ITO 4(2)(1), MUMBAI V. M.P. RECYLING CO. P. LTD, MUMBAI

ITA 5697/MUM/2011

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9169 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 14-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 09-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 5697/MUM/2011 ( / ASSESSMENT YEAR : 2008 - 09 THE ITO - 4(2)(1), AAYAKAR BHAVAN, MUMBAI - 400 020 / VS. M/S. M.P. RECYCLING CO. PVT. LTD., 43, RAMWADI, 1 ST FLOOR, KALBADEVI ROAD, MUMBAI - 400 002 ./ ./ PAN/GIR NO. : AADCM 3153A ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI N. PADMANABAN / RESPONDENT BY : SHRI NEELKANTH KHANDELWAL / DATE OF HEARING : 23 . 0 3 .2015 / DATE OF PRONOUNCEMENT : 25 .03 .2015 / O R D E R PER N.K. BILLAIYA, AM: WITH THIS APPEAL, THE REVENUE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A) - 8 DT. 13.6.2011 PERTAINING TO ASSESSMENT YEAR 2008 - 09. 2. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 15,55,65 9/ - MADE U/S. 14A R.W. RULE 8D OF THE ACT. ITA. NO. 5697/M/2011 2 3. THE ASSESSEE IS IN THE BUSINESS OF SHIP BREAKING, M ETAL SCRAP TRADING AND ALL I ED ACTIVITIES. WHILE SCRUTINIZING THE RETURN FOR THE YEAR U NDER CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED AN INCOME OF RS. 7,57,478/ - AS DIVIDEND. THE ASSESSEE WAS ASKED TO SPECIFY THE EXPENSES INCURRED FOR EARNING THE SAID INCOME AND WAS ALSO ASKED TO EXPLAIN AS TO WHY THE SAID EXPENSES INCURRED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S. 14A OF THE ACT. AFTER CONSIDERING THE REPLY, THE AO PROCEEDED BY CALCULATING THE DISALLOWANCE AS PER PROVISIONS OF SEC. 14A R.W. RULE 8D AND COMPUTED THE DISALLOWANCE AT RS. 15,55,659/ - . 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER B EFORE THE LD. CIT(A). IT WAS STRONGLY CONTENDED BEFORE THE LD. CIT(A) THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS THEREFORE THERE IS NO QUESTION OF DISALLOWANCE OF INTEREST ON BORROWED FUNDS. AFTER CONSIDERING THE FACTS AN D THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT THE AO HAS FAILED TO BRING ANY MATERIAL ON RECORD WHICH COULD JUSTIFIABLY INDICATE THAT EXPENDITURE HAD INDEED BEEN INCURRED FOR EARNING EXEMPT INCOME. THE LD. CIT(A) DELETED THE ENTIRE ADDITION OF RS. 15,55 ,659/ - . 5. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 6. SUPPORTING THE ORDER OF THE AO, THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY STATED THAT IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE TOWARDS EARNING OF EXEMPT INCOME. CERTAIN PORTIONS OF EXPENDITURE HAVE TO BE ALLOTTED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME. IT IS THE SAY OF THE LD. DR THAT THE CONCLUSION DRAWN BY THE LD. CIT(A) IS ERRONEOUS AND AGAINST THE FACTS OF THE CASE. ITA. NO. 5697/M/2011 3 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN STATED BEFORE THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDER OF THE AUTHORITIES BELOW AND THE RELEVANT DOCUMENTARY EVIDENCE BROUGHT ON RECORD BEFORE US. INVESTMENTS MADE BY THE ASSESSEE ARE AT RS. 13 .21 CRORES, SHARE CAPITAL AND RESERVE AND SURPLUS AS ON 31.3.2008 WERE AT RS. 36.86 CRORES. THUS, IT CAN BE SEEN THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS. THEREFORE, IN OUR CONSIDERED OPINION, NO DISALLOWANCE SHOULD BE MADE IN RESPECT OF INTEREST ON BORROWED FUNDS. OUR VIEW IS ALSO FORTIFIED BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN THE CASE OF RELIANCE UTILITIES AND POWER LTD 313 ITR 340. TO THIS EXTENT, WE AGREE WITH THE FINDINGS OF THE L D. CIT(A) THAT NO PART OF INTEREST EXPENDITURE SHOULD BE DISALLOWED. 8.1. HOWEVER, IN SO FAR AS THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE AND OTHER EXPENSES IS CONCERNED, IN OUR CONSIDERED VIEW, DISALLOWANCE OF 5% OF THE DIVIDEND INCOME SHOULD MEET T HE ENDS OF JUSTICE. WE, ACCORDINGLY DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS. 37,875/ - . 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. OR DER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2015 SD/ - SD/ - ( VIJAY PAL RAO ) (N.K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 25 TH MARCH, 2015 . . ./ RJ , SR. PS ITA. NO. 5697/M/2011 4 / 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