DAGA GLOBAL CHEMICALS LTD, MUMBAI V. ASST CIT 9(1), MUMBAI

ITA 5592/MUM/2012

• Counselvise Citation: 559219914 RSA 2012
• Duration Of Justice: 2 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 01-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Assessee Lawyers: DR K SHIVARAM
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , , ,, , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI , , ! ' BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO.5592/MUM/2012 #$ #$ #$ #$ %$ %$ %$ %$ / ASSESSMENT YEAR: 2009-10 M/S DAGA GLOBAL CHEMICALS PVT. LTD.(FORMERLY KNOWN AS DAGA GLOBAL CHEMICALS LTD.), 101, MAHEK PLAZA, OFF L.T. ROAD, MAHARASHTRA, NAGAR LANE, BORIVALI(W), MUMBAI-400092 VS. ASST. COMMISSIONER INCOME TAX-9(1), ROOM NO.223, AAYKAR BHAVAN, MARINE LINES, MUMBAI-400020 ( #$&' / ASSESSEE) ( ()*+ /RESPONDENT) P.A. NUMBER : AAACD2233M #$&' , ,, , - - - - /REVENUE BY : DR. K.SHIVARAM & SHRI RAHUL HAKANI ()*+ , ,, , - - - - /REVENUE BY SHRI AKHILENDRA YADAV # , ' / DATE OF HEARING : 01/01/2015 ./% , ' / DATE OF PRONOUNCEMENT : 01/01/2015 O R D E R PER JOGINDER SINGH, JM: THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DAT ED 02/07/2012 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2 M/S DAGA GLOBAL CHEMICALS PVT. LTD , . 1.THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRE D IN CONFIRMING DISALLOWANCE OF RS.14,58,112/- U/S 14A R .W. RULE 8D WITHOUT APPRECIATING THAT NO EXPENDITURE DI RECTLY OR INDIRECTLY WAS INCURRED DURING THIS YEAR FOR EARNING EXEMPT INCOME AND INVESTMENTS IN SHARES WERE MADE IN EARLIE R YEARS OUT OF OWN FUND AND NOT OUT OF BORROWED FOUND AND HENCE DISALLOWANCE U/S.14A R.W. RULE 8D MAY BE DELE TED. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DIVIDE ND INCOME IS DIRECTLY CREDITED TO BANK ACCOUNT AND APPELLANT DO ES NOT HAVE TO INCUR ANY EXPENDITURE FOR EARNING EXEMPT IN COME AND HENCE DISALLOWANCE U/S. 14A R.W. RULE 8D MAY B E DELETED. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT INTEREST EXPENDITURE OF RS.2,35,49,746/- HAS NO NEXUS WITH E ARNING OF EXEMPT INCOME AS THE INVESTMENTS ON WHICH EXEMPT INCOME IS EARNED IS OUT OF OWN FUNDS AND HENCE DISALLOWANCE U/S14A R.W. RULE8D MAY BE DELETED. 4. THE LEARNED CIT(A) ERRED IN HOLDING THAT A.O. DULY RE CORDED SATISFACTION BEFORE INVOKING SECTION 14A R.W. RULE 8D WITHOUT APPRECIATING THE FACT THAT ASSESSEE HAD SHOW N BIFURCATION OF FINANCIAL EXPENSES TO A.O. TO SHOW T HAT INTEREST EXPENSE WAS NOT INCURRED FOR INVESTMENT IN SHARES OR FOR EARNING EXEMPT DIVIDEND INCOME AND A.O. DID NOT REJECT THE SAME AND STILL A.O. APPLIED RULE 8D IN AN AUTOMATIC FASHION AND HENCE, NO SATISFACTION WAS REC ORDED BY A.O. AS REQUIRED U/S 14A BEFORE INVOKING RULE 8D . 3 M/S DAGA GLOBAL CHEMICALS PVT. LTD , . 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DISALLOW ANCE U/S 14A READ WITH RULE 8D CANNOT EXCEED EXEMPT INCO ME. 6. WITHOUT PREJUDICE TO ABOVE, DIVIDEND RECEIVED DURING T HIS YEAR IS ONLY RS.1,82,262/- AND DEMAT CHARGES ARE RS.1,485/-, HENCE THE DISALLOWANCE MAY BE RESTRICTE D TO MAXIMUM RS.1,485/-. 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONGWITH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCED THEI R ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY SUBMITT ING THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THEREFORE, NO DISALLOWANCE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRON GLY DEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER O F INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE LD. FIRST APPELLATE AUTHORITY AS APPO RTIONMENT OF EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS DON E AS PER THE PROVISIONS OF THE ACT. IT WAS PLEADED THAT SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING O F BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS 4 M/S DAGA GLOBAL CHEMICALS PVT. LTD , . INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESS EE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIME D VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE ST AND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALI TY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORRO WED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSES SEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACC OUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT M AY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOW ANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED B Y THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT Y EAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MA KING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICT ED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISAL LOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESS EE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 5 M/S DAGA GLOBAL CHEMICALS PVT. LTD , . FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCLUSION OF THE HEARING ON 01/01/2015. SD/- SD/- (RAJENDRA) (JOGINDER SINGH ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED - 01/01/2015 F{X~{T? P.S/. # . . 0 0 0 0 , ,, , ('1 ('1 ('1 ('1 21%' 21%' 21%' 21%' / COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT 2. ()*+ / THE RESPONDENT. 3. 3 ( ) / THE CIT(A)- 4. 3 / CIT 5. 145 ('# , , / DR, ITAT, MUMBAI 6. 5$ 6 / GUARD FILE. 0# 0# 0# 0# / BY ORDER, )1' (' //TRUE COPY// 7 77 7 / 8 8 8 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI