BACHHARAJ FACTORIES P. LTD, MUMBAI V. ITO 3(1)(2), MUMBAI

ITA 5545/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6336 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 22-11-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 09-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA GUPTA
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, F, MUMBAI BEFORE SHRI R V EASWAR, PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I T A NO: 5545/MUM/2009 (ASSESSMENT YEAR: 2006-07) BACHHRAJ FACTORIES PRIVATE LIMITED, MUMBAI APPELL ANT (PAN: AAACB4654N) VS INCOME TAX OFFICER 3(1)(2), MUMBAI RESPONDENT APPELLANT BY: NONE RESPONDENT BY: MS ASHIMA GUPTA O R D E R R V EASWAR, PRESIDENT: THE ONLY GROUND TAKEN BY THE ASSESSEE IN THIS APPE AL IS THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE CIT(A) ERRED IN DISALLOWING AN AMOUNT OF ` 4,96,130/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961, READ WITH RULE 8D AS HAVING BEEN INCURRED TO EARN EXEMPT DIVIDEND INCOME. 2. THE ASSESSEE IS A COMPANY AND WE ARE CONCERNED W ITH THE ASSESSMENT YEAR 2006-07. IT CARRIES ON THE BUSINES S OF GINNING AND PRESSING OF COTTON. WHILE COMPLETING THE ASSESSMEN T THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD RECEI VED DIVIDEND OF ` 2,40,28,138/- AND CLAIMED EXEMPTION IN RESPECT OF T HE SAME FROM TAX UNDER SECTION 10(33) / SECTION 10(34) OF THE AC T. HE, THEREFORE, CALLED UPON THE ASSESSEE TO SHOW CAUSE WHY DISALLOW ANCE OF A PART OF THE EXPENSES CANNOT BE MADE BY INVOKING SECTION 14A OF THE ACT. THE ASSESSEE SUBMITTED THAT THE INVESTMENT IN THE S HARES WAS MADE OUT OF ITS OWN FUNDS AND NO EXPENDITURE WAS IN CURRED FOR ITA NO: 5545/MUM/2009 2 EARNING THE DIVIDEND INCOME. THE ASSESSING OFFICER REFUSED TO ACCEPT THE ASSESSEES SUBMISSION ON THE GROUND THAT THE SUBMISSION CANNOT HOLD GOOD AFTER THE INTRODUCTION OF SECTION 14A OF THE ACT. THE ASSESSEE ALSO POINTED OUT THAT FOR TH E ASSESSMENT YEAR 2001-02 THE NOTIONAL DISALLOWANCE UNDER SECTIO N 14A WAS DELETED BY THE TRIBUNAL. THE ASSESSING OFFICER OBS ERVED THAT FOR THE YEAR UNDER CONSIDERATION THE DISALLOWANCE WAS N OT MADE ON ANY NOTIONAL BASIS BUT IT IS BEING MADE ON PROPORTI ONATE BASIS. HE, THEREFORE, DISALLOWED ADMINISTRATIVE EXPENSES OF ` 6,32,108/- UNDER SECTION 14A ON PROPORTIONATE BASIS OUT OF THE EXPEN DITURE OF ` 37,56,355/-. IN OTHER WORDS, THE EXPENDITURE DISAL LOWED WAS IN THE SAME PROPORTION AS THE EXEMPTED DIVIDEND INCOME BOR E TO THE TOTAL INCOME. 3. ON APPEAL THE CIT(A) AGREED WITH THE ASSESSING O FFICER THAT THE DISALLOWANCE UNDER SECTION 14A WAS CALLED FOR. HOWEVER, HE HELD THAT RULE 8D OF THE INCOME TAX RULES WAS APPLI CABLE FOR COMPUTING THE DISALLOWANCE AND ACCORDINGLY COMPUTED THE SAME AT ` 4,96,130/-. 4. THE ASSESSEE IS IN APPEAL QUESTIONING THE DECISI ON OF THE CIT(A). IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD . VS. DEPUTY COMMISSIONER OF INCOME TAX, IN INCOME TAX APPEAL NO . 626 OF 2010 AND WRIT PETITION NO. 758 OF 2010, DATED 12 TH AUGUST 2010, THE HONBLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008-09. SINCE WE AR E CONCERNED WITH THE ASSESSMENT YEAR 2006-07, THE CIT(A) IS NOT RIGHT IN INVOKING THE SAID RULE FOR THE YEAR UNDER APPEAL. THE QUESTION WHICH REMAINS IS AS TO WHAT METHOD IS TO BE ADOPTED IN DISALLOWING ITA NO: 5545/MUM/2009 3 THE EXPENDITURE INCURRED FOR EARNING THE EXEMPT INC OME UNDER SECTION 14A OF THE ACT. IN THE AFORESAID JUDGMENT THE HONBLE HIGH COURT HAS LAID DOWN GUIDELINES WHICH HAVE TO BE FOL LOWED WHILE APPLYING SECTION 14A. THE ASSESSING OFFICER HAS ME RELY APPLIED THE PROPORTIONATE BASIS OF DISALLOWANCE. WE ARE UN ABLE TO APPROVE OF THE SAME. RESPECTFULLY FOLLOWING THE GUIDELINES LAID DOWN BY THE HONBLE HIGH COURT IN THE CITED JUDGMENT, WE SET AS IDE THE ORDERS OF THE DEPARTMENTAL AUTHORITIES AND RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER, WHO SHALL FOLLOW THE GUIDELINES ISSUED BY THE HONBLE HIGH COURT AND TAKE A FRESH DECISION REGARD ING THE AMOUNT TO BE DISALLOWED UNDER SECTION 14A IN ACCORDANCE WI TH LAW AND AFTER GIVING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. WE DIRECT ACCORDINGLY AND ALLOW THE APPEAL OF THE ASSE SSEE FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH NOVEMBER 2010. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER PRES IDENT MUMBAI, DATED 26 TH NOVEMBER 2010 SALDANHA COPY TO: 1. BACHHRAJ FACTORIES PRIVATE LIMITED BAJAJ BHAVAN, NARIMAN POINT, MUMBAI 400 021 2. ITO 3(1)(2) 3.CIT-3 4.CIT(A)-XXVII 5.DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI