TEMPLE TREESIMPEX AND INVESTMENTS P. LD, MUMBAI V. DCIT 2(3), MUMBAI

ITA 5695/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55608 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 14-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Assessee Lawyers: HARESH C BUCH MR PANKAJ SHAH; AKSHAY ATTAL
• Keywords: Opportunity of being heard; Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H, MUMBAI BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I.T.A. NO.5695/MUM/2010 (ASSESSMENT YEAR : 2007-08) TEMPLE TREES IMPEX AND INVESTMENTS P. LTD., C/O B.S. MEHTA & CO., 11/13, BOTAWALA BUILDING, 2 ND FLOOR, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 PAN AAACT1765G VS. DY. COMMISSIONER OF INCOME TAX 2(3), MUMBAI. APPELLANT RESPONDENT. APPELLANT BY : MR. HARESH C. BUCH, MR.PANKAJ SHAH & MR.AKSHAY ATTAL. RESPONDENT BY : MR.V.V. SHAS TRI. DATE OF HEARING : 28.09.2011. DATE OF PRONOUNCEMENT : 19.10.2011. O R D E R. PER RAJENDRA SINGH, A.M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DT.12.5.2010 OF COMMISSIONER OF INCOME TAX (APPEALS) FOR THE ASSESSMENT YEAR 200 7-08. IN THIS APPEAL THE ASSESSEE HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS. 2. THE FIRST DISPUTE IS REGARDING DISALLOWANCE OF R S.5,15,715 ON ACCOUNT OF EXPENDITURE INCURRED TOWARDS TRADE TAX LIABILITY. THE ASSESSIN G OFFICER OBSERVED THAT THE SAID PAYMENT RELATED TO EARLIER YEAR AND THEREFORE HE DID NOT AL LOW THE CLAIM. IN APPEAL, THE ASSESSEE 2 ITA NO.5695/MUM/2010 SUBMITTED THAT THE INTIMATION REGARDING THE SAID LI ABILITY HAD BEEN CONVEYED TO THE ASSESSEE VIDE LETTER DT.2.1.2007 RECEIVED ON 1.3.2007 AND TH EREFORE THE LIABILITY HAD CRYSTALLISED DURING THE YEAR. THE CIT(A) ON EXAMINATION OF RECORD, HOW EVER, OBSERVED THAT PAYMENT HAD BEEN RECEIVED BY THE ASSESSEE MUCH BEFORE 1.3.2007 AND T HEREFORE THE CLAIM OF THE ASSESSEE THAT THE SAID LIABILITY SHOULD BE ALLOWED AS A DEDUCTION ON THE GROUND OF CRYSTALLISATION DURING THE YEAR WAS NOT CORRECT. THE DETAILS OF PAYMENTS WERE MEN TIONED BY CIT(A) ARE AS UNDER : SL. NO. DATE AMOUNT RS. 1. 19.07.2006 1,36,464 2. 19.07.2006 1,19,295 3. 26.12.2006 1,40,000 4. 26.12.2006 1,20,000 TOTAL : 5,15,759 THE CIT(A), THEREFORE, DID NOT ACCEPT THE CLAIM OF THE ASSESSEE OF LIABILITY CRYSTALLISING DURING THE YEAR UNDER CONSIDERATION. HE THEREFORE, CONFIRMED THE DISALLOWANCE MADE BY HIM. AGGRIEVED BY THE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABILITY O F EXPENDITURE ON ACCOUNT OF TRADE TAX LIABILITY. UNDER THE PROVISIONS OF SECTION 43B, ANY EXPENDITUR E ON ACCOUNT OF TRADE TAX IS ALLOWABLE ON PAYMENT BASIS. IT IS CLEAR FROM THE DETAILS OF PAY MENT IN THIS CASE WHICH HAVE BEEN DULY MENTIONED IN THE ORDER OF CIT(A) THAT PAYMENTS WERE MADE DURING THIS ASSESSMENT YEAR. THEREFORE, EVEN IF THE TRADE TAX RELATED TO EARLIER YEAR, THE LIABILITY HAS TO BE ALLOWED ON 3 ITA NO.5695/MUM/2010 PAYMENT BASIS. THE ORDER OF CIT(A) DENYING THE DED UCTION ON THE GROUND OF LIABILITY BEING RELATED TO EARLIER YEAR CANNOT BE UPHELD. THE ORDER OF CIT(A) IS THEREFORE SET ASIDE AND THE CLAIM OF THE ASSESSEE IS ALLOWED. 4. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO THE EXEMPT INCOME UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS.1,54,92 ,075 DURING THE YEAR BUT THE ASSESSEE HAD NOT DISALLOWED ANY EXPENSES RELATING TO THE EXEMPT INCOME UNDER SECTION 14A OF THE ACT. HE, THEREFORE, DISALLOWED SUCH EXPENSES WHICH WERE COMP UTED BY HIM AS PER RULE 8D AT RS.1,01,614 WHICH WAS ADDED TO THE TOTAL INCOME. I N APPEAL, THE CIT(A) OBSERVED THAT RULE 8D WAS APPLICABLE WITH RETROSPECTIVE EFFECT IN VIEW OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAGE MENT PVT. LTD. (MUM) (117 ITD 169). HE THEREFORE UPHELD THE DISALLOWANCE. AGGRIEVED BY TH E ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH PARTIES AND PERUSED THE RECOR DS CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO THE DIVIDEND I NCOME OF RS.1,54,92,075 RECEIVED BY THE ASSESSEE DURING THE YEAR WHICH IS EXEMPT. UNDER TH E PROVISIONS OF SECTIONS 14(2) AND 14(3) OF THE ACT, THE COMPUTATION OF EXPENSES RELATING TO EX EMPT INCOME IS REQUIRED TO BE MADE AS PER METHOD PRESCRIBED BY THE GOVERNMENT. THE GOVERNMEN T HAVE SINCE PRESCRIBED METHOD IN THE FORM OF RULE 8D. EARLIER THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPRA) HAD HELD THAT RULE 8D HAD RETROSPECTIVE APPLICATION AND WOULD 4 ITA NO.5695/MUM/2010 APPLY TO EARLIER YEARS ALSO. HOWEVER, THE SAID VIE W OF THE TRIBUNAL HAS NOT UPHELD BY THE HON'BLE HIGH COURT OF MUMBAI IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (328 ITR 81) (MUM) IN WHICH IT HAS BEEN HELD THAT R ULE 8D WOULD APPLY ONLY FROM ASSESSMENT YEAR 2008-09. IN RESPECT OF PRIOR YEARS, THE HON'B LE HIGH COURT OF MUMBAI HELD THAT EXPENSES RELATING TO EXEMPT INCOME BOTH DIRECT AND INDIRECT HAVE TO BE COMPUTED ON A REASONABLE BASIS AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IN THIS CASE, BOTH THE ASSESSING OFFICER AND CIT(A) HAVE APPLIED RULE 8D WHICH IS NO T APPLICABLE TO THE ASSESSMENT YEAR UNDER REFERENCE. WE, THEREFORE, SET ASIDE THE ORDER OF T HE CIT(A) AND RESTORE THE MATTER BACK TO THE ASSESSING OFFICER FOR PASSING A FRESH ORDER AFTER N ECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER ALLOWING AN OPPOR TUNITY OF BEING HEARD TO THE ASSESSEE. 6. IN THE RESULT THE APPEAL OF ASSESSEE IS PARTLY A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT O N 19.10.2011. SD/- SD/- (B.R. MITTAL) (RAJENDRA SINGH) JUDICIAL MEMBE R ACCOUNTANT MEMBER MUMBAI, DATED: 19-10-2011. *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, H-BENCH. 6. GUARD FILE.