TANDON INFORMATION SOLUTIONS P.LTD, MUMBAI V. DCIT 8(3), MUMBAI

ITA 5392/MUM/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0652 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 23-03-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Earning of tax free income
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 5392 /M/2013 ASSESSMENT YEAR: 20 1 0 - 1 1 M/S. TANDON INFORMATION SOLUTIONS P. LTD., UNIT NO.5 SDF - 1, SEEPZ , ANDHERI (E), MUMBAI 400 0 96 PAN: AAACT2558B VS. DCIT 8(3), AAYAKAR BHAVAN, 2 ND FLOOR, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI RAHUL K. HAKANI, A.R. REVENUE BY : SHRI NEIL PHILIP, D.R. DATE OF HEARING : 23.03. 201 5 DATE OF PRONOUNCEMENT : 27.05. 2015 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER DATED 10.05.2013 OF THE COM MISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER REFERRED TO AS CIT(A)] RELEVANT TO ASSESSMENT YEAR 2010 - 11. 2. THE SOLE ISSUE TAKEN BY THE ASSESSEE , THROUGH ITS GROUNDS OF APPEAL, IS RELATING TO DISALLOWANCE OF RS.5,25,918/ - UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO), DURING THE ASSESSMENT PROCEEDINGS, NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS IN THE SHARES FOR THE PURPOSE OF EARNING EXEMPT INCOME BEING DIVIDEND. HE ASKED THE ASSESSEE AS TO WHY THE DISALLOWANCE NOT BE COMPUTED UNDER SECTION 14A AS PER THE PROVISIONS OF RULE 8D. THE ASSESSEE EXPLAINED ITA NO.5392/ M/2013 M/S.TANDON INFORMATION SOLUTIONS P. LTD. 2 THAT IT HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO THE INVESTMENTS MADE AND NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A. HOWEVER, AS ASKED BY THE AO, THE ASSESSEE SUBMITTED THE WORKING OF THE DETAILS AS PER RULE 8D. THE AO DID NOT AGREE WITH THE SUBMISSION OF THE ASSESSEE AND MADE DISALLOWANCE UNDER RULE 8D AS PER THE WORKING GIVEN BY THE ASSESSEE. 3. IN APPEAL, T HE LD. CIT(A) CONFIRMED THE DISALLOWANCE S O MADE BY THE AO. THE ASSESSEE HAS, THUS, COME IN APPEAL BEFORE US. 4. THE LD. A.R. OF THE ASSESSEE, BEFORE US, HAS SUBMITTED THAT THE ASSESSEE DID NOT RECEIVE ANY EXEMPT INCOME DURING THE YEAR AND HENCE NO DIS ALLOWANCE UNDER SECTION 14A WAS WARRANTED. HE, IN THIS RESPECT, HAS RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DELITE ENTERPRISES ITA NO.110 OF 2009 DECIDED ON 26.02.09. HE HAS FURTHER SUBMITTED THAT ALL THE INVEST MENTS MADE BY THE ASSESSEE WERE STRATEGIC INVESTMENTS IN ITS SUBSIDIARIES . THE INVESTMENTS WERE NOT MADE FOR THE PURPOSE OF EARNING OF DIVIDEND INCOME. HE HAS FURTHER STRESSED THAT NO INVESTMENTS WERE MADE DURING THE YEAR. NO BORROWED FUNDS WERE USED FO R THE PURPOSE OF INVESTMENT. HE, THEREFORE, HAS STRESSED THAT NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A FOR THE YEAR UNDER CONSIDERATION. THE LD. A.R. HAS FURTHER SUBMITTED THAT THE WORKING UNDER RULE 8D WAS GIVEN ON THE ASKING OF THE AO WHEREAS , V IDE SUBMISSIONS DATED 27.06.12 AND IN REPLY TO THE NOTICE SECTION 142(1) VIDE LETTER DATED 07.11.12, IT WAS SPECIFICALLY SUBMITTED BEFORE THE AO THAT IN THIS CASE , NO DISALLOWANCE WAS WARRANTED UNDER SECTION 14A. THE LD. D.R., ON THE OTHER HAND, HAS REL IED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF THE L D. REPRESENTATIVES OF THE PARTIES . ADMITTEDLY, THE AO, IN THIS CASE, HAS STRAIGHT AWAY APPLIED RULE ITA NO.5392/ M/2013 M/S.TANDON INFORMATION SOLUTIONS P. LTD. 3 8D FOR COMPUTATION OF DISALLOWANCE UNDER SECTION 14A . HE HAS NOT CONSIDERED THE SUBMISSIONS OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE IN RELATION TO EARNING OF DIVIDEND INCOME. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81, THE HON'BLE BOM BAY HIGH COURT HAS HELD THAT UNDER SECTION 14A OF THE ACT, RESORT CAN BE MADE TO RULE 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY T HE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE ASSESSING OFFICER HAS TO BE ARRIVED AT, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB SECTION (2) DOES NOT IPSO FACTO ENABLE THE ASSESSING OFFICER TO APPLY THE METHOD PRESCRIBED BY TH E RULES STRAIGHTAWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT SUCH EXPENDITURE IS CORRECT. THE SATISFACTION OF THE ASSESSING OFFICER MUST BE ARRIVED AT ON AN OBJECTIVE BASIS. IN A SITUATION WHERE THE ACCOUNTS OF THE ASSESSEE FU RNISH AN OBJECTIVE BASIS FOR THE ASSESSING OFFICER TO ARRIVE AT A SATISFACTION IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THERE WOULD BE NO WARRANT FOR TAKING RECOURSE TO THE METHOD PRESCRIBED BY THE RULES. AN OBJECTIVE SATISFACTION CONTEMP LATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 6. WE MAY FURTHER OBSERVE THAT THE HONBLE DELHI HIGH COURT IN A RECENT DECISION HAS FURTHER GIVEN A SIMILAR VIEW IN THE CASE OF CIT VS. TAIKISHA ENGINEERING INDIA LTD. (SUPRA) WHEREIN THE HONBLE DELHI HIGH COURT HAS HELD THAT THE AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IS REQUIRED TO RECORD HIS SATISFACTION THAT THE SELF OR VOLUNTARILY EXPENDITURE OF FERED BY THE ASSESSEE OR CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO ITA NO.5392/ M/2013 M/S.TANDON INFORMATION SOLUTIONS P. LTD. 4 EARNING OF EXEMPT IN COME WAS NOT CORRECT OR THE SAME WAS UNSATISFACTORY ON EXAMINATION OF THE ACCOUNTS OF THE ASSESSEE. WITHOUT RECORDING SUCH A SATISFACTION HE CANNOT PROCEED TO APPLY RULE 8D FOR THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A. 7. HOWEVER, A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE AO HAS NOT FOLLOWED THE GUIDELINES OF OBJECTIVE SATISFACTION AS LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) WHILE MAKING THE DISALLOWANCE . HE WITHOUT RECORDING ANY REASONING FOR HIS DISSATISFACTION WITH REGARD TO THE WORKING/CLAIM OF THE ASSESSEE, STRAIGHTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT. THE LD. CIT(A) ALSO IGNORED THE MANDATE OF THE PROVISIONS OF SECTION 14 A, WHILE CONF IRMING THE DISALLOWANCE. THE OTHER CONTENTIONS RAISED BY THE ASSESSEE HAVE ALSO NOT BEEN LOOKED INTO BY THE AO WHILE MAKING THE DISALLOWANCE UNDER SECTION 14A. WE THEREFORE THINK IT PROPER TO RESTORE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE A FRESH IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER DULY CONSIDERING THE SUBMISSIONS OF THE ASSESSEE ON THE ISSUE. NEEDLESS TO SAY THAT THE AO WILL GIVE PROPER OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 8. IN THE RESULT, THE APPEAL OF THE ASS ESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27.05. 201 5 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, DATED: 27.05.2015 . * KISHORE , SR. P.S. ITA NO.5392/ M/2013 M/S.TANDON INFORMATION SOLUTIONS P. LTD. 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //T RUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.