MITTATEX EXPORTS P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 6036/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9811 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 11-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAR KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE D.T. GARASIA, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.6036/M/2013 ASSESSMENT YEAR: 2010-11 M/S. MITTATEX EXPORTS PVT. LTD., 4, CROSSGATE LOKHANDWALA COMPLEX, ANDHERI WEST, MUMBAI 400 053 PAN: AAACM2803J VS. DY. COMMISSIONER OF INCOME TAX-8(2), 2 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MS. AARTI SATHE, A.R. REVENUE BY : SHRI SUMAR KUMAR, D.R. DATE OF HEARING : 13.07.2017 DATE OF PRONOUNCEMENT : 26.07.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 31.07.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2010-11. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OF FICER (HEREINAFTER REFERRED TO AS THE AO) FOUND THAT THE ASSESSEE HAS SHOWN INVESTMENTS OF RS.12,14,50,000/- AS ON 31.03.2009 AND 31.03.2010 A ND HAS NOT MADE ANY DISALLOWANCE UNDER SECTION 14A. THE ASSESSEE WAS RE QUESTED TO EXPLAIN AS TO WHY THE EXPENSES RELATING TO INVESTMENT, INCOME FROM WH ICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME BE DISALLOWED UNDER S ECTION 14A R.W. RULE 8D. THE ASSESSEE STATED THAT SINCE THE COMPANY HAS NOT RECE IVED ANY EXEMPT INCOME DURING THE YEAR, SO PROVISIONS OF SECTION 14A ARE NOT APPL ICABLE. THE CONTENTION OF THE ITA NO.6036/M/2013 M/S. MITTATEX EXPORTS PVT. LTD. 2 ASSESSEE WAS NOT ACCEPTED BY THE AO. THE AO FOUND T HAT THE COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXISTENCE AND MANAGEMENT. THEY REQUIRE SUBSTANTIAL MARKET RESEARCH, DAY TO DAY ANALYSIS OF MARKET TREN DS AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES AT THE MOST APPROPRIATE TIME. THEREFORE, IT IS DIFFICULT TO ACCEPT THAT A COMPANY CAN EARN SUBSTANTIAL DIVIDEND INCOME WITHOUT INCURRING ANY EXPENSES WHATSOEVER, I NCLUDING MANAGEMENT OR ADMINISTRATIVE EXPENSES AS INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETINGS OF THE BOARD OF DIRECTORS FOR WHICH ADMINI STRATIVE EXPENSES ARE INCURRED. THE AO RELIED ON THE DECISIONS OF HONBLE BOMBAY HI GH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANRT. 234 C TR (BOM) 1 (2010) AND ALSO THE JUDGEMENT OF SPECIAL BENCH OF ITAT, DELHI IN THE CASE OF CHEMINVEST LTD. VS. ITO - 317 ITR 86 (AT) AND MADE DISALLOWANC E UNDER SECTION 14A RESTRICTED TO THE INCOME EARNED. 3. MATTER CARRIED TO THE LD. CIT(A) AND THE LD. CIT (A) HAS DISMISSED THE APPEAL. 4. DURING THE COURSE OF HEARING, THE LD. A.R. SUBMI TTED THAT THE AO AND LD. CIT(A) HAVE DISMISSED THE APPEAL ON THE GROUND THAT THE ASSESSEE HAS NOT CARRIED OUT ANY ACTIVITIES TO EARN DIVIDEND INCOME, HENCE N O EXPENSES ARE INCURRED TO EARN THE DIVIDEND. NO NOTIONAL EXPENDITURE CAN BE APPORTIONED FOR THE PURPOSE OF EARNING EXEMPT INCOME UNLESS THERE IS AN EQUAL EXPE NDITURE IN RELATION TO EARN THE TAX FREE INCOME. THE HONBLE DELHI HIGH COURT IN T HE CASE OF CHEMINVEST LTD. VS. CIT 370 ITR 33 DELHI WHEREIN IT IS HELD THAT IF THE ASSESSEE COMPANY HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT PREVIO US YEAR, THEN DISALLOWANCE UNDER SECTION 14A OF THE ACT IS NOT CALLED FOR. LD . A.R. ALSO SUBMITTED THAT THE MUMBAI TRIBUNAL, IN ITA NO.1483/M/2013 AND IN ITA N O.5775/M/2013 CONSIDERING THE DECISION OF HONBLE DELHI HIGH COUR T, HAS ALLOWED THE APPEAL ON THE GROUND THAT WHEN THERE IS NO EXEMPT INCOME U NDER THE YEAR UNDER CONSIDERATION, NO DISALLOWANCE CAN BE MADE UNDER SE CTION 14A OF THE ACT. ITA NO.6036/M/2013 M/S. MITTATEX EXPORTS PVT. LTD. 3 DURING THE COURSE OF HEARING, THE LD. A.R. HAS RELI ED UPON THE JUDGMENT OF TRIBUNAL WHEREIN ONE OF US AM IS A PARTY TO THE JUD GMENT, AND SUBMITTED THAT THE APPEAL MAY BE ALLOWED. DURING THE COURSE OF HEARIN G, IT WAS ALSO NOTICED THAT THE LD. CIT(A) HAS FOLLOWED THE ORDER OF THE TRIBUNAL F OR ASSESSMENT YEAR 2007-08 WHEREIN THE TRIBUNAL HAS RESTORED THE ISSUE TO THE FILE OF AO. IN REBUTTAL, THE LD. A.R. SUBMITTED THAT IN THAT YEAR THE ISSUE UNDE R SECTION 40A RELATING TO EXEMPT INCOME WAS NOT DECIDED AND AT THE RELEVANT T IME HONBLE DELHI HIGH COURT JUDGMENT WAS NOT AVAILABLE, THEREFORE, MATTER WAS RESTORED. BUT NOW THE ISSUE IS SETTLED, THEREFORE, APPEAL MAY BE ALLOWED HERE ONLY. 5. THE LD. D.R. INSISTED THAT THE MATTER MAY BE RES TORED TO AO BECAUSE LD. CIT(A) HAS FOLLOWED THE EARLIER ORDER OF LD. CIT(A) AND MATTER HAS BEEN RESTORED BY TRIBUNAL BACK TO THE FILE OF AO, THEREF ORE, THIS MATTER MAY BE RESTORED TO AO. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES. LOOKING INTO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND TH AT ISSUE IN CONTROVERSY IS COVERED BY THE DECISION OF TRIBUNAL IN THE CASE OF RED CHILLIES ENTERTAINMENT VS. ACIT IN ITA NO.5271/M/2013 FOR A.Y. 2010-11 AND ITA NO.1577/M/2013 FOR A.Y. 2009-10 DECIDED ON 31.05.20 16 WHEREIN THE SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL BY O BSERVING AS UNDER: 32. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD IN THE LIGHT OF THE DECISIONS R ELIED UPON. ON A PERUSAL OF THE ASSESSMENT ORDER, WE DO NOT FIND ANY OBSERVATIONS B Y THE ASSESSING OFFICER TO THE EFFECT THAT DURING THE RELEVANT PREVIOUS YEARS, ASS ES SEE HAD EARNED / CLAIMED ANY EXEMPT INCOME. IT IS THE ASSERTION OF THE LEARNED A UTHORISED REPRESENTATIVE BEFORE US THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME D URING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER DISPUTE. AS H ELD BY THE HON'BLE DELHI HIGH COURT IN CHEMINVEST (SUPRA), UNLESS DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE EARNS ANY EXEMPT INCOME NO DISALLOWANCE UN DER SECTION 14A R/W RULE 8D CAN BE MADE. THEREFORE, APPLYING THE RATIO LAID DOW N BY THE HON'BLE DELHI HIGH COURT AS AFORESAID, WE HOLD THAT NO DISALLOWANCE UN DER SECTION 14A R/W RULE 8D CAN BE MADE IN CASE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. THEREFORE, WE DIRECT THE ASSESSING O FFICER TO VERIFY THIS ASPECT AND IF IT IS FOUND THAT THE ASSESSEE HAS NOT EARNED ANY EX EMPT INCOME DURING THE RELEVANT ITA NO.6036/M/2013 M/S. MITTATEX EXPORTS PVT. LTD. 4 PREVIOUS YEAR, NO DISALLOWANCE UNDER SECTION 14A CA N BE MADE. IN VIEW OF OUR AFORESAID OBSERVATION, THERE IS NO NEED TO DEAL WIT H THE ALTERNATIVE CONTENTION OF THE ASSESSEE THAT THE INVESTMENT IN SHARES SINCE WA S MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE, NO DISALLOWANCE UNDER RED CHILLIES ENTERTAINMENT PVT. LTD. SECTION 14A CAN BE MADE OUT OF THE INTEREST EXPENDI TURE. THUS GROUND NO.6, IS ALLOWED FOR STATISTICAL PURPOSE. 7. RESPECTFULLY FOLLOWING THE DECISION OF TRIBUNAL AND THE DECISION OF HONBLE DELHI HIGH COURT (SUPRA), WE DECIDE THIS AP PEAL IN FAVOUR OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26.07.2017. SD/- SD/- (RAJESH KUMAR) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 26.07.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.