SHREE SATYANARAYAN INVESTMENTS CO. LTD, MUMBAI V. DCIT CIR 1(3), MUMBAI

ITA 5442/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5834 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 03-03-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 29-08-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: P R KOTHARI
• Keywords: Opportunity of being heard; Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEM BER . / ITA NO. 7883 /MUM./201 1 ( / ASSESSMENT YEAR : 2 002 0 3 ) . / ITA NO. 5441 /MUM./2012 ( / ASSESSMENT YEAR : 2004 05 ) . / ITA NO. 5442 /MUM./2012 ( / ASSESSMENT YEAR : 20 05 06 ) . / ITA NO. 749 /MUM./2012 ( / ASSESSMENT YEAR : 20 07 08 ) SHREE SATYANARAYAN INVESTMENTS CO. LTD. 3 RD FLOOR, SHREE NIWAS HOUSE HAZARIMAL SOMANI MARG, FORT MUMBAI 400 001 .. / APPELLANT V/S INCOME TAX OFFICER, WARD 1(3)(2) 541, AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .... / RESPONDENT ./ PERMANENT ACCOUNT NUMBER AABCS4627H / ASSESS EE BY : MR. P.R. KOTHARI / REVENUE BY : MR. ASHOK SURI / DATE OF HEARING 0 4 .0 3 .201 4 / DATE OF ORDE R 28.03.2014 SHREE SATYANARAYAN INVESTMENTS CO. LTD. 2 / ORDER / PER BENCH THE AFORESAID APPEAL S HAVE BEEN PREFE RRED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER DATED 9 TH AUGUST 2011, FOR THE ASSESSMENT YEAR 2002 03, ORDER DATED 13 TH JUNE 2012, FOR THE ASSESSMENT YEAR 2004 05 AND 2005 06 AND ORDER DATED 4 TH NOVEMBER 2013 , FOR THE ASSESSMENT YEAR 20 07 08 RESPECTIV ELY , PASSED BY THE LEARNED COMMISSIONER (APPEALS) II , MUMBAI . 2 . THE SOLE COMMON GROUND RAISED BY THE ASSESSEE IN ALL THE YEARS UNDER APPEAL IS, WHETHER OR NOT THE LEARNED COMMISSIONER (APPEALS) WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE UNDER SECTION 14A OF ` 95,609 FOR THE ASSESSMENT YEAR 2002 03, ` 7,66,639 FOR THE ASSESSMENT YEAR 2004 05, ` 8,57,174 FOR THE ASSESSMENT YEAR 2005 06 AND ` 10,09,769 FOR THE ASSESSMENT YEAR 2007 08 MADE BY THE ASSESSING OFFICER AFTER INVOKING THE PROVISIONS OF RULE 8D. 3 . SI NCE ALL THESE APPEALS PERTAIN TO THE SAME ASSESSEE INVOLVING COMMON ISSUES ARISING OUT OF IDENTICAL SET OF FACTS AND CIRCUMSTANCES, THEREFORE, AS A MATTER OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF THIS CONSOLIDAT ED ORDER. HOWEVER, IN ORDER TO UNDERSTAND THE IMPLICATION, IT WOULD BE NECESSARY TO TAKE NOTE OF THE FACTS OF ONE APPEAL. WE ARE, ACCORDINGLY, NARRATING THE FACTS, AS THEY APPEAR IN THE APPEAL IN ITA NO. 7883 /MUM./201 1 , FOR ASSESSMENT YEAR 20 02 03. SHREE SATYANARAYAN INVESTMENTS CO. LTD. 3 4 . FACTS IN BRIEF : THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCING AND INVESTMENTS AND THE MAJOR SOURCE OF INCOME IS BY WAY OF DIVIDEND AND INTEREST INCOME. IN THIS CASE, THE DISALLOWANCE UNDER SECTION 14A WAS MADE BY THE ASSESSING OFFICER VIDE ORDER DATED 24 TH MARCH 2005 AND THE MATTER HAD TRAVELLED UP TO THE STAGE OF THE TRIBUNAL. THE TRIBUNAL, VIDE ORDER DATED 28 TH MAY 2008, HAD SET ASIDE THE DISALLOWANCE OF EXPENDITURE OF ` 12,51,288 UNDER SECTION 14A AND RESTORED TH IS ISSUE TO THE FILE OF THE ASSESSING OF FICER FOR DECIDING THE SAME AFRESH , AS PER THE DIRECTIONS AND GUIDELINES GIVEN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2000 01 AND 2001 02. THE RELEVANT OBSERVATIONS AND THE FINDINGS OF THE TRIBUNAL WHILE SETTING ASIDE THE ISSUE, ARE AS UNDER: WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT IN THE IMPUGNED ORDER THE LEARNED CIT(A) HAS HELD THAT SINCE INTEREST INCOME AND DIVIDEND WERE THE TWO MAJOR SOURCES OF THE ASSESSEES INCOME THE EXPENSES WERE REQUIRED TO BE A PPORTIONED ON EQUAL BASIS. IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS NOTED THAT INTEREST INCOME FOR THE ASSESSMENT YEAR 2000 01 WAS EARNED FROM 20 PARTIES ONLY AND FROM ASSESSMENT YEAR 2001 02 FROM 14 PARTIES ONLY. HAVING REGARD TO THESE PARTICULAR S FACTS WE ARE SATISFIED THAT THE FACTS OF THE CASE OF THE ASSESSEE ARE DISTINGUISHABLE FROM THOSE IN VARIOUS JUDGMENTS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. HOWEVER, WE ARE NOT SATISFIED THAT FOR THESE REASONS ALONE THE EXPENDITURE WAS REQU IRED TO BE ARITHMETICALLY ALLOCATED ON PROPORTIONATE BASIS. IT IS TRUE THAT THE EXPENDITURE CLAIMED BY THE ASSESSEE IS REQUIRED TO BE ALLOCATED BETWEEN THESE TWO SOURCES OF INCOME AND OTHER MINOR RECEIPTS BUT TH EAO IS REQUIRED TO ANALYSE THE FACTS SO AS T O ARRIVE AT THE QUANTUM OF EXPENDITURE THAT CAN BE APPORTIONED AMONGST VARIOUS RECEIPTS. EXPENDITURE INCURRED BY THE ASSESSEE MAY OR MAY NOT BE IN THE SAME PROPORTION AS THE RECEIPTS EARNED FROM DIFFERENT SOURCES OF INCOME. HAVING REGARD TO THESE ASPECTS W E ARE OF THE VIEW THAT EXPENDITURE INCURRED BY THE ASSESSEE FOR THESE TWO YEARS IS REQUIRED TO BE ALLOCATED AMONGST DIFFERENT SOURCES OF INCOME FIRST. EVEN IF AN ACCURATE CALCULATION OF ACTUAL EXPENDITURE CANNOT BE MADE, AN ATTEMPT SHOULD BE MADE TO MAKE A N ESTIMATE OF EXPENDITURE ATTRIBUTABLE TO VARIOUS SOURCES OF INCOME AS NEAR ACTUAL BASIS AS POSSIBLE ON THE BASIS OF FACTS THAT MAY BE SHREE SATYANARAYAN INVESTMENTS CO. LTD. 4 BROUGHT ON RECORD BY THE ASSESSEE. WE THEREFORE RESTORE THIS ISSUE FOR BOTH THESE ASSESSMENT YEARS BACK TO THE FILE OF TH E LEARNED ASSESSING OFFICER FOR DECISION AFRESH AFTER ALLOWING THE ASSESSEE REASONABLE OPPORTUNITY OF BEING HEARD IN THE MATTER. 5 . THE ASSESSING OFFICER, IN THE SET ASIDE PROCEEDINGS , AGAIN EXAMINED THE ISSUE OF DISALLOWANCE UNDER SECTION 14A AND HELD THAT NOW THE PROVISIONS OF RULE 8D WILL APPLY WHICH HAS BEEN BROUGHT IN THE INCOME TAX RULES, 1962 AND, THEREFORE, THE SAME SHOULD BE APPLIED FOR CALCULATION OF THE DISALLOWANCE UNDER SECTION 14A. ACCORDINGLY, HE CALCULATED THE DISALLOWANCE AS PER THE PROVISIO NS OF RULE 8D AT ` 5,51,738 AFTER TAKING 0.5% OF THE AVERAGE INVESTMENT AND ALSO THE INTEREST EXPENDITURE. THE LEARNED COMMISSIONER (APPEALS), THOUGH REFERRED TO THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT , [2010] , 328 ITR 081 (BOM.), HOWEVER, HELD THAT THE ADDITION MADE BY THE ASSESSING OFFICER IS A REASONABLE METHOD FOR COMPUTATION OF DISALLOWANCE EVEN THOUGH IT HAS BEEN MADE UNDER THE FORMULA OF RULE 8D. ACCORDINGLY, HE CONFIRMED THE SAID DISALLOWANCE. 6 . BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT, FIRST OF ALL, THE PROVISIONS OF RULE 8D HAS BEEN APPLIED WHICH CANNOT BE HELD TO BE APPLICABLE BECAUSE THE ASSESSMENT YEARS INVOLVED IS PRIOR TO THE ASSESSMENT YEAR 2008 09. HE ALSO SUBMITTED BEFORE US, ANALYSIS OF THE ADMINISTRATIVE EXPENDITURE TO SHOW , THAT WHAT COULD BE THE EXPENDITURE WHICH CAN BE SAID TO BE ATTRIBUTABLE F O R THE EARNING OF EXEMPT INCOME AND ALSO THE EXPENDITURE S WHICH ARE SOLELY AND EXCLUSIVELY INCURRED FOR THE PURPOSE OF T HE ASSESSEES OTHER BUSINESS. HIS OTHER MAIN LIMB OF THE ARGUMENT IS THAT, IF 0.5% IS TAKEN ON THE AVERAGE INVESTMENT, FOR THE PURPOSE OF DISALLOWANCE, THEN THOSE INVESTMENTS SHOULD BE EXCLUDED WHICH ARE NOT CAPABLE OF YIELDING EXEMT INCOME. HE DREW OUR AT TENTION TO SUCH INVESTMENTS GIVEN IN THE SHREE SATYANARAYAN INVESTMENTS CO. LTD. 5 PAPER BOOK. LASTLY, HE SUBMITTED THAT THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS) IS NOT IN CONSONANCE WITH THE DIRECTIONS GIVEN BY THE TRI BUNAL IN THE FIRST ROUND OF PROCEEDINGS. 7 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, SUBMITTED THAT LOOKING TO THE FACTUM OF THE EXPENDITURE AND ALSO THE QUANTUM OF EXPENDITURE DEBITED IN THE PROFIT & LOSS ACCOUNT, THE AMOUNT DISALLOWED BY THE ASSESSING OFFICER UN DER SECTION 14A IS VERY REASONABLE. EVEN THOUGH THE PROVISIONS OF RULE 8D IS NOT APPLICABLE, HOWEVER, ON THE FACTS OF THE CASE, THE DISALLOWANCE OF GENERAL EXPENDITURE AFTER TAKING 0.5% OF THE AVERAGE INVESTMENT IS A VERY REASONABLE BASIS AND, IN FACT, IS ON LOWER SIDE, THEREFORE, THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS) SHOULD BE AFFIRMED. 8 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. IN THIS CASE, ALREADY THE MATTER HAD REACHED TO THE STAGE O F THE TRIBUNAL, WHEREIN THE TRIBUNAL HAS SET ASIDE THE DISALLOWANCE UNDER SECTION 14A , AFTER GIVING SPECIFIC DIRECTIONS WHICH HA S BEEN INCORPORATED BY US IN THE FOREGOING PARAGRAPHS. DESPITE THIS, THE ASSESSING OFFICER PROCEEDED TO MAKE THE DISALLOWANCE AF TER APPLYING THE PROVISIONS OF RULE 8D , WHICH HAS ALSO BEEN CONFIRMED BY THE LEARNED COMMISSIONER (APPEALS). SUCH A WORKING OF THE DISALLOWANCE CANNOT BE SUSTAINED FOR THE REASON THAT, FIRSTLY, IT IS BEYOND THE MANDATE OF THE DIRECTIONS GIVEN BY THE TRIBUN AL; AND SECONDLY, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE , IN THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2008 09, IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. (SUPRA) . THE LEARNED COUNSEL FOR THE ASSESSEE , BEFORE US, HAD SUBMITTED THAT EVEN IF 0.5% OF THE AVERAGE INVESTMENT IS TAKEN INTO SHREE SATYANARAYAN INVESTMENTS CO. LTD. 6 CONSIDERATION FOR MAKING PROPORTIONATE DISALLOWANCE, THEN ALSO THE WORKING OF THE ASSESSING OFFICER IS FAULTY , BECAUSE THERE ARE HUGE INVESTMENTS WHICH ARE NOT CAPA B L E OF YIELDING ANY EXEMPT INCOME I.E., ANY INCOME GENERATED OUT OF THE SAID INVESTMENTS ARE TAXABLE. A LIST OF SUCH INVESTMENT HAS BEEN PLACED IN THE PAPER BOOK AT PAGE 25 AND 26. THIS CONTENTION OF THE LEARNED COUNSEL APPEARS TO BE CORRECT , BECAUSE THE DISALLOWANCE UNDER SECTION 14A, IS TRIGGERED WHEN THE ASSESSEE CLAIMS ANY EXPENDITURE IN RELATION TO AN INCOME , WHICH DOES NOT FORM PART OF THE TOTAL INCOME I.E., IT IS EXEMPT FROM TAXATION. THUS, WHILE WORKING OUT ANY DISALLOWANCE THOSE INVESTMENTS SH OULD BE REMOVED , FROM WHERE THERE IS NO SCOPE OF EARNING ANY EXEMPT INCOME. THE LEARNED COUNSEL HAD ALSO SUBMITTED BEFORE US THE ANALYSIS O F THE VARIOUS EXPENDITURES DEBITED IN THE PROFIT & LOSS ACCOUNT WHICH ARE EXCLUSIVELY FOR THE PURPOSE OF OTHER BUSINE SS RECEIPTS AND SOME COMMON EXPENDITURE WHICH CAN BE SAID TO BE ATTRIBUTABLE OR ALLOCABLE FOR THE PURPOSE OF EARNING EXEMPT INCOME . AS REGARDS THE DISALLOWANCE OF ENTIRE INTEREST EXPENDITURE BY THE ASSESSING OFFICER, IT IS SEEN THAT THE SAME IS ALSO NOT TE NABLE FOR THE REASON THAT THE ASSESSEE HAS HUGE INTEREST RECEIPTS ON THE LOANS GIVEN AND THE ENTIRE INTEREST EXPENDITURE CANNOT BE SAID TO BE ATTRIBUTABLE FOR THE PURPOSE OF EARNING EXEMPT INCOME. 9 . THUS, U NDER THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THIS MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER AGAIN TO CONSIDER, FIRSTLY, THE ANALYSIS OF ADMINISTRATIVE EXPENSES SHOWN BY THE ASSESSEE; SECONDLY, TO EXAMINE THE NATURE OF INTEREST EXPENDITURE AND IF THE I NTEREST EXPENDITURE DOES NOT PERTAIN TO ANY INVESTMENT WHICH HAS YIELDED OR IS CAPABLE OF YIELDING ANY EXEMPT INCOME, THEN SUCH INTEREST EXPENDITURE CANNOT BE ALLOCATED OR CAN BE CONSIDERED FOR MAKING ANY DISALLOWANCE; THIRDLY, IF SHREE SATYANARAYAN INVESTMENTS CO. LTD. 7 GENERAL ADMINISTRATIVE EXPENDITURE CANNOT BE PROPER LY ALLOCATED OR ATTRIBUTABLE FOR THE PURPOSE OF EXEMPT INCOME, THEN WHILE ARRIVING AT THE 0.5% AVERAGE INVESTMENT, THE ASSESSING OFFICER SHALL REMOVE THOSE INVESTMENTS WHICH ARE NOT CAPABLE OF EARNING EXEMPT INCOME. THE ASSESSEE WILL PROVIDE ALL THE NECESS ARY DETAILS TO THE ASSESSING OFFICER FOR THE PURPOSE OF ADJUDICATING OF THIS ISSUE. THUS, THE ISSUE OF SECTION 14A SHALL BE DECIDED ACCORDINGLY, SANS THE APPLICATION OF THE PROVISIONS OF RULE 8D. CONSEQUENTLY, WE SET ASIDE THE IMPUGNED ORDER S PASSED BY THE LEARNED COMMISSIONER (APPEALS) FOR ALL THE YEARS UNDER APPEAL I.E., FOR THE ASSESSMENT YEAR 2004 05, 2005 06 AND 2005 06 AND RESTORE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER WITH THE AFORESAID DIRECTIONS. THE GROUND RAISED BY THE ASSESSEE IN AL L THE YEARS UNDER ASSESSMENT IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 10 . 2002 03, 2004 05, 2005 06 2005 06 10. IN THE RESULT, ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2002 03 , 2004 05, 2005 06 AND 2005 06 ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 28 TH MARCH 2014 ORDER PRONOUNCED IN THE OPEN COURT O N 28 TH MARCH 2014 SD/ - SANJAY ARORA AC COUNTANT MEMBER SD/ - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 28 TH MARCH 2014 SHREE SATYANARAYAN INVESTMENTS CO. LTD. 8 / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / TRUE COPY / BY ORDER . / PRADEEP J. CHOWDHU RY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI