JAYASHREE TRADERS P.LTD, MUMBAI V. ITO 3(2)(1), MUMBAI

ITA 5708/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78988 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 16-04-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOURYA PRATAP
• Keywords: Rectification of order; Earning of tax free income
• Section: 14A

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL MUMBAI - J BENCH MUMBAI , , / , BEFORE S/SH. VIJAY PAL RAO, JUDICIAL MEMB ER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.5708/MUM/2012, ! ! ! ! ' ' ' ' / ASSESSMENT YEAR-2008-09 M/S JAYASHREE TRADERES PVT. LTD. C/O R.C. RESHAMWALA & CO., CHARTERED ACCOUNTANTS, 323, VARMA CHAMBERS, 11, HOMJI STREET, FORT, MUMBAI-400001 VS. I TO 3(2)(1), R.NO. 673, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAACI7603H ( #$ / APPELLANT) ( %&#$ / RESPONDENT) #$ ' / APPELLANT BY : NONE %&#$ ( ' / RESPONDENT BY : SHRI MOURYA PRATAP ! ! ! ! ( (( ( )* )* )* )* / DATE OF HEARING :29-05-2014 +,' ( )* / DATE OF PRONOUNCEMENT :29- 05- 2014 ! ! ! ! , 1961 ( (( ( 254 )1( )-) )-) )-) )-) . . . . ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) ! ! ! ! PER RAJENDRA,A.M: CHALLENGING THE ORDER DT.03.07.2012 OF THE CIT(A)-3 0,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN UPHOLDING THE CONTENTION OF THE INCOME-TAX OFFICER THAT SECTION 14A READ WITH RULE 8D OF THE INCOME-TAX RULES IS APPLICABLE IN THE PRESENT CASE. 2.ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AN D IN LAW THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) ERRED IN NOT GIVING FULL RELIEF OF EX PENDITURE DISALLOWED SECTION 14A READ WITH RULE 8-D. 3.THE APPELLANT RESERVES ITS RIGHT TO ADD TO, ALTER , OR AMEND THE GROUNDS OF APPEAL. 2. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF TRADING IN PHARMACEUTICALS ORGANIC AND INORGANIC CHEMICALS,FILED ITS RETURN OF INCOME ON 26.09.2008 DECLARING TOTAL INCOME OF RS.1,28,230/-. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT U/S .143(3) OF THE ACT,ON 30.12.2010,DETERMINING THE TOTAL INCOME AT RS.9,25,211/-. EFFECTIVE GROUND OF APPEAL PERTAINS TO DISALLOWANCE MADE U/S.14A OF THE ACT READ WITH RULE 8D OF 2 ITA NO. 5708/MUM/2012 M/S JAYASHREE TRADERS PVT. LT D. THE INCOME-TAX RULES,1962(RULES).DURING THE ASSESSM ENT PROCEEDINGS,AO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.10,08,264/- OUT OF THE INVESTMENT IN SHARES AND MUTUAL FUNDS OF RS.19,84,70,024/-,THAT IT HAD MADE NO DISALLOWAN CE U/S.14A OF THE ACT. VIDE ORDER SHEET ENTRY DATED 11TH NOVEMBER, 2010,AO ASKED THE ASSESSEE AS TO WHY DISALLOWANCE U/S. 14A SHOULD NOT BE MADE.AFTER CONSIDERING THE REPLY OF THE ASSESSEE ,AO MADE A DISALLOWANCE OF RS.7,96,981/- ON ACCOUNT OF EXPENSES PERTAINING TO THE EXEMPT INCOME ,WHEREAS, NO DISALLOWANCE WAS MADE ON ACCOUNT OF INTEREST. 2.1. AGAINST THE ORDER OF THE AO ASSESSEE PREFERRED AN A PPEAL BEFORE THE FIRST APPEAL AUTHORITY (FAA).AFTER CONSIDERING THE SUBMISSIONS OF THE ASSE SSEE AND THE ASSESSMENT ORDER HE HELD THAT FROM AY.08-09 RULE 8D WAS APPLICABLE FOR DISALLOWAN CE TO BE MADE U/S.14A,AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & C O. LTD.(328 ITR 81),THAT THE AO HAD RIGHTLY APPLIED RULE 8D,THAT WHILE CALCULATING 0.5% OF THE AVERAGE INVESTMENT FROM WHICH INCOME WAS EXEMPT AO HAD WRONGLY INCLUDED THE DEBENTURES I NVESTMENT FROM WHICH INTEREST WAS CLAIMED TO BE TAXABLE BY THE ASSESSEE.THEREFORE,HE DIRECTED THE AO TO VERIFY THAT THE INVESTMENT IN DEBENTURES IS SUCH FROM WHICH INTEREST IS TAXABLE A ND OFFERED BY THE ASSESSEE FOR TAXATION AND THEN RE-CALCULATE THE DISALLOWANCE UNDER RULE 8D OF THE RULES.IN PURSUANCE OF THE ORDER OF THE FAA,AO PASSED AN ORDER THAT WAS LATER ON RECTIFIED U/S.154 OF THE ACT.FINALLY,THE AO RESTRICTED THE DISALLOWANCE U/S.14A R.W.R.8D AT RS.1,37,365/-. 2.2. BEFORE US,NO ONE APPEARED ON BEHALF OF THE ASSESSEE ,THOUGH WRITTEN SUBMISSIONS HAVE BEEN FILED.IT IS CONTENDED THAT THE DIVIDEND IS ELECTRON ICALLY CREDITED TO BANK ACCOUNT,THAT THE AO HAD NOT RECORDED HIS SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM,THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE,THAT THE DISALLOWANCE WAS ON HIGHER SIDE.DEPARTMENTAL REPRESENTATIVE (DR) ARGUED THAT FAA HAD ALREADY DIRECTED THE AO TO EXCL UDE CERTAIN ITEMS FOR CALCULATING DISALLOW - ANCE, THAT FROM THE YEAR 2008-09 PROVISIONS OF RULE 8D WERE APPLICABLE,THAT DISALLOWANCE MADE BY THE AO WAS JUSTIFIABLE,THAT REASONABLE DISALLOWANCE COULD BE MADE AS PER THE DECISION OF JURISDICTIONAL HIGH COURT DELIVERED IN THE MATTER O F GODREJ BOYCE & CO.(SUPRA). 2.3. WE HAVE PERUSED THE MATERIAL BEFORE US.IT IS FOUND THAT THE ASSESSEE HAD EARNED EXEMPT INCOME DURING THE YEAR UNDER APPEAL,THAT IT HAD NOT MADE ANY DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT,THAT AO HAD MADE DISALLOW ANCE AFTER RAISING HIS DISSATISFACTION ABOUT THE TREATMENT GIVEN TO THE DIVIDEND INCOME BY THE A SSESSEE,THAT HE DID NOT MAKE ANY DISALLOWAN - CE UNDER THE HEAD INTEREST EXPENDITURE,THAT DISALLO WANCE WAS MADE FOR ADMINISTRATIVE EXPENDITURE ONLY,THAT AFTER THE RECTIFICATION ORDER DISALLOWANC E WAS REDUCED TO RS. 1.37 LACS FROM RS.7.96 3 ITA NO. 5708/MUM/2012 M/S JAYASHREE TRADERS PVT. LT D. LAKHS.WE ARE OF THE OPINION THAT IF AN EARNS CERTAI N EXEMPT INCOME AND DOES NOT MAKE DISALLOW - ANCE U/S.14 A OF THE ACT,REASONABLE DISALLOWANCE CA N BE MADE.WIHTOUT SOME ADMINISTRATIVE EXPENDITURE IT IS NOT POSSIBLE TO EARN INCOME INCLU DING EXEMPT INCOME.IT IS NOT THE CASE OF THE ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE W ITH REGARD TO EXEMPT INCOME.IT HAS BEEN CONTENDED THAT DISALLOWANCE IS ON HIGHER SIDE. ARGU MENT ADVANCED BY THE ASSESSEE ITSELF PROVES THAT SOME EXPENDITURE HAD BEEN INCURRED FOR EARNING EXEMPT INCOME. CONSIDERING THE FACTS AND CIRCUMSTANCE OF THE CASE,WE ARE OF THE OPINION THAT ,IN THE INTEREST OF JUSTICE,DISALLOWANCE U/S.14A R.W.R.8D SHOULD BE RESTRICTED TO RS.50,000/-.EFFECT IVE GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE,IN PART. AS A RESULT,APPEAL FILED B Y THE ASSESSEE STANDS PARTLY ALLOWED. /)0 !1) ( .)0 3 ( ) 45 . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MAY,2014. . ( +,' 6 7! 29 ,2014 , ( - 8 SD/- SD/- ( / VIJAY PAL RAO ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, 7! /DATE:29.05.2014 SK . . . . ( (( ( %) %) %) %) 9 ') 9 ') 9 ') 9 ') / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / #$ 2. RESPONDENT / %&#$ 3. THE CONCERNED CIT (A) / : ; , 4. THE CONCERNED CIT / : ; 5. DR J BENCH, ITAT, MUMBAI / <- %)! , . . . 6. GUARD FILE/ - / &) &) &) &) %) %)%) %) //TRUE COPY// .! / BY ORDER, = / 4 DY./ASST. REGISTRAR , /ITAT, MUMBAI