VISHAL NIMITI P. LTD, NAVI MUMBAI V. ACIT 10(3), MUMBAI

ITA 5418/MUM/2010

• Counselvise Citation: 541819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: misc
• Appeal Filed On: 02-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHANTAM BOSE
• Assessee Lawyers: DAMODAR KABRA
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN (J.M) ITA NO.5418/MUM/2010(A.Y. 2007-08) VISHAL NIRMITI PRIVATE LIMITED, DEVAVRATA 205, SECTOR- 17, VASHI. NAVI MUMBAI 400 705. PAN:AACCS 9547H (APPELLANT) VS. THE ACIT 10(3), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI DAMODAR KABRA RESPONDENT BY : SHRI SHANTAM BOSE. DATE OF HEARING : 28/09/2011 DATE OF PRONOUNCEMENT : 30/09/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE O RDER DATED 30/4/2010 OF CIT(A) -22 MUMBAI RELATING TO A.Y 2007-08. THE GROUND OF APPEAL RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-22, M UMBAI, HEREINAFTER REFERRED TO AS THE CIT (APPEALS) ERRE D IN UPHOLDING THE DISALLOWANCE OF RS.5,02,003/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE IT /ACT READ WITH RULE 8D OF THE IT RULES. 2. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN MA NUFACTURING PRE- STRESSED CONCRETE SLEEPERS ETC. THE ASSESSEE EARN ED DIVIDEND INCOME OF RS. 51,333/-, WHICH DOES NOT FORM PART OF THE TOTAL INC OME OF THE ASSESSEE UNDER CHAPTER III OF THE INCOME TAX ACT, 1961 (THE ACT). THE AO INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT R.W RULE 8D OF THE INCOME TAX RULES, 1962, DISALLOWED A SUM OF RS. 5,02,003/- BEING EXPE NDITURE INCURRED BY THE ITA NO.5408/MUM/2010(A.Y. 2007-08) 2 ASSESSEE FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. ON APPEAL BY THE ASSESSEE THE CIT(A ) CONFIRMED THE ORDER OF THE AO. 3. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT FUNDS FOR MAKING INVESTMENTS WHICH YIELDED TAX FREE INCOME HA D COME CONSEQUENT TO THE AMALGAMATION AND, THEREFORE, NO DIRECT EXPENSES CAN BE ATTRIBUTED TOWARDS EARNING OF TAX FREE DIVIDEND INCOME. WE FI ND THAT THIS PLEA WAS NOT TAKEN BEFORE THE LOWER AUTHORITIES. WE ALSO NOTICE D THAT THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPEAL NO.626 OF 20 10 IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS. DY. COMMISSI ONER OF INCOME TAX,RANGE 10(2), MUMBAI & ANR. AND W.P. 758/10 GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS.DY. COMMISSIONER OF INCOME T AX RANGE 10(2), MUMBAI & ORS. BY JUDGMENT DATED 12-8-2010 HAS DEALT WITH THE DISALLOWANCE THAT CAN BE MADE U/S.14-A OF THE ACT. THE HONBLE COURT ALSO DEALT WITH THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT.LTD. 117 ITD 169 (MUM) (SB) AND HAS LAID DOWN THE FOLLOWING PROPOSITION: I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FAL LING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TAX ACT 1961, AS WAS A PPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOT AL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE O F THE PROVISIONS OF SECTION 14A(1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPAN Y IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHA RGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDER S. IN THE HANDS OF THE SHAREHOLDER AS THE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; ITA NO.5408/MUM/2010(A.Y. 2007-08) 3 III)THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF S ECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV)THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULT RA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) A ND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; VI)EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICE R IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CON SISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON TH E RECORD; VII)THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHA LL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT O R INDIRECT) IN RELATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPO RTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEV ANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E BOMBAY HIGH COURT THE ISSUE WITH REGARD TO DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY THE HON BLE BOMBAY HIGH COURT. RULE 8D SHOULD NOT BE APPLIED AND THE AO HAS TO ADO PT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL RELEVANT FACTS AND CI RCUMSTANCES AND AFTER AFFORDING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE ITA NO.5408/MUM/2010(A.Y. 2007-08) 4 MATERIAL ON THE RECORD. WE, THEREFORE, REMIT THE I SSUE TO THE A.O FOR FRESH CONSIDERATION AS STATED ABOVE. THE ASSESSEE WILL BE ENTITLED TO PUT FORTH ITS CASE THAT NO EXPENSES WERE INCURRED FOR EARNING THE TAX FREE DIVIDEND INCOME. APPEAL OF THE ASSESSEE IS TREATED AS ALLOW ED FOR STATISTICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TR EATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON TH E 30 TH DAY OF SEPT. 2011. SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 30 TH SEPT.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RF BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.5408/MUM/2010(A.Y. 2007-08) 5 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 28/9/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 28/9/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER