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

ITA 5658/MUM/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1685 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 18-11-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 05-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI D.KARUNAKARA RAO (AM) AND SHRI RAM LAL NEGI (JM) ITA NO.5658/MUM/2013 ASSESSMENT YEAR: 2010-11 M/S. DAGA GLOBAL CHEMICALS PVT. LTD. (FORMERLY KNOWN AS DAGA GLOBAL CHEMICALS LTD.), 101, MAHEK PLAZA, MAHARASHTRA NAGAR LANE, OFF. L.T.ROAD, BORIVALI (W), MUMBAI- 400 092. PAN:- AAACD2233M VS. THE A CIT, - 9(1) , ROOM NO. 223, AYAKAR BHAVAN, MARINE LINES, MUMBAI- 400 020. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI. RAHUL K. HAKANI RESPONDENT BY : SHRI. MAURYA PRATAP DATE OF HEARING: 18/11 /201 6 DATE OF PRONOUNCEMENT: 09/12/20 16 O R D E R PER RAM LAL NEGI, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST ORDER DATED 13/06/2013 PASSED BY THE LD. CIT(APPEALS)-19, MUMBA I FOR THE ASSESSMENT YEAR 2010-11, WHEREBY THE LD. CIT(A) DISMISSED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER DATED 18/12/2012 PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). 2. BRIEF FACTS OF THE CASE WHICH REQUIRE NECESSARY MENTION FOR THE PURPOSE OF ADJUDICATING THE ISSUES INVOLVES, EMANATING FROM THE RECORD AND THE CONTENTIONS OF THE PARTIES ARE THAT THE ASSESSEE FI LED ITS RETURN OF INCOME FOR THE 2 ITA NO.5658/MUM/2013 ASSESSMENT YEAR: 2010-11 RELEVANT ASSESSMENT YEAR DECLARING THE TOTAL INCOME OF RS. 6,22,36,210/-. THE RETURN OF INCOME WAS PROCESSED AND ASSESSMENT ORDER U/S 143(3) WAS PASSED DETERMINING THE TOTAL INCOME AT RS. 6,30,45,710/- A FTER MAKING DISALLOWANCE OF RS. 8,09,496/- U/S 14A READ WITH RULE 8D OF THE INC OME TAX RULES. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT(A). THE ASSESSEES APPEAL WAS DISMISSED BY THE LD. CIT(A) FOLLOWING TH E FINDINGS OF THE THEN CIT(A) IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009 -10. 3. THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AG AINST THE IMPUGNED ORDER PASSED BY THE LD. CIT(A) ON THE FOLLOWING EFFECTIVE GROUNDS:- 1. THE LEARNED CIT (A) ERRED IN CONFIRMING DISALLOWANC E OF RS. 8,09,496/- U/S 14A. R.W. RULE 8D WITHOUT APPRECIATI NG THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED DURING THIS YEAR FOR EARNING EXEMPT INCOME AND INVESTMENTS IN S HARES WERE MADE IN EARLIER YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS AND HENCE DISALLOWANCE U/S 14A. R.W. RULE 8D MAY BE DELETED. 2. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DIVIDE ND INCOME IS DIRECTLY CREDITED TO BANK ACCOUNT AND APPELLANT DOE S NOT HAVE TO INCUR ANY EXPENDITURE FOR EARNING EXEMPT INCOME AND HENCE DISALLOWANCE U/S 14A. R.W. RULE 8D MAY BE DELETED. 3. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT INTERE ST EXPENDITURE OF RS. 1,44,66,763/- HAS NO NENUS WITH EARNING OF EXEMPT INCOME AS THE INVESTMENTS ON WHICH EXEMPT INCOME IS EARNED IS OUT OF OWN FUNDS AND HENCE DISALLOWANC E U/S 14A. R.W. RULE 8D MAY BE DELETED. 4. THE LEARNED CIT(A) FAILED TO APPRECIATE THE A.O HAS NOT DULY RECORDED SATISFACTION BEFORE INVOKING 14A. R.W.RULE 8D AS ASSESSEE HAD SUBMITTED BIFURCATION OF FINANCIAL EXP ENSES TO 3 ITA NO.5658/MUM/2013 ASSESSMENT YEAR: 2010-11 A.O. TO SHOW THAT 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 APPLI ED RULE 8D IN AN AUTOMATIC FASHION AND HENCE, NO SATISFACTION WAS RECORDED BY A.O AS REQUIRED U/S 14A BEFORE INVOKING RULE 8D. 5. THE LEARNED CIT(A) FAILED TO APPRECIATE THAT DISALL OWANCE U/S 14A READ WITH RULE 8D CANNOT EXCEED EXEMPT INCOME. 6. WITHOUT PREJUDICE TO ABOVE, DIVIDEND RECEIVED DURI NG THIS YEAR IS ONLY RS. 13,687/- AND DEMAT CHARGES ARE RS. 827/-, HENCE THE DISALLOWANCE MAY BE RESTRICTED TO MAXIMUM RS. 827/-. 4. BEFORE US, THE LD. COUNSEL FOR THE APPELLANT (AS SESSEE) SUBMITTED THAT THE PRESENT APPEAL IS COVERED BY THE DECISION OF THE ITAT IN ASSESSEES OWN CASE (ITA NO 5592/MUM/2012) FOR THE ASSESSMENT YEAR 2009-10 AND THE TRIBUNAL HAS DECIDE D THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. HENCE, THE IMPUGNE D ORDER PASSED BY THE LD. CIT(A) IS CONTRARY TO THE FINDINGS OF THE T RIBUNAL, THEREFORE, THE SAME IS LIABLE TO BE SET ASIDE. 5. THE LD. DEPARTMENTAL REPRESENTATIVE (DR) DID NOT DISPUTE THE FACT THAT THE TRIBUNAL HAS DECIDED THE IDENTICAL IS SUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES APPEAL AGAINST THE CIT(A) OR DER FOR THE ASSESSMENT YEAR 2009-10. 6. WE HAVE GONE THROUGH THE MATERIAL PLACED BEFORE US IN THE LIGHT OF THE SUBMISSIONS OF THE LD COUNSEL FOR THE ASSESS EE. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) HA S WRONGLY CONFIRMED THE DISALLOWANCE OF RS. 8,09,496/- MADE BY THE AO U NDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, WITHOUT APPRECIATING THE 4 ITA NO.5658/MUM/2013 ASSESSMENT YEAR: 2010-11 FACTS THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY W AS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND THAT INVESTM ENTS IN SHARES WERE MADE IN EARLIER YEARS OUT OF OWN FUNDS. WE NOT ICE THAT THE COORDINATE BENCH VIDE ORDER DATED 01.01.2015 HAS DE CIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESS EES OWN CASE ITA NO 5592/MUM/2012 FOR THE ASSESSMENT YEAR 2009-10 BY HO LDING AS UNDER:- THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIME D BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR E ARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER DIVID END WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE A SSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/-AS DIV IDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOW ANCE OF RS. 14,58,412/-BY INVOKING SECTION 14A R. W. RULE 8D UN DER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACTS IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVEST ED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME. AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/-WHICH WERE CLA IMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R. W. RULE 8D C ANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF ASSESSEE. THE APPEAL OF THE ASSESSE E IS THEREFORE, ALLOWED. 7. THE FACTS OF THE PRESENT CASE AND THE ISSUES INV OLVED ARE IDENTICAL TO THE FACTS OF THE CASE AND ISSUES INVOL VED IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 EXCEPT THE AMOUNT OF DISALLOWANCE. HENCE, RESPECTFULLY FOLLOWING THE DEC ISION RENDERED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10, WE DIRECT THE AO TO APPLY THE PRINCIPLES L AID DOWN BY THE 5 ITA NO.5658/MUM/2013 ASSESSMENT YEAR: 2010-11 TRIBUNAL FOR THE A.Y 2009-10. AO SHALL QUANTIFY THE DISALLOWANCE AS PER THE JUDICIAL DECISION IN FORCE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR TH E ASSESSMENT YEAR 2010-11 IS ALLOWED PROTANTO. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH DECEMBER, 2016 SD/- SD/- ( D.KARUNAKARA RAO ) (RAM LAL NEGI) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI; DATED : 09/12/2016 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. !' , $ !'% , / DR, ITAT, MUMBAI 6. &' ( / GUARD FILE. / BY ORDER, ) //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI PRAMILA