DCIT 1(1), MUMBAI V. HARSHDRAY P. LTD, MUMBAI

ITA 5303/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55359 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 22-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 28-06-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI R.S. SYAL, A.M. AND SHRI V. DURGA RAO, J.M. ITA NO. 5303/MUM/2010 ASSESSMENT YEAR : 2007-08 DY. COMMISSIONER OF INCOME-TAX-1(1), APPE LLANT ROOM NO. 579, AAYAKAR BHAVAN, MUMBAI 400 020 VS. M/S HARSHADRAY PVT. LTD., RESPONDENT 5 TH FLOOR, JIJI HOUSE, DS MARG, FORT, MUMBAI 400 001. (PAN AAACH2770B) APPELLANT BY : MR. V.V. SHASTRI RESPONDENT BY : MR. DHARMESH SHAH DATE OF HEARING : 22/09/2011 DATE OF PRONOUNCEMENT : 30/09 /2011 ORDER PER V. DURGA RAO, J.M.: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF CIT(A)- 1, MUMBAI, PASSED ON 15/02/2010 FOR THE ASS ESSMENT YEAR 2007-08 WHEREIN THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS OF APPEAL:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, AND IN LAW THE CIT(A) ERRED IN RESTRICTING THE DISALLOW ANCE OF RS. 11,59,858/- TO RS. 55,648, HOLDING THAT NO INTEREST BEARING FUNDS WERE DIVERTED FOR INVESTMENT. THE LD. CIT(A) HAS FURTHER ERRED IN ADMITTING ADDIT IONAL EVIDENCE IN VIOLATION TO RULE 46A OF THE INCOME TAX RULES, 1 962. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE HAD CLAIMED THE EXEMPT INCOME OF RS. 2,23,95,152/-. THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE HAD DISALLOWED THE EXPENDITURE OF RS. 14,34,948/- U/S 1 4A OF THE ACT. ON ITA NO. 5303 /MUM/2010 M/S HARSHADRAY PVT. LTD. 2 BEING ASKED BY THE AO TO THE ASSESSEE TO SHOW CAUSE AS TO WHY THE DISALLOWANCE BE NOT MADE U/S 14A OF THE ACT IN RESP ECT OF THE EXPENSES INCURRED FOR EARNING THE INCOME CLAIMED AS EXEMPT AS PER RULE 8D, THE ASSESSEE HAD FILED HIS EXPLANATIONS AN D SUBMITTED THAT IT HAD ALREADY MADE THE DISALLOWANCE OF RS. 14,34,948/ - U/S 14A AND NO FURTHER DISALLOWANCE IS CALLED FOR AND SUBMITTED TH AT RULE 8D IS NOT APPLICABLE FOR THE UNDER CONSIDERATION. THE AO AFTE R CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND FOLLOWING THE SPECI AL BENCH DECISION OF ITAT IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PVT. LTD., WORKED OUT THE DISALLOWANCE AT RS. 25,94,806/ U/S 14A OF T HE ACT. SINCE THE ASSESSEE ITSELF HAD DISALLOWED THE SUM OF RS. 14,34 ,948/-, ONLY THE SUM OF RS. 11,59,858/- ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE CIT(A) DISCUSSED THE ISSUE AT LENGTH IN HIS ORDER AND RESTRICTED THE DISALLOWANCE TO RS. 55,648/-. AGGRIE VED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE THE TRIB UNAL AGAINST THE ACTION OF THE CIT(A) IN RESTRICTING THE DISALLOWANC E TO RS. 55,648/- AS AGAINST THE DISALLOWANCE OF RS. 11,59,858/- MADE BY THE AO. 3. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE ASSESSEE IS HAVING OWN FUNDS AND ALSO BORROWED FUND S, THEREFORE, THE PRESUMPTION GOES IN FAVOUR OF THE ASSESSEE. FOR THI S, HE RELIED ON THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF RELIANCE UTILITIES AND POWER LTD. [2009] 313 ITR 34 0 (BOM.) WHEREIN IT WAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST-FREE AN D OVERDRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION W OULD ARISE THAT INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GEN ERATED OR AVAILABLE WITH THE COMPANY, IF THE INTEREST FREE FUNDS WERE S UFFICIENT TO MEET THE INVESTMENTS. 4. AFTER HEARING THE LEARNED DR AND PERUSING THE RE CORD, WE FIND THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED BY TH E JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ & BOYCE MFG. ITA NO. 5303 /MUM/2010 M/S HARSHADRAY PVT. LTD. 3 CO. LTD., [2010] 328 ITR 81 (BOM.) WHEREIN THE HON BLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE AO HA D TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. F OR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE W HICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER TH E ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) I N RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECT ION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE A PPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROV IDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING O N THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE JU RISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK T O THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIG HT OF THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT A FTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 6. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF SEPTEMBER, 2011. SD/- SD/- (R.S. SYAL) ( V. DURGA RAO) ACCOUNTANT MEMBER JUDI CIAL MEMBER MUMBAI, DATED: 30 TH SEPTEMBER, 2011 KV ITA NO. 5303 /MUM/2010 M/S HARSHADRAY PVT. LTD. 4 COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE, H BENCH, I.T .A.T., MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR, I.T.A.T., MUMBAI.