PRODIGY INVESTMENTS P.LTD, MUMBAI V. ITO WD 3(2)(4), MUMBAI

ITA 5961/MUM/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8967 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 29-12-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 09-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MALTHI R SRIDHARAN
• Keywords: Earning of tax free income
• Section: 143(3)

Judgement Text

I.T.A NO.5961/ MUM/2009 PRODIGY INVESTMENTS P. LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, MUMBAI. [ BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER ] I.T.A NO.5961/ MUM/2009 ASSESSMENT YEAR: 2005-06 PRODIGY INVESTMENTS P. LTD. .. APPELLANT 6-D, 177, PREM KUTIR, MARINE DRIVE, MUMBAI-20 PA NO.AABCP 7457 J VS INCOME TAX OFFICER WARD 3(2)(4) ,. RESPONDENT NEW MARINE LINES, M.K. ROAD, MUMBAI. APPEARANCES: GOVIND AGGARWAL, FOR THE APPELLANT MALTHI R. SRIDHARAN, FOR THE RESPONDENT O R D E R 1. THE SHORT ISSUE THAT I AM REQUIRED TO ADJUDICATE IN THIS APPEAL IS WHETHER OR NOT THE CIT (A) WAS JUSTIFIED IN UPHOLDING THE D ISALLOWANCE OF ` .9,57,579 U/S.14A OF THE INCOME TAX ACT,1961. THE ASSESSMENT YEAR INVOLVED IS 2005-06 AND THE IMPUGNED ASSESSMENT WAS FRAMED U/S. 143(3) OF THE INCOME TAX ACT. 2. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER NOTED THAT THE MANAGERIAL OR ADMINISTRATIVE EXPENSES, WHICH CAN BE RELATED TO EARNING OF DIVIDEND, INCURRED BY THE ASSESSEE AMOUNTING TO RS .12,89,874, AND THAT 74% OF INCOME OF THE ASSESSEE IS BY WAY OF DIVIDENDS. IT W AS IN THIS BACKDROP THAT THE ASSESSING OFFICER DISALLOWED 74% OF ` .12,89,874, I.E. ` .9,57,579 U/S.14A AS EXPENSES ATTRIBUTABLE TO EARNING OF DIVIDEND. AGGR IEVED, ASSESSEE CARRIED THE I.T.A NO.5961/ MUM/2009 PRODIGY INVESTMENTS P. LTD 2 MATTER IN APPEAL BUT WITHOUT ANY SUCCESS. AGGRIEVE D ALSO BY THE STAND SO TAKEN BY THE CIT (A), ASSESSEE IS IN FURTHER APPEAL BEFOR E THE TRIBUNAL. 3. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS A LSO THE APPLICABLE LEGAL POSITION. 4. I HAVE NOTICED THAT THE AUTHORITIES BELOW HAVE D ISALLOWED 74% OF ENTIRE EXPENSES WHICH HAVE ANY CONNECTION WITH THE EARNING OF DIVIDEND INCOME. QUANTUM OF EARNING, IN MY CONSIDERED VIEW, IS NOT A REASONABLE BASIS OF APPORTIONING THE EXPENDITURE. THE APPORTIONMENT OF EXPENDITURE MUST HAVE A REASONABLE BASIS SO AS TO SEGREGATE, AS MUCH AS POS SIBLE, EXPENDITURE INCURRED TO EARN TAX EXEMPT INCOME. THE EMPHASIS, THEREFORE , HAS TO BE ON THE QUANTUM OF EXPENDITURE INCURRED TO EARN AN INCOME RATHER TH AN QUANTUM OF EARNING AS A RESULT OF THE EXPENDITURE SO INCURRED. THE APPROAC H ADOPTED BY THE AUTHORITIES BELOW PROCEEDS ON THE ASSUMPTION THAT THE EXPENDITU RE INCURRED BY THE ASSESSEE ARE PROPORTIONATE TO EARNINGS FROM ALL SOU RCES, AND SUCH AN ASSUMPTION CANNOT HOLD GOOD PARTICULARLY IN THE CAS ES OF PASSIVE INCOMES LIKE DIVIDEND INCOME. AS LEARNED REPRESENTATIVES FAIRLY AGREE, THE ISSUE REGARDING APPORTIONMENT OF EXPENDITURE TO BE DISALLOWED U/S.1 4A IS REQUIRED TO BE RE- ADJUDICATE IN THE LIGHT OF HONBLE BOMBAY HIGH COU RTS JUDGEMENT IN THE CASE OF GODREJ & BOYCE MFG CO LTD VS DCIT (328 ITR 81) A ND OTHER BINDING JUDICIAL PRECEDENTS, AND AFTER DEALING WITH, BY WAY OF A SPE AKING ORDER AND IN ACCORDANCE WITH THE LAW, SUCH CONTENTIONS AS THE AS SESSEE MAY PLACE BEFORE THE ASSESSING OFFICER IN THE COURSE OF REMANDED PROCEED INGS. I, THEREFORE, REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR R-ADJUDICATION AS ABOVE. 5. IN THE RESULT, APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARIN G I.E. ON 24 TH JANUARY, 2011 SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 24 TH JANUARY, 2011 I.T.A NO.5961/ MUM/2009 PRODIGY INVESTMENTS P. LTD 3 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-III MUMBAI 4. COMMISSIONER OF INCOME TAX,3 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH SMC, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI I.T.A NO.5961/ MUM/2009 PRODIGY INVESTMENTS P. LTD 4