ME EXPENDITURE IN ORDER TO EARN DIVIDEND, WHICH IS OTHERWISE EXEMPT, AND HENCE A SHOW- CAUSE NOTICE WAS ISSUED CALLING UPON THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE U/S. 14A SHOULD NOT BE MADE. IN RESPON SE TO THE SAME THE ASSESSEE-COMPANY SUBMITTED THAT IT HAS NOT INCURRED ANY DIRECT OR INDIRECT COST TO EARN EXEMPT INCOME. WITHOUT PREJUD ICE, RULE 8D IS APPLICABLE FROM THE DATE OF NOTIFICATION AND HENCE IT IS NOT APPLICABLE TO CONCEPT LABORATORIES P. LTD. 2 THE YEAR UNDER CONSIDERATION. IT WAS ALSO CONTENDED THAT THERE WAS NO BORROWED FUND IN THIS COMPANY AND HENCE RULE 8D IS NOT APPLICABLE. 4. THE ASSESSING OFFICER WAS HOWEVER OF THE OPINION THAT RULE 8D IS APPLICABLE TO THE INSTANT CASE AND ACCORDINGLY WORK ED OUT THE AMOUNT DISALLOWABLE U/S. 14A READ WITH RULE 8D. IN HIS OPI NION 0.5% OF THE AVERAGE INVESTMENT ( ` 43,62,000) DESERVES TO BE DISALLOWED AND DETERMINED THE SAID FIGURE AT ` 21,810/-. AGGRIEVED, THE ASSESSEE CONTENDED BEFORE THE FIRST APPELLATE AUTHORITY THAT THERE WAS NO FRESH INVESTMENT DURING THE YEAR AND NO EXPENDITURE WAS I NCURRED TO EARN THE SAID DIVIDEND AND SINCE IT HAD NO CONTROL OVER THE EARNING OF DIVIDEND INCOME AND NO FURTHER EFFORTS OR COST WAS REQUIRED TO BE INCURRED TO COLLECT THE DIVIDEND INCOME, NO DISALLOWANCE IS CAL LED FOR. 5. LEARNED CIT(A) WAS NOT CONVINCED WITH THE EXPLAN ATION OF THE ASSESSEE-COMPANY. HE OBSERVED THAT ONCE DIVIDEND IN COME HAS BEEN EARNED WHICH HAS BEEN CLAIMED AS EXEMPT, OPERATION OF PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE MANDATORY AND IT IS THE DUTY OF THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE. THU S HE CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER BY APPLY ING THE DECISION OF ITAT, MUMBAI SPECIAL BENCH IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT, 117 ITD 169. HOWEVER THE ASSESSING OFF ICER HAVING MADE CERTAIN ARITHMETICAL MISTAKES IN CALCULATION OF THE AMOUNT DISALLOWABLE U/R. 8D, TO THAT EXTENT THE ASSESSING OFFICER WAS D IRECTED TO GRANT RELIEF. IN OTHER WORDS, THE APPEAL FILED BY THE ASSESSEE WA S TREATED AS PARTLY ALLOWED. 6. FURTHER AGGRIEVED, THE ASSESSEE-COMPANY IS IN AP PEAL BEFORE US. AS COULD BE NOTICED FROM THE GROUNDS OF APPEAL THE ASSESSEE-COMPANY REITERATED THE STAND EVEN BEFORE US. WE HAVE ALSO H EARD LEARNED DEPARTMENTAL REPRESENTATIVE AND CAREFULLY PERUSED T HE RECORD. ADMITTEDLY, IN THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. DCIT , 328 ITR 81 (BOM), RULE 8D IS NOT RETROSPECTIVE IN ITS OPERATION AND T HUS IT IS NOT APPLICABLE IN A.Y. 2006-07. HOWEVER ANY EXPENDITURE INCURRED F OR THE PURPOSE OF EARNING EXEMPT INCOME CAN STILL BE WORKED OUT FOR T HE PURPOSE OF CONCEPT LABORATORIES P. LTD. 3 COMPUTING DISALLOWANCE U/S. 14A OF THE INCOME TAX A CT. THE ASSESSEE IS NOT PRESENT BEFORE US. HAVING REGARD TO THE FACT TH AT THE ASSESSEE INVESTED ABOUT ` 43,00,000/-IN SHARES AND MUTUAL FUND SOME TIME HAS TO BE INVESTED BY THE STAFF OF THE ASSESSEE TO MONI TOR AS TO WHETHER ALL THE DIVIDENDS WERE RECEIVED AND WHETHER THEY WERE PROPE RLY DEPOSITED IN THE BANK AND, IF NECESSARY, IT HAS TO CORRESPOND WITH T HE PARTICULAR ORGANIZATION. BEARING IN MIND THE FACT THAT THE DIV IDEND AMOUNT IS ONLY ` 2,04,000/- AND ALSO TO GIVE FINALITY TO THE ISSUE W E DEEM IT FAIR AND REASONABLE TO ESTIMATE EXPENDITURE AT 2,000/- REFER ABLE TO EXPENDITURE THAT WOULD HAVE BEEN INCURRED FOR THE PURPOSE OF EA RNING DIVIDEND INCOME, BY APPLYING SECTION 14A OF THE ACT (RULE 8D IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION). WE DIRECT THE ASSESS ING OFFICER TO RESTRICT THE DISALLOWANCE TO ` 2,000/- ONLY AS AGAINST ` 21,810/-. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE-COMP ANY IS PARTLY ALLOWED. PRONOUNCED ACCORDINGLY IN THE OPEN COURT ON 30.8.2 011. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (D. MANMOHAN) VICE-PRESIDENT DATED : 30 TH AUGUST, 2011. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS