SUREMI TRADING P.LTD, MUMBAI V. ITO 5(3)(4), MUMBAI

ITA 5613/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71145 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 12-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C SRINIVAS REDDY
• Keywords: Earning of tax free income
• Section: 14A; 37(1); 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 6007 & 5613/MUM/2011 ASSESSMENT YEAR : 2007-08 AND 2008-09 M/S. SUREMI TRADING PRIVATE LIMITED MAFATLAL HOUSE, H.T. PAREKH MARG, BACKBAY RECLAMATION MUMBAI-400 020. PAN NO.AAACS 5620 B VS. ACIT - 5(3) AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. (APPELLANT) (RESPONDENT) ITA NO. 5315/MUM/2011 ASSESSMENT YEAR : 2007-08 ACIT CIRCLE - 5(3) ROOM NO.573, 5 TH FLOOR AAYAKAR BHAVAN M.K. ROAD MUMBAI. VS. M/S. SUREMI TRADING PRIVATE LIMITED MAFATLAL HOUSE, H.T. PAREKH MARG, BACKBAY RECLAMATION MUMBAI-400 020. PAN NO.AAACS 5620 B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI GIRISH DAVE REVENUE BY : SHRI C. SRINIVAS REDDY DATE OF HEARING : 12/09/2013 DATE OF PRONOUNCEMENT : 17 / 0 9 /2013 ITA NO.5613,5315 & 6007/11 A.Y.07-08 & 08-08 2 O R D E R PER BENCH: THESE ARE APPEALS BY THE ASSESSEE FOR THE ASSESSMEN T YEAR 2007- 08 AND 2008-09 AND CROSS APPEAL BY THE REVENUE FOR THE ASSESSMENT YEAR 2007-08 AGAINST THE ORDERS OF LD. CIT(A)-9, MUMBAI DATED 31.05.2011 AND 21.06.2011 RESPECTIVELY. SINCE COMMON ISSUES WE RE INVOLVED, THE APPEALS ARE HEARD TOGETHER AND DECIDED BY THIS COMM ON ORDER. 2. ISSUE OF DISALLOWANCE UNDER SECTION 14A : ASSESSEE RAISED GROUNDS ON THIS ISSUE IN BOTH THE ASSESSMENT YEARS. ASSESS ING OFFICER INVOKED RULE-8D AND DISALLOWED THE AMOUNTS ACCORDINGLY. LD . CIT(A) WHILE CONFIRMING THE DISALLOWANCE IN A.Y 2008-09 FOLLOWIN G THE DECISION OF HIGH BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYC E MFG. COMPANY LTD., 328 ITR 81, DELETED THE DISALLOWANCE ON THE BASIS OF RULE 8D WHILE ESTIMATING THE DISALLOWANCE AT 5% OF THE DIVIDEND E ARNED, AS ATTRIBUTABLE TO EARNING THE EXEMPT INCOME. 2.1 ASSESSEE WITHDREW THE GROUND IN A.Y 2008-09 WHE REAS IT WAS CONTESTING THE SAME IN A.Y 2007-08 ON THE REASON TH AT 5% OF DIVIDEND INCOME IS ARBITRARY AND IN THE ALTERNATE EXCESSIVE, CONSIDERING THE EXPENDITURE OF BUSINESS. REVENUE IS AGGRIEVED ON R ESTRICTING THE SAME TO 5% OF THE DIVIDEND INCOME BY LD. CIT(A). WE HAVE H EARD THE RIVAL CONTENTIONS IN DETAIL. 2.2 IT WAS THE CONTENTION OF THE LD. COUNSEL THAT A SSESSEES EXPENDITURE IS VERY REASONABLE IN THE BUSINESS AND RESTRICTING THE SAME TO 5% IS NOT WARRANTED. EVEN OTHERWISE HE SUBMITTE D THAT THE DISALLOWANCE AT 5% IS EXCESSIVE. LD. DR RELIED ON THE ORDER OF THE AO. 2.3 WE HAVE EXAMINED THE CONTENTIONS. IN A.Y 2008- 09 ASSESSEE EARNED DIVIDEND OF RS.1,16,23,602/- AND INVOKING RU LE 8D THE AO MADE DISALLOWANCE OF RS. 17,38,739/-, WHICH WAS ACCEPTED BY ASSESSEE AS THE GROUND PERTAINING TO THAT WAS WITHDRAWN. IN A.Y 2007-08, ASSESSEE EARNED DIVIDEND OF RS.1,75,91,591/-. AO DISALLOWED AMOUNT OF RS. ITA NO.5613,5315 & 6007/11 A.Y.07-08 & 08-08 3 2,62,92,591/- INCLUDING INTEREST EXPENDITURE. LD. CIT(A) RESTRICTED TO 5% OF THE DIVIDEND TO AN EXTENT OF RS.8,79,579/-. THI S AMOUNT IS REASONABLE WHEN COMPARED TO THE DIVIDEND EARNED AND DISALLOW ANCE MADE IN A.Y 2008-09. THE ASSESSEE ALSO DISALLOWED INTEREST IN A.Y 2008-09 WHICH WAS NOT DONE IN A.Y 2007-08. THEREFORE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A), WHICH IS VE RY REASONABLE ON THE FACTS OF THE CASE. CONSEQUENTLY, ASSESSEES GROUND NO.1 IS REJECTED. SINCE RULE 8D IS NOT APPLICABLE FOR A.Y 2007-08, RE VENUES GROUND IS ALSO REJECTED. 3. ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(IA).: ASSESSEE RAISED GROUND NO.2 IN BOTH THE YEARS ON THE DISALLOWANCE C ONFIRMED BY LD. CIT(A) UNDER SECTION 40(A)(IA). IN A.Y 2007-08 AND A.Y 2008-09 ASSESSEE PAID AN AMOUNT OF RS.8,11,248/- AND RS.8,76,024/- A S REIMBURSEMENT TO MAFATLAL INDUSTRIES LTD. FOR THE SERVICES OF TW O OF ITS EMPLOYEES AS 50% OF THEIR SALARY REIMBURSEMENT. IN EARLIER YEARS, TH E AO DISALLOWED THE AMOUNT UNDER SECTION 37(1) WHEREAS THE SAME WAS LAT ER ALLOWED BY AO WHEN REMANDED BY ITAT. HOWEVER, IN THESE YEARS, I NSTEAD OF DISALLOWANCE UNDER SECTION 37(1), THE AO DISALLOWED THE SAME UNDER SECTION 40(A)(IA) ON THE REASON THAT THE TDS WAS NO T MADE. ASSESSEE CONTESTED THE SAME BEFORE LD. CIT(A) STATING THAT T HE REIMBURSEMENT OF EXPENSES WERE NOT COVERED BY TDS PROVISIONS, THE TD S WAS MADE BY MAFATLAL ON SALARY PAID TO ITS EMPLOYEES AND FURTH ER PROVISION OF SECTION 40(A)(IA) DOES NOT APPLY TO REIMBURSEMENT. IT REL IED ON VARIOUS CASE LAW AS RECORDED IN THE ORDER OF LD. CIT(A) IN PARA 4 IN PAGE 11 & 12. HOWEVER, LD. CIT(A) CONFIRMED THE DISALLOWANCE. 3.1 AFTER CONSIDERING THE RIVAL CONTENTIONS, WE ARE UNABLE TO APPROVE THE ACTION OF AO AND LD. CIT(A). THE PROVISIONS O F SECTION 40(A)(IA) ARE AS UNDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 67 [ 38 ], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUS INESS OR PROFESSION, ( A ) IN THE CASE OF ANY ASSESSEE ITA NO.5613,5315 & 6007/11 A.Y.07-08 & 08-08 4 [( I ) . ; ( IA ) ANY INTEREST, COMMISSION OR BROKERAGE, [RENT, ROYALTY,] FEES FOR PROFESSIONAL SERVICES OR FEES FOR TECHNICAL SER VICES PAYABLE TO A RESIDENT, OR AMOUNTS PAYABLE TO A CONT RACTOR OR SUB-CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WORK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT A NY WORK) , ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTE R XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCT ION, [HAS NOT BEEN PAID, ( A ) IN A CASE WHERE THE TAX WAS DEDUCTIBLE AND WAS SO DEDUCTED DURING THE LAST MONTH OF THE PREVIOUS YEAR, ON OR B EFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 ; OR ( B ) IN ANY OTHER CASE, ON OR BEFORE THE LAST DAY OF T HE PREVIOUS YEAR:] [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED ( A ) DURING THE LAST MONTH OF THE PREVIOUS YEAR BUT PA ID AFTER THE SAID DUE DATE; OR ( B ) DURING ANY OTHER MONTH OF THE PREVIOUS YEAR BUT P AID AFTER THE END OF THE SAID PREVIOUS YEAR, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUT ING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.] EXPLANATION. .. ( EMPHASIS SUPPLIED) THE PROVISIONS OF 40(I)(IA) ARE APPLICABLE TO FEW O F THE ITEMS AS SPECIFIED IN THE SECTION. THE AMOUNT OF REIMBURSEMENT MADE DOES NOT FALL UNDER ANY OF THE CATEGORIES SPECIFIED ABOVE. IT IS ALL TOGET HER A DIFFERENT MATTER, IF AO INVOKED PROVISIONS OF SECTION 201 FOR RECOVERY O F TAX IF APPLICABLE, BUT THE AMOUNT OF REIMBURSEMENT OF SALARY CANNOT BE DIS ALLOWED UNDER SECTION 40(A)(IA) AS THE SAID PROVISION IS NOT APPL ICABLE AT ALL. FOR THIS REASON, ACTION OF AO AS UPHELD BY LD. CIT(A), CANNO T BE APPROVED. ASSESSEES GROUNDS ARE ALLOWED. AO IS DIRECTED TO ALLOW THE AMOUNTS AS CLAIMED. 4. GROUNDS NOT DECIDED: 4.1 IN A.Y 2007-08 ASSESSEE RAISED A GROUND THAT GR OUND NO.10 AND 11,12 BEFORE LD. CIT(A) WERE NOT DECIDED. LD. COUN SEL FAIRLY ADMITTED ITA NO.5613,5315 & 6007/11 A.Y.07-08 & 08-08 5 THAT THESE GROUNDS ARE CONSEQUENTIAL IN NATURE AND NEED NOT BE ADJUDICATED. HENCE, THEY ARE TREATED AS WITHDRAWN. 4.2 IN A.Y 2008-09 GROUND NO.6 ON ALLOWANCE OF DEDU CTION UNDER SECTION 80G, GROUND NO.7 ON RATE OF TAX US/111A A ND GROUND NO.8 ON SET OFF LOSSES ARE NOT PASSED FOR ADJUDICATION AS ASSESSEE PREFERRED AN APPLICATION UNDER SECTION 154 BEFORE AO AND MATTER IS PENDING. THEREFORE, THESE GROUNDS ARE ALSO TREATED AS WITHDR AWN. AO IS DIRECTED TO DECIDE THESE ISSUES UNDER SECTION 154 ON THE APP LICATION SO MADE BEFORE HIM. 5. IN THE RESULT, ASSESSEES APPEALS ARE PARTLY ALL OWED, WHEREAS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2013. SD/- SD/- (SANJAY GARG ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 17/09/2013. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.