JACQART FINACIAL SEERVICES, MUMBAI V. DCIT 2(2), MUMBAI

ITA 5612/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55547 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: I
• Assessment Year: 2007-2008
• Appeal Filed On: 12-07-2010
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I BEFORE SHRI J SUDHAKAR REDDY (AM) & SHRI VIJAY PAL RAO (JM) I.T.A.NO. 5612/MUM/2010 (ASSESSMENT YEAR : 2007-08) M/S. JACQART FINANCIAL SERVICES LTD. 1&2, 1 ST FLOOR WESTERN INDIA HOUSE SIR P.M. ROAD, FORT MUMBAI-400 001. VS. DCIT 2(2) ROOM NO. 545 AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. PAN/GIR NO. : AAACJ0259M ASSESSEE BY : SHRI VIJAY MEHTA DEPARTMENT BY : SHRI SUNIL KUMAR SINGH DATE OF HEARING : 21.9.2011 DATE OF PRONOUNCEMENT : 28.9.2011 ORDER PER J. SUDHAKAR REDDY, (AM) :- THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AGAINST THE ORDER OF LEARNED CIT(A)-5, MUMBAI DATED 23.4.2010 FOR A.Y . 2007-08 ON THE FOLLOWING GROUNDS :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF THE EXPENSES OF ` 40,51,537/- U/S. 14A R.W. RULE 8D OF INCOME TAX ACT, MADE BY ASSESSING OFFICER. THE APPELLANT P RAYS THAT THE ADDITION U/S. 14A MAY PLEASE BE DELETED. 2) WITHOUT PREJUDICE TO GROUND NO. 1, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C IT(A) ERRED IN CONFIRMING THE ENTIRE AMOUNT OF DISALLOWAN CE U/S. 14A AT ` 40,51,537/- INSTEAD OF RESTRICTING DISALLOWANCE TO ` 3,09,802/- I.E. 1/2 % OF THE EXPENDITURE UNDER SUB- CLAUSE (III) OF RULE 8D. THE APPELLANT PRAYS THAT THE SAID DISALLOWANCE MAY BE RESTRICTED TO ` 3,09,802/- 2. THE SOLE ISSUE THAT ARISES FOR OUT ADJUDICATION IS DISALLOWANCE U/S. 14A. 3. WE HAVE HEARD LEARNED COUNSEL FOR THE ASSESSEE S HRI VIJAY MEHTA AND LEARNED DEPARTMENTAL REPRESENTATIVE SHRI SUNIL KUMAR SINGH. M/S. JACQART FINANCIAL SERVICES LTD. 2 4. ON CAREFUL CONSIDERATION OF RIVAL CONTENTIONS AS WELL AS CASE LAWS CITED, WE FIND THAT LEARNED CIT(A) HAS FOLLOWED THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL M ANAGEMENT LTD., 26 SOT 603 (MUM)(SB). JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD., 328 ITR 81 (BOM) HAS REVERSED THE DECISION OF THE TRIBUNAL IN THE CASE OF DAGA CAPITA L MANAGEMENT LTD. AND HELD THAT RULE 8D CAN BE APPLIED ONLY PROSPECTI VELY. TO THIS EXTENT THE ORDER OF THE LEARNED CIT(A) HAS TO BE REVERSED. 5. SECOND ARGUMENT OF LEARNED COUNSEL FOR THE ASSES SEE IS THAT THERE ARE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE AND THAT BORROWINGS IN QUESTION HAVE NOT BEEN UTILIZED FOR T HE PURPOSE OF INVESTMENT. FOLLOWING CASE LAWS RELIED UPON BY THE ASSESSEE IN THIS REGARD, ARE IN HIS FAVOUR :- SHOPPERS STOP LTD. VS. ACIT, ITA NOS. 1448 & 4475/ MUM/2010 DATED 30.8.2011 FOR A.Y. 2006-07 & 2007-08. M/S. K. RAHEJA CORP. PVT. LTD., ITA NO. 4099/MUM/20 10 DATED 24.6.2011 FOR A.Y. 1999-2000 M/S. SAHARA INDIA MASS COMMUNICATION LTD. VS. ACIT, ITA NO. 522/MUM/2006 DATED 28.4.2011 FOR A.Y. 2002-03 ACIT VS. VINOD CHOPRA FILMS P. LTD., ITA NO. 4019/M UM/2010 DATED 29.7.2011 FOR A.Y. 2006-07. 6. IN ALL THESE CASES IT HAS BEEN HELD THAT, IF THE RE ARE SUFFICIENT INTEREST FREE ADVANCES AVAILABLE WITH THE ASSESSEE, PRESUMPTION IS THAT, THE INVESTMENT WOULD HAVE BEEN MADE, OUT OF INTERES T FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY. IF THE INT EREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT THEN NO DISALLOWA NCE CAN BE MADE U/S. 14A. THE TRIBUNAL IN THESE ORDERS, WERE FOLLOWING T HE JUDGEMENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS. RELIANCE UTILITIES AND POWERS LTD., 313 ITR 340 (BOM). THE CASE ON HAN D, WE FIND THAT THE ASSESSEE AS ON 31.3.2007 HAS SHAREHOLDER FUND OF ` 10.85 CRORES AS COMPARE TO ` 9.70 CRORES OF SHAREHOLDER FUND AS ON 31.3.2006. T HIS SHARE HOLDER FUND I.E. SHARE CAPITAL AND RESERVES A ND SURPLUS, ARE INTEREST FREE FUND. AS AGAINST THIS, INVESTMENTS I N EQUITY SHARE AS ON 31.3.2007 ARE ` 3.87 CRORES AS AGAINST ` 1.92 CRORES IN THE PREVIOUS YEAR. IN THE PREVIOUS YEAR ENDED ON 31.3.2006 THE ASSESSE E HAD ` 4.50 CRORES M/S. JACQART FINANCIAL SERVICES LTD. 3 IN MUTUAL FUND AND THIS ARE REDUCED THIS YEAR. IT W AS POINTED OUT THAT THE ASSESSEE HAD INVENTORIES IN THE FORM OF SHARES OF ` 0.98 CRORES AS ON 31.3.2007 AND ` 1.10 CRORES AS ON 31.3.2006. THUS IT CAN BE SAFELY CONCLUDED THAT THE ASSESSEE HAS MADE INVESTMENT FRO M OUT OF INTEREST FREE FUNDS BY APPLYING THE PROPOSITION LAID DOWN BY HON'BLE JURISDICTIONAL HIGH COURT THAT THE PRESUMPTION SHOU LD BE THAT INTEREST FREE FUNDS, WOULD HAVE BEEN UTILIZED FOR THE PURPOS E OF INVESTMENT. 7. WE FURTHER OBSERVED FROM THE ASSESSMENT ORDER, T HAT DIVIDEND INCOME EARNED DURING THE YEAR AND CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT IS ONLY ` 17,27,076/- AND WHEREAS DISALLOWANCE MADE BY THE ASSESSING OFFICER BY APPLYING RULE 8D IS ` 37,41,735/- 8. AS ON FACT WE HAVE HELD THAT NO DISALLOWANCE CAN BE MADE U/S. 14A, ON ACCOUNT OF INTEREST WE HOLD THAT THE ISSUE IS IN FAVOUR OF THE ASSESSEE. 9. COMING TO REASONABLE ESTIMATE OF OTHER EXPENSES, AS THAT WHICH IS INCURRED FOR EARNING OF INCOME FROM DIVIDEND, WE DI RECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE AT 5% OF THE D IVIDEND INCOME, ON THE FACTS AND CIRCUMSTANCES OF THIS CASE. IN THE RESUL T GROUND NO. 1 IS ALLOWED IN PART. 10. GROUND NO. 2 WAS NOT PRESSED BY THE ASSESSEE, I N VIEW OF HIS SUBMISSION THAT 5% OF THE DIVIDEND INCOME MAY BE DI SALLOWED U/S.14A. IN THE RESULT THIS GROUND OF THE ASSESSEE IS DISMIS SED. 11. IN THE RESULT THIS APPEAL OF THE ASSESSEE STAND S PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 28 TH DAY OF SEPTEMBER, 2011. SD/- (VIJAY PAL RAO) JUDICIAL MEMBER SD/- (J.SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 28 TH SEPTEMBER, 2011. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. M/S. JACQART FINANCIAL SERVICES LTD. 4 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS