ITO WD 18(2)(2), MUMBAI V. PROGRESSIVE TRADERS & INVESTORS, MUMBAI

ITA 5370/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3753 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 28-10-2010
• Assessment Year: 2000-2001
• Appeal Filed On: 24-09-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T T JACCOB
• Keywords: Earning of tax free income
• Section: 14A; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I.T.A.NO. 5370/MUM/2009 ASSESSMENT YEAR : 2000-01 INCOME-TAX OFFICER-18(2)(2), PIRMAL CHAMBERS, LAL BAUG, PAREL, MUMBAI 400 012. VS. M/S. PROGRESSIVE TRADERS & INVESTORS, RAJAN HOUSE, 2 ND FLOOR, P.M. MARG, PRABHADEVI, MUMBAI 400 025. PAN: AAAFP 1722 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.T. JACCOB RESPONDENT BY : NONE O R D E R PER N.V. VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 09.07.2009 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XVIII, MUMBAI, RELATING TO THE ASSESSMENT YEAR 2000-01. 2. THE GROUNDS OF APPEAL OF THE REVENUE READS AS FOLLO WS: I) THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. II) ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD.C IT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OUT THE DISALLOWABLE INTEREST U/S.14A R.W.R.8D. III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, WHETHER THE LEARNED CIT(A) WAS RIGHT TO SET ASIDE ASSESSMEN T FOR VERIFICATION ON TAKING ANY FRESH ACTION IN ACCORDAN CE WITH LAW. IV) THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) BE SET ASIDE ON THE ABOVE GROUND AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS INVESTMENTS IN SHARES, STOCKS, DEBENTURES AND SECURITIES, EARNING COMMISSION INCOME ON SALE OF ITA NO.5370/M/2009 PROGRESSIVE TRADERS & INVESTORS. 2 AIR TICKETS AND OTHER GOODS AND SERVICES. THE ASSES SEE FILED RETURN OF INCOME FOR A.Y. 2000-01 DECLARING INCOME OF RS. 40,220/- ON 14 .8.2000. THE SAME WAS PROCESSED U/S.143(1) OF THE ACT. THEREAFTER THE ASS ESSMENT WAS REOPENED BY ISSUE OF NOTICE U/S.148 OF THE ACT DATED 31.3.2006. THE R EASONS RECORDED BY THE A.O. BEFORE ISSUING NOTICE U/S.148 READS AS FOLLOWS: IN THIS CASE THE ORIGINAL RETURN OF INCOME WAS FIL ED ON 14.8.2000 SHOWING INCOME OF RS.20,220/-. THE RETURN OF INCOME IS SUPPORTED WITH COMPUTATION OF TOTAL INCOME, P & L A/C. BALANCE SHEET, DETAILS OF INVESTMENTS AND AN NEXURES TO THE BALANCE SHEET AND P & L A/C. ON VERIFICATION OF P& L A/C. IT IS FOUND THAT THE A SSESSEE HAS SHOWN COMMISSION ON TICKETS AT RS.1,56,140/- AND COMMISSI ON ON SERVICES RS.4,461,562/- AND INTEREST RECEIVED RS.1,12,800/-. THE ASSESSEE HAS CLAIMED EXPENSES ON ACCOUNT OF INT EREST PAID OF RS.6,24,272/- AND SERVICE CHARGES OF RS.60,000/-. T HE ASSESSEE HAS MADE INVESTMENTS IN QUOTED AND UNQUOTED SHARES OF RS.35, 86,811/-. THE ASSESSEE HAS SHOWN UNSECURED LOANS OF RS.42,40,000/ - ON WHICH INTEREST APPEARS TO HAVE BEEN PAID. THE ASSESSEE HAS NOT SHO WN ANY DIVIDEND INCOME NOR ANY EXPENDITURE IN RESPECT OF THE INVEST MENT IN SHARES. ON CAREFUL CONSIDERATION OF THE STATEMENT OF AFFAIR S OF THE ASSESSEE IT IS CRYSTAL CLEAR THAT THE SOME OF THE EXPENSES CLAIMED HAVE NOT BEEN WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF EARNING OF THE INCOME. THE INTEREST BEARING FUNDS HAVE NOT BEEN FULLY UTILIZED FOR THE PURPOSE OF EARNING OF THE INCOME DURING THE YEAR. THE ASSESSE E HAS NOT SHOWN ANY EXPENDITURE AGAINST THE INVESTMENTS MADE IN SHARES. IN THE LIGHT OF THE ABOVE FACTS, I AM SATISFIED THA T THE ASSESSEE HAS UNDERSTATED THE INCOME IN THE RETURN OF INCOME FILE D, AND INCOME OF MORE THAN RS.1 LAC HAS BEEN ESCAPED ASSESSMENT WITHIN TH E MEANING OF SEC. 147 OF THE I.T.ACT AND EXPLANATION THERETO. 3. THE A.O. THEREAFTER FOUND THAT THE ASSESSEE HAD MAD E INVESTMENT IN SHARES OF RS. 35,36,811/-. HE ALSO FOUND THAT THE A SSESSEE HAD PAID INTEREST OF RS.6,42,272/- ON UNSECURED LOANS OF RS. 42,40,000/- AND PARTNERS CURRENT ACCOUNT OF RS. 4,16,723. THE ASSESSEE ALSO EARNED INTEREST IN CASE OF AN ADVANCES OF RS. 1,12,800/-. THE A.O. WAS OF THE VIEW THAT THE NET I NTEREST EXPENSES VIZ. RS. 6,42,272/- - RS.1,12,800/- = RS.5,11,472/- WAS NOT EXPENSES INCOME FOR THE ITA NO.5370/M/2009 PROGRESSIVE TRADERS & INVESTORS. 3 PURPOSE OF BUSINESS OF THE ASSESSEE AND ACCORDINGLY THE SAID SUM WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THERE IS NO REFE RENCE TO SEC.14A IN THE ORDER OF THE A.O. OR IN THE REASONS RECORDED BY THE A.O. BEF ORE ISSUE OF NOTICE U/S.148 OF THE ACT. 4. BEFORE THE CIT(A), THE ASSESSEE CHALLENGED THE VALI DITY OF REOPENING U/S.147 OF THE ACT. THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSEE WAS ONLY BECAUSE OF SEC.14A OF THE ACT WH ICH LAYS DOWN THAT ANY EXPENDITURE INCURRED TO EARN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, SHALL NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT, SHALL NOT BE ALLOWED AS A DEDUCTION. ACCORDING TO ASSESSEE PROVI SO TO SECTION 147 IS A BAR ON THE PANEL OF THE A.O. TO REASSESS U/S.147 ANY ASSES SMENT FOR ANY ASSESSMENT YEAR BEGINNING ON OR BEFORE 1.4.2001. THIS PLEA OF THE A SSESSEE WAS NOT ACCEPTED BY THE CIT(A). 5. ON MERITS THE CIT(A) DIRECTED THE A.O. TO MAKE DISA LLOWANCE IN ACCORDANCE WITH RULE 8D OF THE I.T.RULES, 1962 R.W. SECTION 14A OF THE ACT. AGAINST THE SAID ORDER OF THE CIT(A), THE REVENUE IS IN APP EAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSION OF THE LEARNED D.R. WH O RELIED ON THE ORDER OF THE A.O. THE DISPUTE REGARDING DISALLOWANC E OF EXPENSES RELATING TO THE INCOME WHICH WAS EXEMPT FROM TAX. THERE IS NO DISP UTE THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME FROM INVESTMENTS WHICH WAS E XEMPT FROM TAX AND THAT THE EXPENDITURE RELATABLE TO THE INCOME EXEMPT IS REQUI RED TO BE DISALLOWED UNDER SECTION 14A OF THE INCOME-TAX ACT. THE AUTHORITIES BELOW HAVE COMPUTED THE DISALLOWANCE AS PER RULE 8D. HOWEVER, THE HONBLE BOMBAY HIGH COURT, RECENTLY IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. L TD. VS. DCIT, IN INCOME-TAX APPEAL NO. 626 OF 2010, HAVE HELD THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION AND WOULD APPLY ONLY FROM THE ASSESSMENT YEAR 2008- 09. IN RESPECT OF PRIOR YEARS, THE HONBLE HIGH COURT OF BOMBAY HAVE HELD T HAT THE A.O. IS DUTY BOUND TO ITA NO.5370/M/2009 PROGRESSIVE TRADERS & INVESTORS. 4 DETERMINE THE EXPENDITURE WHETHER DIRECT OR INDIREC T WHICH HAD BEEN INCURRED IN RELATION TO THE EXEMPT INCOME AND THE EXPENDITURE HAD TO BE DETERMINED AFTER ADOPTING A REASONABLE BASIS OR METHOD CONSISTENT W ITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES OF THE CASE AFTER ALLOWING OPPORTUNIT Y OF HEARING TO THE ASSESSEE. THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL IS ASSE SSMENT YEAR 2006-07. THEREFORE, RULE 8D IS NOT APPLICABLE. WE, THEREFOR E, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A. O. FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY (SUPRA) AND AFTER ALLOWING OPPORTUNITY TO TH E ASSESSEE. WE, HOWEVER MAKE IT CLEAR THAT WE ARE NOT EXPRESSING ANY OPINIO N ON THE VALIDITY OF REOPENING U/S.147 AND THE QUESTION IS LEFT OPEN FOR DETERMINA TION IN CASE THE ASSESSEE HAS FILED APPEAL AGAINST ORDER OF THE CIT(A) BEFORE THE TRIBUNAL. 7. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2010. SD. SD. (RAJENDRA SINGH) (N.V. VASUDEAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED THE 10 TH NOVEMBER, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT, M.C.XVIII, MUMBAI 4. THE CIT(A)-XVIII, MUMBAI 5. THE DR C BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI