MINAXI P. SATRA, MUMBAI V. ACIT CEN CIR 33, MUMBAI

ITA 5479/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 4933 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 18-08-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 05-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANDEEP DAHUJA
• Keywords: Search and seizure; Earning of tax free income
• Section: 153A; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI. P.M. JAGTAP (A.M.) AND SHRI. R.S. PADV EKAR (J.M.) ITA NO.5479/MUM/2009 ASSESSMENT YEAR: 2002-2003 ITA NO.5480/MUM/2009 ASSESSMENT YEAR: 2003-2004 ITA NO.5481/MUM/2009 ASSESSMENT YEAR: 2006-2007 MINAXI P. SATRA DEV PLAZA, 2 ND FLR., S.V. RD., ANDHERI (W), MUMBAI 400 058. PAN : ALFP55202H VS. ACIT CEN CIR - 33, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI. VIJAY MEHTA. DEPARTMENT BY : SHRI. SANDEEP DAHUJA. O R D E R PER P.M. JAGTAP, A.M. THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST THE THREE SEPARATE ORDERS PASSED BY THE LEARNED CIT(A)- VIII, MUMBAI FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2006-07 AND S INCE A COMMON ISSUE IS INVOLVED THEREIN, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE SOLITARY COMMON ISSUE INVOLVED IN THESE APPE ALS RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LEARNED CIT(A) OUT OF INTEREST EXPENSES BY INVOKING THE PRO VISION OF SECTION 14A READ WITH RULE 8D OF THE I.T. RULE, 1962. 3. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS A PARTNER IN THE PARTNERSHIP FIRM NAMELY M/S. SWEETY FABRICS. THE SAID PARTNERSHIP FIRM BELONGS TO PRIME & NEPTUNE GROUP. THE SEARCH AND SEIZURE OPERATION ITA NO.5479/MUM/2009 ITA NO.5481/MUM/2009 ITA NO.5480/MUM/2009 2 U/S.132 WAS CONDUCTED IN THE VARIOUS CASES BELONGIN G TO PRIME & NEPTUNE GROUP INCLUDING THE CASE OF THE ASSESSEE. CONSE QUENT TO THE SAID OPERATION, NOTICES U/S.153A WERE ISSUED BY THE ASSE SSING OFFICER IN RESPONSE TO WHICH THE ASSESSEE FILED HER RETURNS OF INCOME FOR THE YEARS UNDER CONSIDERATION DECLARING THE SAME TOTAL INCOME AS WAS DECLARED IN THE RETURNS OF INCOME ORIGINALLY FILED. DURING THE CO URSE OF ASSESSMENT PROCEEDING, IT WAS NOTICED BY THE ASSESSING OFFICER THAT DEDUCTION ON ACCOUNT OF INTEREST HAS BEEN CLAIMED BY THE ASSESSE E FROM THE INCOME DECLARED BY WAY OF INTEREST ON CAPITAL FROM THE PAR TNERSHIP FIRM OF M/S. SWEETY FABRIC. IT WAS CLAIMED BY THE ASSESSEE THA T THE SAID INTEREST WAS PAID ON THE FUNDS BORROWED FOR MAKING INVESTMENT IN THE PARTNERSHIP FIRM OF M/S. SWEETY FABRIC IN THE FORM OF CAPITAL. ACCORD ING TO THE ASSESSING OFFICER, THE ASSESSEE HAD RECEIVED INCOME BY WAY OF SHARE OF PROFIT FROM THE PARTNERSHIP FIRM OF M/S. SWEETY FABRIC IN ADDITION TO THE INTEREST ON CAPITAL AND THE SAID INCOME IN THE FORM OF SHARE OF PROFIT BEING EXEMPT, INTEREST ATTRIBUTABLE TO THE SAID EXEMPT INCOME WAS LIABLE T O BE DISALLOWED U/S.14A. HE THEREFORE, INVOKED THE SAID PROVISIONS AND APPLY ING RULE 8D OF THE INCOME TAX RULE, 1962, HE DISALLOWED THE INTEREST E XPENSES TO THE EXTENT OF RS.71,683/-, RS.97,841/- AND RS.26,18,713/- IN THE ASSESSMENTS COMPLETED U/S.143(3) R.W.S. 153A FOR ASSESSMENT YEA RS 2002-03, 2003-04 AND 2006-07 RESPECTIVELY. 4. AGAINST THE ORDERS PASSED BY THE ASSESSING OFFIC ER U/S.143(3) R.W.S. 153A FOR ALL THE THREE YEARS UNDER CONSIDERATION, A PPEALS WERE FILED BY THE ASSESSEE BEFORE THE LEARNED CIT(A) CHALLENGING THER EIN INTER-ALIA THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF I NTEREST EXPENSES BY INVOKING THE PROVISION OF SECTION 14A READ WITH RU LE 8D. