THE ACIT CIR 6(1), MUMBAI V. M/S. BRAHMADEV HOLDING & TRADING LTD, MUMBAI

ITA 5817/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49000 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 18-09-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: VIPUL JOSHI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.S. SYAL (AM) AND SMT. ASHA VIJAYARAGH AVAN (JM) ITA NO. 5817/MUM/2008 ASSESSMENT YEAR- 2005-06 ACIT. CIR.6(1), R. NO. 506, 5 TH FLOOR, AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 VS. M/S. BRAHAMADEV HOLDI N G & TRADING LTD. 403-A, STEEL CHAMBER, BROACH STREET, MUMBAI-400 009 PAN NO: AAACB1648L (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI G. P. TRIVEDI RESPONDENT BY: SHRI VIPUL JOSHI O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 21.01.2008 PASSED BY THE LD. CIT(A)-VI FOR THE ASSE SSMENT YEARS 2005-06. 2. THE APPELLANT IS ENGAGED IN VARIOUS BUSINESSES L IKE TRADING IN SHARES AND SECURITIES, TRADING IN PIPES, BORROWING FUNDS AND L ENDING THE SAME, INVESTMENTS, CAR HIRING ETC. THE APPELLANT HAD EAR NED DIVIDEND INCOME OF RS.1,07,68,700/- AND PROFIT ON SALE OF INVESTMENTS 3. WHILE COMPLETING THE ASSESSMENT FOR THE YEAR UND ER APPEAL THE ASSESSING OFFICER HAD DISALLOWED PROPORTIONATE EXPENSES RELAT ING TO DIVIDEND AND PROFIT ON SALE OF INVESTMENTS BY STATING THAT ONLY INCOME I. E. GROSS RECEIPTS LESS 2 EXPENSES TO EARN SUCH INCOME HAS TO BE EXCLUDED AS AGAINST THE GROSS INCOME REDUCED BY THE ASSESSEE FROM THE TOTAL INCOME. THE ASSESSING OFFICER HAS RELIED THE DECISIONS OF THE SUPREME COURT IN THE CA SE OF WATERFALL ESTATES LTD. VS. CIT 219 ITR 563 (SC) AND CIT VS. UNITED GENERAL TRUST PVT. LTD., 200 ITR 488 AND APPORTIONED INTEREST EXPENSE IN THE RATIO O F BORROWED FUNDS TO THE TOTAL FUNDS TO THE DIVIDEND INCOME AND DISALLOWED I NTEREST EXPENSE AMOUNTING TO RS.16,27,000/- AS PERTAINING TO EARNING OF DIVID END INCOME AND NET DIVIDEND IS ALLOWED AS EXEMPT U/S. 10(33). 4. ON APPEAL BEFORE THE LD. CIT (A) IT WAS SUBMITTE D THAT IT WAS PROVED TO THE LEARNED CIT (A) AND ASSESSING OFFICER (DURING T HE ASSESSMENT U/S. 143 (3) FOR ASSESSMENT YEAR 2004-05) THAT THE INVESTMENTS F ROM WHICH THE DIVIDEND IS EARNED IS NOT FROM THE BORROWED FUNDS AND ACCORDING LY THERE WAS NO DISALLOWANCE U/S. 14A OF THE ACT OF THE INTEREST FO R ASSESSMENT YEAR 2004-05. 5. THE A.R. FURTHER SUBMITTED THAT THE APPELLANT HA S CARRIED OUT DIFFERENT ACTIVITIES DURING THE YEAR UNDER APPEAL. FURTHER, I NVESTMENTS IN SHARES FROM WHICH THE DIVIDEND IS EARNED BY THE APPELLANT ARE H ELD SINCE PRIOR TO 31.03.1998 AND HENCE NO EXTRA EFFORTS HAVE BEEN TAK EN BY THE APPELLANT TO EARN THE DIVIDEND INCOME. THE ADMINISTRATIVE EXPENS ES INCLUDE DAY TO DAY EXPENSES LIKE SALARY, WAGES, STAFF WELFARE, AUDIT F EES, PRINTING & STATIONERY ETC. THESE EXPENSES ARE TO BE INCURRED BY ANY COMPANY WH ETHER THE BUSINESS IS OF MANUFACTURING OR TRADING OR INVESTMENT. IN VIEW OF THE ABOVE, IT WAS HUMBLY REQUESTED NOT TO APPORTION ANY OF THE EXPENSES TOWA RDS EARNING OF EXEMPT INCOME. 6. THE LD. CIT(A) HELD AS FOLLOWS :- I HAVE DULY CONSIDERED THE SUBMISSION OF THE A.R. AND I FIND FROM THE DETAILS FILED BY THE ASSESSEE AND THE ASSESSMENT OR DER FOR A.Y. 2004- 05 THAT NO INTEREST BEARING FUNDS WAS USED FOR MAKI NG INVESTMENT. IN THIS YEAR, THERE WAS A NET ADDITION OF RS.18,47,369 /- ONLY WHICH COMES FROM THE CAPITAL GAIN EARNED BY THE ASSESSEE TO THE TUNE OF RS.64,25,459/-. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS 3 INCURRED EXPENDITURE FOR EARNING DIVIDEND INCOME W HICH IS EXEMPT AND AS SUCH THE ADDITION MADE U/S.14A IS NOT JUSTIF IED. THE A.O. IS DIRECTED TO DELETE THE ADDITION. THESE GROUNDS OF A PPEAL ARE ALLOWED. 7. AGGRIEVED THE REVENUE IS IN APPEAL AND HAS RAISE D THE FOLLOWING GROUND:- THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION S OF RS.16.27 LACS ON ACCOUNT OF INTEREST AND RS.2,50,000/- ON ACCOUNT OF ADMINISTRATIVE EXPENSES MADE BY THE A.O. U/S.14 A O F THE I.T. ACT DISREGARDING THE PROVISIONS OF SECTION 14A OF THE I T ACT READ WITH RULE 8 D OF I.T. RULES. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOTED THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE RECENT JUDGEMENT DT. 12.8.2010 BY THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE LTD. VS ACIT HOLDING THAT THE PROVISIONS OF SEC. 14A ARE APPLICABLE IN SUCH CIRCUMSTANCES AND THE DISALLOWAN CE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS. UNDER SUCH CIR CUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND RESTORE THE MATTER TO THE FI LE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE AS PER THE AFORENOTED JUDGE MENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 27 TH DAY OF MAY, 2011 SD/- SD/- (R.S. SYAL) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH MAY , 2011 ROSHANI 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI