RAJSHRI PRODUCTIONS P. LTD, MUMBAI V. ADDL CIT 11(1), MUMBAI

ITA 5983/MUM/2011

• Counselvise Citation: 598319914 RSA 2011
• Duration Of Justice: 2 year(s) 2 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 22-10-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 26-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJEEV JAIN
• Assessee Lawyers: M C MANIWADEKAR
• Keywords: Earning of tax free income
• Section: 132; 10; 14A

Judgement Text

, INCOME TAX APPELLATE TRIBUNAL,MUMBAI - D BENCH. . . .. . . .. . !' !' !' !' , ! ! ! ! BEFORE S/SH.I.P.BANSAL, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. /./. /. ITA NO.5983/MUM/2011, $ % $ % $ % $ %/ // / ASSESSMENT YEAR-2008-09 RAJSHRI PRODUCTION PVT. LTD. BHAVAN, 1 ST FLOOR, 422, VEER SAVARKAR ROAD, PRABHADEVI, MUMBAI-400025 VS ADDL. CIT 11(1) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI. PAN:AAACR4139G ( &' / // / APPELLANT ) ( ()&' / RESPONDENT ) $ *+ , ! $ *+ , ! $ *+ , ! $ *+ , ! / // / ASSESSEE BY : SHRI M.C.MANIWADEKAR - , ! / REVENUE BY : SHRI SANJEEV JAIN $ - + $ - + $ - + $ - + / // / DATE OF HEARING : 22 -10-2013 ./% - + / DATE OF PRONOUNCEMENT : 13-11-2013 $ $ $ $ , 1961 - - - - 254 ) )) ) 1 ( (( ( ! +2+ !3 ! +2+ !3 ! +2+ !3 ! +2+ !3 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM: CHALLENGING THE ORDER DT.30.06.2011 OF THE CIT(A)-3 ,MUMBAI,ASSESSEE-COMPANY HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED C.I.T (APPEALS) -3 ERRED IN CONFIRMING THE DISALLOWANCE OF RS.3,53,153/-TOWARDS INDIRECT EXPENSES U/S 14-A OF THE IT. ACT AS PER RULE 8(2) (III) IN RESPECT OF THE EXEMPT INCOME U/S 10 (34) OF THE LT. ACT CALCULATED AT .5% OF AVERAGE INVESTMENT. 2.THE LEARNED CIT (APPEALS) -3 FAILED TO APPRECIATE THAT THE AO HAS NOT GIVEN ANY REASONS NOR THE DETAILS OF THE EXPENSES WHICH ARE CONSIDERED DI SALLOWABLE AS PERTAINING TO THE AFORESAID EXEMPT INCOME. HE FAILED TO RECORD A FINDING AS CON TEMPLATED BY SECTION 14-A (2) HAVING REGARD TO THE ACCOUNTS AND OTHER FACTS AND FAILED TO ESTAB LISH ANY NEXUS WHATSOEVER WITH ANY OF THE ITEMS OF EXPENDITURE AND EXEMPT INCOME. 3.THE LEARNED CIT (APPEALS) -3 ERRED IN HOLDING THA T EXPENSES INCURRED IN RELATION TO EXEMPT INCOME WOULD BE ESTIMATED .5% OF THE AVERAGE INVEST MENT WHICH IS HIGHLY UNJUST ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW. 4.THE ASSESSEES CRAVE LEAVE TO ADD TO ALTER OR AMEN D THE AFORESAID GROUNDS OF APPEAL AS AND WHEN NECESSARY. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF PRODUCT ION AND DISTRIBUTION OF FEATURE FILMS,T.V. SERIALS,TRADING IN SHARES AND SECURITIES, FINANCING AND MANUFACTURING OF PVC,FILED ITS RETURN OF INCOME ON 29.09.2008 DECLARING TOTAL INCOME OF RS.5 .62CRORES.ASSESSING OFFICER (AO)FINALISED THE ASSESSMENT ORDER U/S.143(3) OF THE INCOME-TAX A CT,1961(ACT), ON 30.12. 2010, DETERMINING THE TOTAL INCOME AT RS. 6,09,27,790/-. 2. EFFECTIVE GROUND OF APPEAL PERTAINS TO DISALLOWANCE OF RS.3,53,153/-TOWARDS INDIRECT EXPENSES U/S.14A OF THE ACT.DURING THE ASSESSMENT PROCEEDING S AO FOUND THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 31,25,425/-,THAT IT HAD MADE INVESTMENT OF RS. 10, 81,96,452/- IN SHARES AND MUTUAL FUNDS.HE HELD THAT PROVISIONS OF SECTION 14A WERE APPLICABLE IN THE CASE UNDER CONSIDERATION.REFERRING TO THE JUDGMENT OF HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF 2 ITA NO. 5983 MUM 2011 RAJSHRI PRODUCTION PVT. LTD. GODREJ & BOYCE MANUFACTURING CO. LIMITED,HE WORKED OUT DISALLOWANCE UNDER RULE 8D(2)(III) AT RS.3.53 LACS AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 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 THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.31, 2 5,425 WHICH WAS CLAIMED AS EXEMPT U/S. 10(34) OF THE ACT,THAT THERE WAS CHANGE IN THE INVE STMENT FROM LAST YEAR TO CURRENT YEAR,THAT THE ASSESSEE HAD DEBITED EXPENDITURE OF RS. 3.79 CRORES EXPENDITURE UNDER THE HEAD OF ADMINISTRATIVE AND OTHER EXPENSES REFLECTED IN PROF IT AND LOSS ACCOUNT, THAT RS. 90.48 LAKHS WERE CLAIMED TO BE HAD BEEN PAID AS INTEREST AND B ANK INTEREST UNDER THE HEAD INTEREST AND FINANCE,THAT RS.3.40 LAKHS WERE PAID TO BANK AS INT EREST,THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED FOR EARNING DIVIDEND INCOME COULD NOT BE ACCEPTED,THAT IT WAS IMPOSSIBLE TO EARN SUBSTANTIAL DIVIDEND INCOME WITH OUT INCURRING ANY EXPENSES.REFERRING TO THE DECISION OF CITICORP FINANCE(INDIA) LTD.(108ITD471) ,HE HELD THAT IT WAS DIFFICULT TO ACCEPT THE HYPOTHESIS THAT ONE COULD EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY EXPENSES, WHATSOEVER,INCLUDING MANAGEMENT OR ADMINISTRATIVE E XPENSES.HE ALSO REFERRED TO THE DECISION OF SPECIAL BENCH OF TRIBUNAL DELIVERED IN THE CASE OF GUJARAT GAS FINANCIAL SERVICES LTD. (14DTR481).HE FINALLY HELD THAT THE AO HAD MADE DIS ALLOWANCE ON THE BASIS OF RULE 8D WHICH WAS VERY MUCH APPLICABLE FOR AY UNDER CONSIDERATION .HE RELIED UPON THE JUDGMENT OF GODREJ & BOYCE MANUFACTURING CO.LIMITED.(328ITR81). 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THE ASSESSEE HAD NOT BORROWED FUND FOR EARNING ANY EXEMPT INCOME,THAT INVESTMENTS IN M UTUAL FUNDS WAS MADE OUT OF SURPLUS FUNDS AND INVESTMENT IN SHARES WAS MADE MANY YEARS LONG B ACK,THAT NO BORROWING WERE MADE FOR THE PURPOSE OF EARNING EXEMPT INCOME,THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE DIRECTLY IN RESPECT OF INVESTMENT MADE BY IT,THAT DIRECT EXPEND ITURE OF RS. 62,179/- WAS ALREADY DISALLOWED BY THE ASSESSEE.HE RELIED UPON THE JUDGMENT OF HERO CYCLES LTD DELIVERED BY THE HONBLE P&H HIGH COURT AND THE DECISION OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF RELIANCE UTILITY & POWER LTD(313ITR 340).DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE AO AND THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.PROVISIONS OF SECTION 14A OF THE ACT R.W.RULE 8D OF THE RULES ARE ATTRACTED,IF AN ASSESSEE CLAIMS AN EXPENDITURE FOR EARNING EXEMPT INCOME OR IF AO IS N OT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN R ELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT.SUB SECTION 3 PROVID ES THAT IF ANY ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT,AO CAN MAKE DISALLOWANCE.RULE 8D DEAL S WITH THE METHODOLOGY OF CALCULATING THE DISALLOWANCE.NOW, WE WOULD LIKE TO CONSIDER THE FAC TS OF THE CASE UNDER CONSIDERATION.ASSESSE HAD EARNED EXEMPT INCOME AND HAD DISALLOWED RS.62,1 79/- ON ITS OWN.AS PER THE ASSESSEE EXCEPT THE SAID DIRECT EXPENSES IT HAD NOT CLAIMED ANY EXPENDITURE AGAINST THE EXEMPT INCOME NOR IT HAD INCURRED ANY EXPENDITURE IN THIS REGARD. WE ARE AWARE THAT IN THE CASES WHERE ASSESSEE DOES NOT CLAIM ANY EXPENDITURE ,AO IS AUTHORISED T O DISALLOW EXPENDITURE INVOKING THE PROVISIONS OF SECTION 14(3)OF THE ACT,PROVIDED HE I S NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE.WE FIND THAT WHILE DECID ING THE MATTER OF MAXOPP INVESTMENT LTD. & ORS. ( 247 CTR 162) HONBLE DELHI HIGH COURT HAS ANALYSED THE PROVISIONS OF SECTION 14A R.W.R.8D AS UNDER : SUB-S.(2) OF S. 14A OF THE SAID ACT PROVIDES THE MA NNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF THE TOTAL INCOME.HOWEVER, IF WE EXAMINE THE PROVISION CAREFUL LY, WE WOULD FIND THAT THE AO IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E AO, HAVING REGARD TO THE ACCOUNTS OF THE 3 ITA NO. 5983 MUM 2011 RAJSHRI PRODUCTION PVT. LTD. ASSESSEE,IS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTHER WORDS, THE REQUIREMENT OF THE AO EMBA RKING UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME W OULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, THE CONDITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME IS THAT THE AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. SUB-S. (3) IS NOTHING BUT AN OFFSHOOT OF SUB-S. (2) OF S. 14A. SUB-S.(3) APPLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. IN OTH ER WORDS, SUB-S.(2) DEALS WITH CASES WHERE THE ASSESSEE SPECIFIES A POSITIVE AMOUNT OF EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT AND SUB -S. (3) APPLIES TO CASES WHERE THE ASSESSEE ASSERTS THAT NO EXPENDITURE HAD BEEN INCURRED IN RE LATION TO EXEMPT INCOME. IN BOTH CASES, THE AO, IF SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, CANNOT EMBARK U PON A DETERMINATION OF THE AMOUNT OF EXPENDITURE IN ACCORDANCE WITH ANY PRESCRIBED METHO D, AS MENTIONED IN SUB-S. (2) OF S. 14A OF THE SAID ACT. IT IS ONLY IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN BOTH CASES,THAT THE AO GETS JURISDICTION TO DETE RMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT IN ACCORDANCE WITH THE PRESCRIBED METHOD. THE PRESCRIB ED METHOD BEING THE METHOD STIPULATED IN R. 8D OF THE SAID RULES. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE AO WOULD HAVE TO INDICATE COGENT REASONS FOR THE SAME. WHILE DECIDING THE MATTER,HONBLE DELHI HIGH COURT HAS CONSIDERED THE HISTORY AND OBJECTS OF INTRODUCING THE SECTION.IT ALSO DISCUSSED IMPORTANT JUDGMENTS DELIVERED BY THE HONBLE SUPREME COURT AND VARIOUS HIGH COURTS PERTAINING TO THE ISS UE OF DISALLOWANCE TO BE MADE U/S.14A R.W.R. 8D OF THE RULES.AFTER DELIBERATING UPON THE ISSUE E XTENSIVELY,HONBLE COURT HELD THAT FOR INVOKE -ING PROVISIONS OF SECTION 14A OF THE ACT,AO SHOULD INDICATE COGENT REASONS FOR HOLDING THE VIEW THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE.WE FIND THAT AO HAD NOT MENTIONED AS HOW AND WHY HE WAS NOT SATISFI ED WITH THE CLAIM MADE BY THE ASSEESSEE.WHILE CONFIRMING THE ORDER OF THE AO,FAA HAS ALSO IGNORED THIS VITAL FACTOR.IN TAXATION MATTERS, RECORDING OF SATISFACTION IS A PR E-CONDITION FOR INVOKING CERTAIN PROVISIONS E.G. SECTION 132 OR SECTION148.AO HAS NOT RECORDED ANY R EASON AS TO WHY HE WAS NOT SATISFIED WITH THE EXPLANATION FILED BY THE ASSESSEE.MERE MENTIONI NG THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE,IS NO T SUFFICIENT.HE HAS TO MENTION THE REASON FOR REJECTING THE CLAIM OF THE ASSESSEE IN NO UNCERTAIN TERMS.THEREFORE,WE ARE NOT ABLE TO ENDORSE THE VIEWS OF THE AO THAT WERE CONFIRMED BY THE FAA.IN O UR OPINION,CONSIDERING THE FACTS OF THE CASE UNDER CONSIDERATION, FURTHER VERIFICATION IS R EQUIRED.THEREFORE,IN THE INTEREST OF JUSTICE WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO .HE IS DIRECTED TO PASS A REASONED AND SPEAKING ORDER;KEEPING IN MIND THE ABOVE REFERRED JUDGMENT O F HONBLE DELHI HIGH COURT;AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE.E FFECTIVE GROUND OF APPEAL FILED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR,IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE-COMPANY ST ANDS PARTLY ALLOWED. * 4 $ *+-$ - 3 4 ! 6 - + 78. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER,2013 . !3 - ./% ! 9 :$ 13 UOA UOAUOA UOA , 2013 / - 2 ; 4 ITA NO. 5983 MUM 2011 RAJSHRI PRODUCTION PVT. LTD. SD/- SD/- ( . .. . . / I.P.BANSAL ) ( !' !' !' !' / RAJENDRA) / JUDICIAL MEMBER ! ! ! ! /ACCOUNTANT MEMBER / MUMBAI, :$ /DATE : 13 .1 1 . 2013 SK !3 - (+< =!<%+ !3 - (+< =!<%+ !3 - (+< =!<%+ !3 - (+< =!<%+/ COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / &' 2. RESPONDENT / ()&' 3. THE CONCERNED CIT(A)/ > ? , 4. THE CONCERNED CIT/ > ? 5. DR D BENCH, ITAT, MUMBAI / <@2 (+$ , . . . 6. GUARD FILE/ 2 A )<+ (+ )<+ (+ )<+ (+ )<+ (+ //TRUE COPY// !3$ / BY ORDER, B / 7 DY./ASST. REGISTRAR , /ITAT, MUMBAI 5 ITA NO. 5983 MUM 2011 RAJSHRI PRODUCTION PVT. LTD. DATE INITIALS 1. DRAFT DICTATED ON 25.10.2013 2. DRAFT PLACED BEFORE AUTHOR 25.10.2013 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5. APPROVED DRAFT CO MES TO THE SR.PS 6. KEPT FOR PRONOUNCEMENT 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE A.R. FOR SIGNATURE OF THE ORDER 9. DATE OF DISPATCH OF THE ORDER