UNIQUE ESTATES DEVELOPMENT CO. LTD, MUMBAI V. ASST CIT CEN CIR 23, MUMBAI

ITA 5677/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9025 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 10-09-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 08-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MANJUNATH KARKIHALLI
• Assessee Lawyers: S D PURANDERE
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F BENCH BEFORE SHRI I.P.BANSAL(JUDICIAL MEMBER) AND SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER) ITA NO.5677/MUM/2011 ASSESSMENT YEAR: 2008-09 UNIQUE ESTATES DEVELOPMENT CO. LTD., CONSTRUCTION HOUSE, B-2 ND FLOOR, 623, LINKING ROAD, KHAR (W), MUMBAI-52 PA NO.AAACU 0699 N ACIT, CENTRAL CIRCLE -23, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI S.D.PURANDERE RESPONDENT BY: DR MANJUNATH KARKIHALLI DATE OF HEARING: 10 .9.2012 DATE OF PRONOUNCEMENT: 14 .9.2012 ORDER PER I.P.BANSAL, JM: THIS IS APPEAL FILED BY ASSESSEE. IT IS DIRECTED AGAINST ORDER DATED21.6.2011 OF LD CIT(A)-40, MUMBAI FOR ASSESSMENT YEAR 2008-09. 2. THE ONLY GROUND RAISED BY ASSESSEE READS AS UNDE R: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AS WELL AS IN LAW, LD CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE AMOUNTI NG TO RS.51,21,956 MADE BY THE AO U/S.14A R.W.R 8D IN RESPECT OF INCOM E NOT FORMING PART OF TOTAL INCOME. 3. IT WAS NOTICED BY THE AO THAT ASSESSEE HAD EARNE D DIVIDEND INCOME OF RS.1,50,45,898 AND ALSO SHARE OF PROFIT FROM PARTNE RSHIP FIRM OF RS.1,54,169. THE AO INVOKED SECTION 14A AND WITH REFERENCE TO RULE 8D, THE DISALLOWANCE HAS BEEN COMPUTED AT RS.51,21,956. LD CIT(A) HAS SUSTAINED THE DISALLOWANCE ON THE GROUND THAT RULE 8D IS APPLICABLE FROM A.Y. 2008-09. IT I S THE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENDITURE. RELIANCE WAS PLACED ON THE ITA NO.5677/MUM/2011 ASSESSMENT YEAR: 2008-09 2 DECISION OF ITAT MUMBAI IN THE CASE OF M/S. AUCHTEL PRODUCTS LTD VS ACIT AND OTHERS IN I.T.A. NO.3185/M/2011 FOR A.Y. 2008-09 AND OTHERS. IT WAS SUBMITTED THAT MATTER MAY BE RESTORED BACK TO THE FILE OF AO TO DECIDE THE IS SUE AS PER DIRECTION GIVEN IN THE SAID ORDER. 4. HOWEVER, LD D.R. RELIED ON ORDER OF AO AND CIT(A 0. 5. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. SIMILAR MATTER WAS HEARD BY US TODAY AND THE ISSUE HAS BEEN DECIDED WITH THE FOLLOWING OBSERVATIONS VIDE OUR ORDER OF EVEN DATE IN THE CAS E OF UNITOP CHEMICALS P. LTD IN I.T.A. NO.6819/M/2011 FOR ASSESSMENT YEAR 2008-09. THE RE LEVANT DISCUSSIONS ARE REPRODUCED BELOW: 8. WITH REFERENCE TO THE EXEMPTED INCOME CLAIMED B Y THE ASSESSEE, THE AO INVOKED SECTION 14A OF THE I.T.ACT, 1961 AND COMPUT ED THE DISALLOWANCE WITH REFERENCE TO RULE 8D. THE DISALLOWANCE HAS BEEN C OMPUTED AT RS.18,87,811 BY THE AO. IT WAS THE CONTENTION OF THE ASSESSEE THAT IT DID NOT INCUR ANY EXPENDITURE REGARDING INTEREST, THEREFORE, INTEREST ELEMENT CANNOT BE TAKEN INTO ACCOUNT WHILE COMPUTING DISALLOWANCE WITH REFERENCE TO RULE 8D. TO SUPPORT SIMILAR CONTENTION, LD A.R PLACED BEFORE US AN ORD ER DATED 30.4.2012 OF CO- ORDINATE BENCH IN I.T.A. NO.3185/M/2011 FOR A.Y. 20 08-09 IN THE CASE OF M/S. AUCHTEL PRODUCTS LTD VS ACIT AND OTHERS, COPY OF TH E SAME WAS ALSO GIVEN TO LD D.R. IN THAT CASE, IT WAS THE CONTENTION OF THE AS SESSEE THAT ASSESSEE HAD NOT UTILIZED ANY INTEREST BEARING DEPOSITS AND THE INVE STMENT MADE BY THE ASSESSEE FROM WHICH EXEMPT INCOME HAS BEEN EARNED AND ON