BARODA INDUSTRIES PVT. LTD., MUMBAI V. INCOME TAQX OFFICER, 3(1)(2), MUMBAI

ITA 5729/MUM/2010

• Counselvise Citation: 572919914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 14-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B : MUMBAI BEFORE SHRI D. MANMOHAN, (VICE PRESIDENT [MZ]) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.5729/MUM/2010 ASSESSMENT YEAR : 2006-07 BARODA INDUSTRIES PRIVATE LIMITED BAJAJ BHAWAN, 2 ND FLOOR JAMNALAL BAJAJ MARG 226, NARIMAN POINT MUMBAI. ..( APPELLANT ) P.A. NO. (AAACB 2428 A) VS. INCOME TAX OFFICER WARD-3(1)(2) AAYAKAR BHAVAN M.K. MARG MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : NONE RESPONDENT BY : SHRI O. A. MAO DATE OF HEARING : 9.11.2011 DATE OF PRONOUNCEMENT : 9 TH NOVEMBER, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 17.3.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2006-07. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING DISALLOWANCE OF EXPENSES IN RELATION TO EXEMPT INCOME UNDER SECTION 14A OF THE INCOME TAX ACT. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED DI VIDEND ITA NO.5729/M/10 A.Y:06-07 2 INCOME OF RS.2,13,11,682/- OUT OF THE TOTAL INCOME OF RS.5,52,69,511/-. THE ASSESSEE HAD NOT DISALLOWED ANY EX PENSES IN RELATION TO THE EXEMPT INCOME. THE AO NOTED THAT TH E ASSESSEE DERIVED INCOME FROM DIFFERENT SOURCES FOR WHICH COMMON ACCO UNTS HAD BEEN MAINTAINED. HE, THEREFORE, COMPUTED EXPENSES REL ATING TO EXEMPT INCOME IN PROPORTION TO THE DIVIDEND INCOME TO THE TOTAL INCOME WHICH CAME TO RS.63,753/- WHICH WAS DISALLOWED. I N APPEAL CIT(A) FOLLOWING THE DECISION OF THE SPECIAL BENCH OF T HE TRIBUNAL IN CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (119 TTJ 289) HELD THAT THE EXPENSES RELATING TO EXEMPT INCOME HAVE TO BE COMPUTED AS PER RULE 8D. HE THEREFORE, DIRECTED THE AO TO DISALLOW THE EXP ENSES UNDER THE PROVISIONS OF RULE-8D AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. AT THE TIME OF HEARING NO ONE APPEARED TO REPRESE NT THE CASE ON BEHALF OF THE ASSESSEE. WE, THEREFORE, PROCEED TO DECIDE THE APPEAL EXPARTE QUA THE ASSESSEE AFTER HEARING THE LD. DEPARTME NTAL REPRESENTATIVE. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE AVAILA BLE MATERIAL CAREFULLY. THE DISPUTE IS REGARDING DISALLOWA NCE OF EXPENSES IN RELATION TO THE DIVIDEND INCOME WHICH IS EXEMPT FR OM TAX. UNDER THE PROVISIONS OF SECTION 14(2) AND 14(3), EXPENSES RELATING TO EXEMPT INCOME ARE REQUIRED TO BE COMPUTED AS PER THE METHOD P RESCRIBED BY THE GOVT. THE GOVT. HAVE SINCE PRESCRIBED THE METHOD IN THE FORM OF RULE 8D. EARLIER THE SPECIAL BENCH OF THE TRIBUNAL I N THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. (SUPRA) HAD HELD THAT RUL E 8D HAD RETROSPECTIVE APPLICATION AND WOULD THEREFORE APPLY TO EARLIER ASSESSMENT YEARS ALSO. THE VIEW TAKEN BY THE SPECIAL BENCH OF THE ITA NO.5729/M/10 A.Y:06-07 3 TRIBUNAL HAS HOWEVER BEEN NOT UPHELD BY THE HONBLE HI GH COURT OF BOMBAY, IN CASE OF GODREJ BOYCE MFG. CO. LTD. (328 ITR 81) IN WHICH IT HAS BEEN HELD THAT RULE 8D IS PROSPECTIVE IN NATURE AND WOULD APPLY FROM ASSESSMENT YEAR 2008-09. IN RESPECT OF THE PRIOR YEA RS, THE HONBLE HIGH COURT HELD THAT EXPENSES RELATING TO EXEMP T INCOME BOTH DIRECT AND INDIRECT HAVE TO BE COMPUTED ON REASONABLE B ASIS AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE. THEREFORE, THE D ECISION OF CIT(A) TO COMPUTE THE EXPENSES AS PER RULE 8D CANNOT BE UPHELD. WE, THEREFORE SET ASIDE THE ORDER OF CIT(A) AND RESTO RE THE MATTER BACK TO HIM FOR PASSING A FRESH ORDER AFTER NECESSARY EXA MINATION IN THE LIGHT OF THE JUDGMENT OF HONBLE HIGH COURT OF BO MBAY (SUPRA) AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSE SSEE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 9.11.2011. SD/- SD/- (D. MANMOHAN) (RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED: 9.11.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.