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LEARNED CIT(A) THAT THE SAID RULE 8D HAVING BEEN BROUGHT TO STATUE ONLY ON 24.03.2008 WA S APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND NOT TO THE YEARS UNDER CONSIDERATION. THE SAID CONTENTIONS AS WELL AS THE OTHER CONTENTIONS R AISED ON BEHALF OF THE ASSESSEE WHILE CHALLENGING DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER WERE NOT FOUND ACCEPTABLE BY THE LEARNED CI T(A) AND HE PROCEEDED TO ITA NO.5479/MUM/2009 ITA NO.5481/MUM/2009 ITA NO.5480/MUM/2009 3 CONFIRM THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER RELYING ON THE PROVISION OF SECTION 14A READ WITH RULE 8D. AGGR IEVED BY THE ORDERS OF THE LEARNED CIT(A), THE ASSESSEE HAS PREFERRED THESE AP PEALS BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS AGREED BY THE LEA RNED REPRESENTATIVE OF BOTH THE SIDE, THE ISSUE RELATING TO APPLICABILITY OF RU LE 8D HAS NOW BEEN DECIDED BY THE HONBLE BOMBAY HIGH COURT IN ITS RECENT JUDG MENT IN THE CASE OF GODREJ & BOYCE LTD. VS. DCIT (ITA NO.626/MUM/10). AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE SAID JUDGMENT, RUL E 8D INSERTED W.E.F. 24.03.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECA USE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITURE RELATAB LE TO TAX-FREE INCOME. HONBLE BOMBAY HIGH COURT HAS HELD THAT THE SAID RU LE THUS IS APPLICABLE ONLY W.E.F. ASSESSMENT YEAR 2008-09 AND FOR THE EAR LIER ASSESSMENT YEARS WHERE THE SAID RULE IS NOT APPLICABLE, THE ASSESSIN G OFFICER WILL HAVE TO DETERMINE THE QUANTUM OF DISALLOWABLE EXPENDITURE B Y A REASONABLE METHOD HAVING REGARD TO ALL FACTS AND CIRCUMSTANCES. AS REGARDS THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE CONCERNED, TH E LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ENTIRE AMOUNT BORRO WED BY THE ASSESSEE WAS UTILISED BY HER FOR MAKING CAPITAL CONTRIBUTION IN THE FIRM OF M/S. SWEETY FABRICS AND THEREFORE INTEREST PAID THEREON HAS TO BE ALLOWED IN FULL, GOING BY THE REASONABLE METHOD SUGGESTED BY THE HON BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE VS. DCIT (SUP RA). HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED DR, THIS POSITION IS REQUI RED TO BE VERIFIED BY THE ASSESSING OFFICER FROM THE RELEVANT RECORD. ACCOR DINGLY, WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE RELATING TO DISALLOWANCE OF INTEREST EXPENDITURE U/S.14A AFR ESH BY ADOPTING THE REASONABLE METHOD KEEPING IN VIEW THE RELEVANT FACT S AND CIRCUMSTANCES OF THE CASE AS HELD BY THE HONBLE BOMBAY HIGH COURT I N THE CASE OF GODREJ & BOYCE (SUPRA). THE ASSESSING OFFICER IS ALSO DIRE CTED TO AFFORD PROPER AND SUFFICIENT OPPORTUNITY TO ASSESSEE OF BEING HEARD I N THE MATTER. ITA NO.5479/MUM/2009 ITA NO.5481/MUM/2009 ITA NO.5480/MUM/2009 4 6. IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) WHICH IS SQUARELY APPLICABLE TO THE ISSUE INVOLVED IN THESE APPEALS AND KEEPING IN VIEW THE SMALLNESS OF THE ADDITIONS INVOLVED IN THE PRESENT CASE, THE LEARNED COUNSEL FOR THE ASSES SEE HAS NOT PRESSED THE ADDITIONAL GROUND SOUGHT TO BE RAISED IN THESE APPE AL BY WAY OF APPLICATIONS DATED 16.08.2010. 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES AS INDICATED ABOVE. ORDER PRONOUNCED ON THIS 31 ST DAY OF AUGUST, 2010. SD/- (R.S. PADVEKAR) JUDICIAL MEMBER SD/- (P.M. JAGTAP.) ACCOUNTANT MEMBER MUMBAI, DATED 31 ST AUG., 2010. JANHAVI COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)- , MUM BAI 4. COMMISSIONER OF INCOME TAX, CITY- , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI