DCIT, New Delhi V. Barmalt India Pvt. Ltd., New Delhi

ITA 5979/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0243 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-03-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 29-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: H K LAL
• Assessee Lawyers: PN SHASTRI; M P RUSTAGI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : F NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NOS.5978 & 5979/DEL./2010 (ASSESSMENT YEARS : 2006-07 & 07-08) DCIT, CO. CIRCLE 2(1), VS. BARMALT INDIA PVT. LT D., NEW DELHI. 503, ARADHANA APARTMENTS, SECTOR 13, R.K. PURAM, RING ROAD, NEW DELHI-110025. (PAN/GIR NO.AAACB2825M) (APPELLANT) RESPONDENT) ASSESSEE BY : SHRI M.P. RUSTAGI, ADV. & SH. P.N. SH ASTRI, CA REVENUE BY : SHRI H.K. LAL, SR.DR ORDER PER A.D. JAIN, JM THESE ARE DEPARTMENTS APPEALS FOR AYS 2006-07 & 07-08, CONTENDING THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF `2 0,44,366 AND `37,48,174, RESPECTIVELY MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES A TTRIBUTABLE TO EXEMPT INCOME U/S 14A OF THE I.T. ACT. SINCE COMMON ISSUES AR E INVOLVED IN BOTH THESE APPEALS, THEY ARE BEING DISPOSED OF BY THIS COMMON ORDER . FOR THE SAKE OF CONVENIENCE, THE FACTS ARE BEING TAKEN FROM I.T.A. NO.597 8. I.T.A. NO.5978 (A.Y. 2006-07) 2. THE AO DISALLOWED THE EXPENSES OF `22,71,517 UNDER SECT IONS 14A(2) AND 14A(3) OF THE ACT, TOWARDS EXPENSES DEEMED TO HAVE BEEN INCUR RED IN EARNING DIVIDEND INCOME, CLAIMED TO BE EXEMPT UNDER SECTIONS 10(34) /10(35) OF THE ACT. IN DOING SO, THE AO REFERRED TO CIT VS. UNITED GENERAL TRUST LTD., 200 ITR 488 (SC); SOUTHERN PETRO CHEMICALS INDUSTRIES, 93 TTJ 161; AND HAR ISH KRISHNAKANTA BHATT, 91 ITD 311. THE DISALLOWANCE WAS COMPUTED UNDER RULE 8D O F THE I.T. RULES AT `22,71,517. I.T.A. NOS.5978 & 5979/DEL./2010 (A.YS. : 2006-07 & 07-08) 2 3. THE CIT(A), RELYING ON M/S GODREJ & BOYCE MFG. P. LTD. VS. DCIT, 43 DTR 177, OBSERVED THAT THE AO WAS NOT CORRECT IN HOLDING TH AT THE PROVISIONS OF RULE 8D OF THE RULES WERE APPLICABLE IN THE ASSESSEES CASE FOR ASSESS MENT YEAR 2006-07, THE YEAR UNDER CONSIDERATION; THAT HOWEVER, EVEN IN THE ABS ENCE OF APPLICABILITY OF RULE 8D OF THE RULES, THE EXPENDITURE INCURRED/APPORTIONED TO EARN THE EXEMPT INCOME WAS REQUIRED TO BE DISALLOWED; THAT THE ASSESSEE HA D SUBMITTED THAT THERE WAS NO DIRECT EXPENSES ATTRIBUTABLE TO THE EARNING OF THE D IVIDEND INCOME; AND THAT IN THE EARLIER YEARS ESTIMATED DISALLOWANCE HAD BEEN MADE BY THE AO U/S 14A OF THE ACT. THE CIT(A) WORKED OUT THE DISALLOWANCE AT 0.05 % OF THE AVERAGE INVESTMENT, I.E., `45,43,03,352. THIS CAME TO `22,71, 517. THE CIT(A) RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT FROM `22,15,517 TO `2 ,27,151. 4. THE LD.DR HAS CONTENDED THAT WHILE WRONGLY DELETING TH E ADDITION TO THE EXTENT OF `20,44,366, THE CIT(A) FAILED TO CONSIDER SECTI ON 14A(3) OF THE ACT, WHICH SPECIFIES THAT EVEN IF THE ASSESSEE MAKES A CLAIM THAT NO EXP ENDITURE HAS BEEN INCURRED IN EARNING THE EXEMPT INCOME, SECTION 14A(2) SHAL L APPLY; AND THAT THE DISALLOWANCE U/S 14A(1) OF THE ACT, WAS, THEREFORE, CAL LED FOR. 5. THE LD.COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HA S STRONGLY RELIED ON THE IMPUGNED ORDER. IT HAS BEEN CONTENDED THAT THE CIT(A) HAS CORRECTLY FOLLOWED M/S GODREJ & BOYCE (SUPRA) IN RESTRICTING THE DISALLOW ANCE TO `2,27,151. 6. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL PLACED ON RECORD. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). AS PER GODREJ & BOYCE VS. DCIT (SUPRA), THOUGH RULE 8D OF THE RULES IS NOT APPLICABLE FOR ASSESSMENT YEAR 2006-07, THE YEAR UNDER CONSIDERATION, THE EXPENDITURE INCURRED/APPO RTIONED TO EARN THE EXEMPT INCOME IS REQUIRED TO BE DISALLOWED. THE ASSESSEE HAS MAINTAINED THAT THERE WAS NO DIRECT EXPENSES ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND INCOME. IT IS A MATTER OF RECORD THAT IN THE EARLIER YEAR, ESTIMATED DISALLOWANCE WAS MADE BY THE AO U/S 14A OF THE ACT. AS SUCH, THE CIT(A) WAS C ORRECT IN MAKING THE I.T.A. NOS.5978 & 5979/DEL./2010 (A.YS. : 2006-07 & 07-08) 3 DISALLOWANCE OF `2,27,151 AT 0.05% OF THE AVERAGE INVEST MENT OF 45,43,03,352. THE ACTION OF THE CIT(A), IS, ACCORDINGLY UPHELD. I.T.A. NO.5979 (A.Y. 2007-08) 7. SINCE THE FACTS IN THIS APPEAL ARE SIMILAR TO THE APPEA L FOR ASSESSMENT YEAR 2006-07, THE ACTION OF THE CIT(A) FOR THE ASSESSMENT YEA R 2007-08, IS ALSO UPHELD. 8. IN THE RESULT, BOTH THE APPEALS OF THE DEPARTMENT ARE D ISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 11.03.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D.JAIN) VICE PRESIDENT JUDICIAL MEMBER DELHI, DATED : 11.3.2011 SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT, 4.CIT(A)-V, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR/ITAT