THI S ISSUE, THE TRIBUNAL AFTER ANALYZING ALL THE PROVISIONS HAS COME TO THE CONCLU SION THAT ACCORDING TO THE PROVISIONS OF SECTION 14A(2) & (3) THE AO SHALL DET ERMINE THE AMOUNT DISALLOWANCE AS PER RULE 8D, IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E IN RELATION TO EXEMPT INCOME. EVEN IF THE ASSESSEE CLAIMS THAT NO EXPEND ITURE WAS INCURRED IN RESPECT OF EXEMPT INCOME, THE AO IS SUPPOSED TO FOLLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEE S CLAIM. IN OTHER WORDS, DISALLOWANCE U/S.14A IS CALLED FOR WHEN THE AO IS N OT SATISFIED WITH THE ASSESSEES CLAIM OF HAVING INCURRED NO EXPENDITURE OR SOME AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME. THEREFOR E, IT WAS HELD THAT SATISFACTION OF THE AO AS TO THE INCORRECT CLAIM MA DE BY THE ASSESSEE IS SINE QUA NON FOR INVOKING THE APPLICABILITY OF RULE 8. SUCH SA TISFACTION CAN BE REACHED AND RECORDED ONLY WHEN THE CLAIM OF THE ASSESSEE IS VER IFIED. IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PARTICULAR EXPENDI TURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GETS SATISFIED, THEN THERE IS NO REQUIREMENT TO STILL PROCEED WITH THE COMPUTATION OF AMOUNT DISALLOWABLE AS PER RULE 8D. IT WAS NOTED FROM THE ASSESSMENT ORDER THAT AO SIMPLY KEPT THE ASSESSEES SUBMISSIONS ITA NO.5677/MUM/2011 ASSESSMENT YEAR: 2008-09 3 ON RECORD WITHOUT APPRECIATING AS TO WHETHER THESE WERE CORRECT OR NOT. THE AO PROCEEDED ON THE PREMISE AS IF THE DISALLOWANCE AS PER RULE 8D IS AUTOMATIC IRRESPECTIVE OF THE GENUINENESS OF THE ASSESSEES C LAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE RELEVAN T OBSERVATIONS OF THE TRIBUNAL FROM THE SAID ORDER ARE AS UNDER: 13. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, THERE IS NO DISPUTE ON THE FACT THAT RULE 8D IS APPLICABLE W.E.F. ASSESSMENT YEAR 2008-09. PRESENTL Y, WE ARE DEALING WITH THE ASSESSMENT YEAR 2008-09 AND RESULTANTLY RULE 8D IS TO BE APPLIED. HOWEVER, IT HAS BEEN CONTENDED BY THE LD. AR THAT S UFFICIENT MATERIAL WAS PLACED BEFORE THE AO IN SUPPORT OF ITS CLAIM OF NOT HAVING INCURRED ANY INTEREST EXPENDITURE IN RESPECT OF THE EXEMPT DIVID END INCOME. FROM THE ASSESSMENT ORDER, IT CAN BE SEEN THAT THE AO HAS CA TEGORICALLY RECORDED ASSESSEES SUBMISSION IS KEPT ON RECORD. THERE IS NO DISCUSSION WHATSOEVER ON THE SUBMISSIONS SO MADE ON BEHALF OF THE ASSESSEE IN THIS REGARD. 14. AT THIS JUNCTURE, IT WILL BE RELEVANT TO NOTE T HAT SECTION 14A PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EX PENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME UNDER THIS ACT. SO THE REFERENCE TO THE AMO UNT DISALLOWABLE IS THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. IT IS RELEVANT TO NOTE DOWN THE PROVISIONS OF SUB-SECTION S (2) AND (3) OF SECTION 14A WHICH HAVE BEEN INSERTED W.E.F. ASSESSM ENT YEAR 2007-08 READING AS UNDER : (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOU NT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHO D AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BE EN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THIS ACT. 15. A BARE PERUSAL OF THE ABOVE PROVISIONS INDICATE S THAT THE AO SHALL DETERMINE THE AMOUNT DISALLOWABLE AS PER RULE 8D, I F HE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. EVEN IF T HE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED IN RESPECT OF EXEM PT INCOME, THE AO IS SUPPOSED TO FOLLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM. TO PUT IT SIMP LY, THE FURTHER DISALLOWANCE U/S.14A IS CALLED FOR WHEN THE AO IS N OT SATISFIED WITH THE ASSESSEES CLAIM OF HAVING INCURRED NO EXPENDITURE OR SOME AMOUNT OF ITA NO.5677/MUM/2011 ASSESSMENT YEAR: 2008-09 4 EXPENDITURE IN RELATION TO EXEMPT INCOME. SATISFACT ION OF THE AO AS TO THE INCORRECT CLAIM MADE BY THE ASSESSEE IN THIS REGARD IS SINE QUA NON FOR INVOKING THE APPLICABILITY OF RULE 8D. SUCH SATISFA CTION CAN BE REACHED AND RECORDED ONLY WHEN THE CLAIM OF THE ASSESSEE IS VERIFIED. IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A P ARTICULAR EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GET S SATISFIED, THEN THERE IS NO REQUIREMENT TO STILL PROCEED WITH THE C OMPUTATION OF AMOUNT DISALLOWABLE AS PER RULE 8D. FROM THE ASSESSMENT OR DER, IT IS OBSERVED THAT THE AO SIMPLY KEPT THE ASSESSEES SUBMISSIONS ON RECORD WITHOUT APPRECIATING AS TO WHETHER THESE WERE CORRECT OR NO T. HE PROCEEDED ON THE PREMISE AS IF THE DISALLOWANCE AS PER RULE 8D I S AUTOMATIC IRRESPECTIVE OF THE GENUINENESS OF THE ASSESSEES C LAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. IT IS AN INCORRECT COURSE ADOPTED BY THE AO. THE CORRECT SEQUENCE, IN OUR CON SIDERED OPINION, FOR MAKING ANY DISALLOWANCE U/S.14A IS TO, FIRSTLY, EXA MINE THE ASSESSEES CLAIM OF HAVING INCURRED SOME EXPENDITURE OR NO EXP ENDITURE IN RELATION TO EXEMPT INCOME. F THE AO GETS SATISFIED WITH THE SAME, THEN THERE IS NO NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D. IT IS ONLY WHEN THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE HAVING BEEN I NCURRED IN RELATION TO EXEMPT INCOME, THAT THE MANDATE OF RULE 8D WILL OPE RATE. IN THE INSTANT CASE, THE AUTHORITIES BELOW HAVE DIRECTLY GONE TO T HE SECOND STAGE OF COMPUTING DISALLOWANCE U/S.14A AS PER RULE 8D WITHO UT RENDERING ANY OPINION ON THE CORRECTNESS OR OTHERWISE OF THE ASSE SSEES CLAIM IN THIS REGARD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO TO RE-COMPUTE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH OUR ABOVE OBSERVATIONS AFTER DULY E XAMINING THE ASSESSEES CLAIM IN THIS REGARD. 9. IT WAS SUBMITTED BY LD A.R. THAT RIGHT FROM THE BEGINNING IT HAS BEEN THE CONTENTION OF ASSESSEE THAT IT HAD NOT INCURRED INT EREST EXPENDITURE. THEREFORE, ON THE BASIS OF FINDINGS GIVEN IN THE AFOREMENTIONE D DECISION BY CO-ORDINATE BENCH, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. 10. ON THE OTHER HAND, LD D.R. RELIED UPON THE ORDE R OF LD CIT(A). 11. WE HAVE HEARD RIVAL CONTENTIONS. RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF CO-ORDINATE BENCH IN THE CASE OF M/S. AUCHTEL PRODUCTS (SUPRA), TO EXAMINE THE CONTENTION OF ASSE SSEE, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR DIRECTION AS HAS BEEN G IVEN IN THE AFOREMENTIONED CASE. WE DIRECT ACCORDINGLY. ITA NO.5677/MUM/2011 ASSESSMENT YEAR: 2008-09 5 6. IN THIS VIEW OF THE SITUATION, FOLLOWING THE AFO REMENTIONED ORDER, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR DIRECTIONS. 7. IN THE RESULT, APPEAL FILED BY ASSESSEE IS TREAT ED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 14 TH SEPTEMBER, 2012 SD/- (B.RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (I.P.BANSAL) JUDICIAL MEMBER MUMBAI, DATED 14 TH SEPTEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),40, MUMBAI 4. COMMISSIONER OF INCOME TAX,C-II , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH F MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI