NRC LTD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 5554/MUM/2010

• Counselvise Citation: 555419914 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 08-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P C MAURYA
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH, MUMBAI BEFORE SHRI N V VASUDEVAN (JUDICIAL MEMBER), AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) ITA NO. 5554/MUM/2010 ASSESSMENT YEAR: 2006-07 NRC LIMITED ...APPELLANT NRC HOUSE, 2 ND FLOOR H. M. STREET, FORT, MUMBAI 400 001 (PAN : AAACN1616J) VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(2), MUMBAI RESPONDENT APPEARANCES: MIHIR NANIWADEKAR, FOR THE APPELLANT P C MAURYA, FOR THE RESPONDENT DATE OF HEARING : DECEMBER 27, 2011. DATE OF PRONOUNCEMENT : DECEMBER 30, 2011. O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A), VIDE ORDER DATED 28 TH APRIL 2010, WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS 66,52 ,759 UNDER SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8 D OF TH E INCOME TAX RULES, 1962. THE ASSESSMENT YEAR INVOLVED IS 2006-07 AND T HE IMPUGNED ASSESSMENT IS FRAMED UNDER SECTION 143(3) OF THE AC T. ITA NO. 5554/MUM/2010 ASSESSMENT YEAR: 2006-07 2 2. THE ASSESSEE IS A MANUFACTURING COMPANY, AND IT HAS ALSO EARNED DIVIDEND INCOME OF RS 12,27,000 DURING THE RELEVANT PREVIOUS YEAR, WHICH WAS EXEMPT UNDER SECTION 10(34) OF THE ACT. IN THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFI CER TOOK NOTE OF THESE BASIC FACTS AND REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY EXPENSES INCURRED IN EARNING THIS TAX EXEMPT DIVIDE ND INCOME NOT BE SUBJECTED TO DISALLOWANCE UNDER SECTION 14 A OF THE ACT. IT WAS SUBMITTED BY THE ASSESSEE THAT THE INVESTMENTS IN S HARES WERE FAR IN EXCESS OF THE AVAILABLE INTEREST FREE FUNDS, AND, I N THIS VIEW OF THE MATTER AND PARTICULARLY AS THERE IS NOTHING ON RECO RD TO SHOW THAT INTEREST BEARING FUNDS HAVE BEEN USED IN THE INVEST MENTS, AN INFERENCE CANNOT BE DRAWN THAT INTEREST BEARING FUNDS WERE US ED FOR THESE INVESTMENTS. THE ASSESSEE ALSO MADE ELABORATE SUBMI SSIONS ABOUT MODE OF ACQUIRING THESE SHARES TO SHOW THAT THERE WAS NO USE OF BORROWED FUNDS IN THE SAID PROCESS. IT WAS POINTED OUT THAT INVESTMENTS OF RS 1424.90 LAKHS WERE MADE ON AMALGAMATION OF STAG IND IA LIMITED, AND ALL THAT THE ASSESSEE HAS DONE IN CONSIDERATION IS TO ISSUE SHARES. AS SUCH, NO FUNDS CAN BE SAID TO BE USED FOR THIS ACQ UISITION. WITHOUT PREJUDICE, ASSESSEE FURTHER SUBMITTED THAT EVEN IF APPORTIONMENT OF EXPENSES IS REQUIRED TO BE MADE (WITHOUT ESTABLISHI NG THE NEXUS), IT CAN AT BEST BE REGARD TO THE BALANCE INVESTMENT OF RS 228.10 LAKHS ( I.E. 1653 LAKHS MINUS 1424.90 LAKHS) NONE OF THESE SUBM ISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE REJECTED THE SU BMISSIONS MADE BY THE ASSESSEE ON THE SHORT GROUND THAT THE ASSESSEE HAS NOT SUBSTANTIATED THAT THE INVESTMENT IS MADE OUT OF OW N FUNDS AND THAT IT IS AGREED THAT THE EXPENSES IN RESPECT OF CERTA IN INVESTMENT (RS 228.10 LAKHS) COULD BE APPORTIONED ON THE BASIS OF RATIO OF OWN FUNDS AND BORROWED FUNDS. HE THUS PROCEEDED TO MAKE DIS ALLOWANCE UNDER SECTION 14 A READ WITH RULE 8 D, WHICH WORKED OUT T O RS 66,29,759. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BU T WITHOUT ANY ITA NO. 5554/MUM/2010 ASSESSMENT YEAR: 2006-07 3 SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN AP PEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CA SE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE FIND THAT SO FAR AS DISALLOWANCE UNDER SECTIO N 14A IN RESPECT OF INTEREST ON BORROWED FUNDS IS CONCERNED, THE ASS ESSEE HAS GIVEN A REASONABLE EXPLANATION IN SUPPORT OF THE SUBMISSION THAT NO INTEREST BEARING FUNDS HAVE BEEN USED IN ACQUISITION OF SHAR ES ON WHICH DIVIDEND IS EARNED. THE ASSESSING OFFICER HAS NOT F OUND ANY FAULT IN THESE SUBMISSIONS, NOR HAS HE CONTROVERTED THE CLAI M OF THE ASSESSEE THAT INTEREST BEARING FUNDS HAVE NOT BEEN EMPLOYED IN ACQUIRING THESE SHARES. THE ASSESSEE HAS SPECIFIC SUBMISSION WITH RESPECT OF EACH OF THE YEAR IN WHICH THERE IS AN ACCRETION TO INVESTME NTS IN SHARES, AND IT IS POINTED OUT THAT INTEREST FREE FUNDS IN EACH OF THESE YEARS WAS HIGHER THAN ACCRETION IN INVESTMENT IN SHARES. TO THE EXTENT OF INTEREST DISALLOWANCE, THEREFORE, WE DEEM IT FIT AND PROPER TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR THE LIMITE D PURPOSES OF VERIFICATION OF THE CLAIM OF THE ASSESSEE. WHILE DO ING SO, THE ASSESSING OFFICER SHALL DECIDE THE MATTER BY WAY OF A SPEAKIN G ORDER, IN ACCORDANCE WITH THE LAW AND AFTER GIVING A FAIR AND REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. IN CASE THE ASSESSING OFFICER DOES NOT FIND ANY INCONSISTENCIES OR FLAWS IN THE E XPLANATIONS SO GIVEN BY THE ASSESSEE, NO INTEREST DISALLOWANCE CAN BE MA DE. HOWEVER, THAT IS NOT THE END OF THE MATTER BECAUSE THE QUESTION OF A PPLICABILITY OF RULE 8 D AND DISALLOWANCE FOR GENERAL EXPENSES STILL REMAI NS OPEN. LEARNED REPRESENTATIVES AGREE THAT SO FAR AS THE QUESTION O F RULE 8D IS CONCERNED, THE ISSUE IS NOW COVERED IN FAVOUR OF TH E ASSESEE BY THE HONBLE JURISDICTIONAL HIGH COURTS JUDGEMENT IN TH E CASE OF GODREJ & ITA NO. 5554/MUM/2010 ASSESSMENT YEAR: 2006-07 4 BOYCE MFG CO LTD VS DCIT (328 ITR 81), WHEREIN, IT HAS BEEN HELD THAT RULE 8D OF THE INCOME TAX RULES, 1962 IS APPLICABLE ONLY PROSPECTIVELY I.E. FROM A.Y. 2008-09. THE ASSESSMENT YEAR INVOLVE D IN THE PRESENT CASE IS 2006-07 AND, THEREFORE, RULE 8D IS NOT APP LICABLE IN THE PRESENT CASE. THE HONBLE HIGH COURT HAS HELD THAT A REAS ONABLE DISALLOWANCE FOR EXPENSES INCURRED IN EARNING DIVIDEND INCOME IS NEVERTHELESS TO BE COMPUTED BY THE AO. IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BO YCE MFG CO. LTD (SUPRA) AND AS AGREED TO BY THE PARTIES, WE REMIT T HE ISSUE TO THE FILE OF THE AO TO RE-COMPUTE THE DISALLOWANCE U/S.14A IN TH E LIGHT OF THE LAW LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG CO. LTD (SUPRA) AND IN TERMS OF OUR DIREC TIONS ABOVE. 5. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH DAY OF DECEMBER, 2011. SD/- SD/- (N V VASUDEVAN ) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 30 TH DAY DECEMBER , 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER , MUMBAI 4. COMMISSIONER (APPEALS) , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, B BENCH, MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, MUMBAI