MASITIA CAPITAL SERVICES LTD, MUMBAI V. DCIT CC 39, MUMBAI

ITA 607/MUM/2011

• Counselvise Citation: 60719914 RSA 2011
• Duration Of Justice: 2 year(s) 10 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-11-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH G , MUMBAI BEFORE SHRI P.M. JAGTAP , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 607/M/11 ASSESSMENT YEAR: 2008 - 09 M/S. MASITIA CAPITAL SERVICES LTD. 142, ANDHERI INDUSTRIAL ESTATE, OFF VEERA DESAI ROAD, ANDHERI (W), MUMBAI 400 053 PAN: AACCM3929K VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 39, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : S/ SHRI VIJAY MEHTA & ANUJ KISNADWALA REVENUE BY : SHRI K.C.P. PATNAIK, D.R. DATE OF HEARING : 25.11.13 DATE OF PRONOUNCEMENT : 13.12.13 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A) DATED 29.11.10 RELEVANT TO ASSESSMENT YEAR 2008 - 09. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL. 1. THE HONBLE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND FACTS IN PASSING THE ORDER U/S 250 OF THE ACT IN GROSS VIOLATIO N OF PRINCIPLES OF NATURAL JUSTICE. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN LAW AND FACTS IN UPHOLDING THE DISALLOWANCE OF RS.4,50,015/ - U/S 14A OF THE ACT. 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIF Y ALTER AND/OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. ITA NO .607/M/11 M/S. MASITIA CAPITAL SERVICES LTD. 2 2. SO FAR THE GROUND NO.1 IS CONCERNED, THE LD. A.R. HAS STATED AT B AR THAT HE DOES NOT PRESS THE GROUND NO.1 OF THE APPEAL AND AS SUCH THE GROUND NO.1 IS DISMISSED BEING NOT PRESSED. 3. SO FAR THE GROUND NO.2 IS CONCERNED, THE ASSESSEE HAS CONTESTED THE DISALLOWANCE OF RS. 4,50,015/ - UNDER SECT ION 14A OF THE INCOME TAX ACT. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD EARNED EXEMPT INCOME (DIVIDEND INCOME) OF RS. 3,61,45 6/ - D URING THE YEAR UNDER CONSIDERATION . T HE ASSESSEE CLAIMED THAT NO EXPENSES HAD BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. HOWEVER, THE AO OBSERVED THAT SECTION 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF THE INCOME TAX R ULES WAS APPLICABLE AND HE MADE A DISALLOWANCE OF RS.4,50,015/ - TOWARDS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. 4. BEFORE THE CIT(A) , THE CONTENTION OF THE ASSESSEE HAD BEEN THAT RULE 8D WAS APPLICABLE FOR ASSESSMENT YEAR 2008 - 09 ONWARDS AND THE SAME COULD NOT HAVE BE EN APPLIED TO THE CASE OF THE ASSESSEE IN THE LIGHT OF THE PROPOSITION OF LAW LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 . THE LD. CIT(A) OBSERVED THAT THE ASSESSMENT YEAR UNDER CONSIDERATIO N WAS 2008 - 09 ITSELF , SO AS PER THE DECISION OF THE HONBLE BOMBAY HIGH COURT RULE 8D WAS APPLICABLE FOR THE YEAR UNDER CONSIDERATION. HE , THEREFORE , UPHELD THE DISALLOWANCE MADE BY THE AO BY INVOKING RULE 8D OF THE INCOME TAX RULES. 5. IT MAY BE OBSER VED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED ONLY IF THE ASSESSEE'S METHOD IS NOT SATISFACTORY. IT HAS BEEN FU RTHER HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008 - 09. FOR THE YEARS FOR WHICH RULE 8D ITA NO .607/M/11 M/S. MASITIA CAPITAL SERVICES LTD. 3 IS NOT APPLICABLE AND IN THE EVENT THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WORKING GIVEN BY THE ASSESSEE, DISALLOWANCE U/S. 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. & OTHERS V. CIT 247 ITR 162. 6. IT MAY BE FURTHER OBSERVED THAT AS PER S ECTION 14A(3), THE PROVISIONS OF SECTION 14A(2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RESPECT OF EXEMPT INCOME. 7. AT THIS STAGE THE LD. REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HA D NOT EARNED ANY DIVIDEND INCOME FROM INVESTMENT IN SHARES RATHER THE DIVIDEND INCOME IN QUESTION WAS RECEIVED FROM THE SHARES HELD BY THE ASSESSEE AS STOCK IN TRADE. TO THIS , THE LD. D.R. HAS SUBMITTED THAT NO SUCH SUBMISSI ONS/DETAILS WERE SUBMITTED BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES AND AS SUCH THE ASSESSEE , AT THIS STAGE , IS PRECLUDED FROM MAKING A NEW CASE. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF BOTH THE PARTIES ON THIS CONTENTION ALSO. A PERUSAL OF THE ASSESSMENT ORDER REVEALS THAT NEITHER ANY SUCH DETAILS WERE SOUGHT BY THE AO , AT THE T IME OF MAKING ASSESSMENT ORDER , NOR ANY SUCH DETAILS WERE FURNISHED BY THE ASSESSEE TO HIM . THE AO SIMPLY APPLIED RULE 8D WHILE MAKING THE D ISAL LOWANCE UNDER SECTION 14A. KEEPING IN VIEW OF THE OVERALL FACTS AND CIRCUMSTANCES, WE CONSIDER THAT IT WILL BE IN THE INTEREST OF JUSTICE IF , THE ASSESSEE IS GIVEN AN OPPORTUNITY TO PRESENT ITS CASE REGARDING DISALLOWANCE UNDER SECTION 14A ON THE ASPECT T HAT THE DIVIDEND INCOME WAS NOT EARNED BY THE ASSESSEE ON THE INVESTMENTS MADE FOR EARNING EXEMPT INCOME RATHER THE SAME WAS EARNED BY THE ASSESSEE ON THE SHARES WHICH WERE HELD AS STOCK IN TRADE. ACCORDINGLY, THE MATTER IS REMANDED BACK TO THE FILE OF TH E AO ON THIS LIMITED ISSUE TO DECIDE AS TO WHETHER THE ITA NO .607/M/11 M/S. MASITIA CAPITAL SERVICES LTD. 4 ASSESSEE HAD EARNED DIVIDEND INCOME ON THE SHARES HELD IN STOCK IN TRADE AND IF SO , THE AO WILL CONSIDER THE SUBMISSIONS OF THE ASSESSEE IN THIS RESPECT AND THEREAFTER TO DECIDE ON MERITS AS TO THE DIS ALLOWANCES TO BE MADE ON THE DIVIDEND INCOME EARNED ON THE SHARES HELD IN STOCK IN TRADE IN ACCORDANCE WITH LAW. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 13.1 2. 2013. SD/ - SD/ - (P.M. JAGTAP) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 13.12.13 * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.