M/s Manipal Prakashan Limited, Manipal V. ACIT, Udupi

ITA 602/BANG/2014

• Counselvise Citation: 60221114 RSA 2014
• Duration Of Justice: 1 year(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-05-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 06-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DHIVAHAR JT
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.602/BANG/2014 ASSESSMENT YEAR : 2011-12 M/S. MANIPAL PRAKASHAN LTD., UDAYAVANI BUILDING, PRESS CORNER, MANIPAL 576 104. PAN: AABCM 2207K VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, UDUPI. APPELLANT RESPONDENT APPELLANT BY : MS. SHEETAL, ADVOCATE RESPONDENT BY : SHRI P. DHIVAHAR, JT. CIT(DR) DATE OF HEARING : 14.05.2015 DATE OF PRONOUNCEMENT : 26.05.2015 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 17.03.2014 OF THE CIT(APPEALS), MYSORE RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF PRINTING AND MANUFACTURE OF PACKING MATERIAL. THE ASSESSEE EARN ED DIVIDEND INCOME ITA NO.602/BANG/2014 PAGE 2 OF 5 WHICH WAS EXEMPT U/S. 10(34) OF THE ACT. THE ASSES SING OFFICER WAS OF THE VIEW THAT EXPENSES INCURRED IN EARNING THE DIVIDEND INCOME WHICH WAS EXEMPT FROM TAX HAD TO BE DISALLOWED U/S. 14A OF TH E ACT R.W. RULE 8D OF THE I.T. RULES. THE ASSESSEE SUBMITTED BEFORE THE AO THAT NO EXPENSES WHATSOEVER WERE INCURRED TO EARN THE DIVIDEND INCOM E AND THEREFORE NO DISALLOWANCE COULD BE MADE U/S. 14A OF THE ACT. TH E AO, HOWEVER, WAS OF THE VIEW THAT IT WAS NOT POSSIBLE TO EARN DIVIDEND INCOME WITHOUT UTILIZING THE RESOURCES AND INCURRING THE COST. THE AO ACCOR DINGLY MADE A DISALLOWANCE OF RS.17,64,211 U/S. 14A WHICH WAS COM PUTED AS FOLLOWS:- 1. AMT OF EXPENSES DIRECTLY RELATING TO INCOME WHICH DO NOT FORM PART OF TOTAL INCOME - 2. AMT OF EXPENSES ON INTEREST NOT DIRECTLY RELATED TO PARTICULAR INCOME 7,22,233 3. 0.5% OF AVERAGE VALUE OF INVESTMENT IN SHARES 0.5% OF 20,83,95,649 10,41,978 TOTAL DISALLOWANCE U/S. 14A 17,64,211 3. ON APPEAL BY THE ASSESSEE, THE CIT(APPEALS) CONF IRMED THE ORDER OF THE ASSESSING OFFICER. BEFORE THE CIT(APPEALS), T HE ASSESSEE SUBMITTED THAT THERE COULD BE NO INTEREST EXPENSES ATTRIBUTAB LE TO EARNING OF DIVIDEND INCOME BECAUSE INTEREST PAID ON BORROWINGS WERE FOR VERY SPECIFIC PURPOSE OF THE BUSINESS OF THE ASSESSEE AND HAD TO BE ALLOW ED AS A DEDUCTION U/S. 36(1)(III) OF THE ACT. THE CIT(A), HOWEVER, WAS OF THE VIEW THAT IN ASSESSEES OWN CASE FOR A.Y. 2009-10 IN HIS ORDER D ATED 30.5.2012, HE HAD CONFIRMED SIMILAR ADDITION MADE BY THE AO AND FOR T HE REASONS GIVEN IN THE ITA NO.602/BANG/2014 PAGE 3 OF 5 SAID ORDER, THE DISALLOWANCE MADE BY THE AO IN THIS ASSESSMENT YEAR WAS ALSO BEING CONFIRMED. 4. AGGRIEVED BY THE ORDER OF THE CIT(APPEALS), THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING OF THE APPEAL, IT WAS BRO UGHT TO OUR NOTICE THAT THE ORDER OF CIT(APPEALS) FOR A.Y. 2009-10, BASED O N WHICH THE ORDER OF AO IN THE PRESENT A.Y. 2011-12 WAS CONFIRMED, WAS S UBJECT MATTER OF APPEAL BEFORE THE TRIBUNAL IN ITA NO.1208/BANG/2012 . THIS TRIBUNAL BY ORDER DATED 30.8.2013 SET ASIDE THE DISALLOWANCE U/ S. 14A OF THE ACT AND REMITTED THE ISSUE TO THE ASSESSING OFFICER FOR FRE SH CONSIDERATION. THE TRIBUNAL HELD THAT THE REQUIREMENT OF RULE 8D WAS T HAT THE AO SHOULD FIRST COME TO THE CONCLUSION THAT CLAIM MADE BY THE ASSES SEE THAT THERE WAS NO EXPENDITURE INCURRED TO EARN THE DIVIDEND INCOME WA S NOT CORRECT. THE TRIBUNAL FURTHER HELD THAT THE AO DID NOT POINT OUT AS TO HOW BORROWED FUNDS ON WHICH INTEREST WAS PAID WERE UTILISED FOR MAKING INVESTMENTS, WHICH YIELDED THE TAX FREE INCOME. THE TRIBUNAL THEREAFT ER REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD., 328 ITR 81 AND THE DECISION OF THE BANGALORE BENCH OF THE TRIBUNAL IN ACIT V. JINDAL ALUMINUM LTD, ITA NO.799/BANG/2012, A.Y. 2008-09, ORDER DATED 30.4.2013. THE TRIBUNAL FINALLY CAME TO THE CONCLUSION THAT AO HAS NOT EXAMINED WHETHER INTERES T BEARING FUNDS WERE UTILIZED FOR THE PURPOSE OF EARNING OF EXEMPT INCOM E AND ALSO AS TO WHETHER ITA NO.602/BANG/2014 PAGE 4 OF 5 INDIRECT EXPENSES WERE NOT WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF EARNING OF TAXABLE INCOME. 6. IT IS NOT IN DISPUTE THAT THE FACTS AND CIRCUMST ANCES UNDER WHICH DISALLOWANCE WAS MADE BY THE AO AND CONFIRMED BY TH E CIT(APPEALS) IN THE INSTANT CASE ARE IDENTICAL AS IT PREVAILED IN A .Y. 2009-10. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL CITED SUPRA , WE SET ASIDE THE ORDER OF CIT(APPEALS) AND REMAND THE ISSUE TO THE AO FOR FRE SH CONSIDERATION ON THE ISSUE OF DISALLOWANCE U/S. 14A, KEEPING IN MIND THE OBSERVATIONS OF THE TRIBUNAL IN ITA NO.1208/BANG/2012. 7. FOR STATISTICAL PURPOSES, THE APPEAL BY THE ASSE SSEE IS TREATED AS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 26 TH DAY OF MAY, 2015. SD/- SD/- ( ABRAHAM P. GEORGE ) ( N.V. VASU DEVAN ) ACCOUNTANT MEMBER JUDICIAL M EMBER BANGALORE, DATED, THE 26 TH MAY, 2015. /D S/ ITA NO.602/BANG/2014 PAGE 5 OF 5 COPY TO: 1. APPELLANT 2. RESPONDENTS 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR / SENIOR PRIVATE SECRETARY ITAT, BANGALORE.