DCIT, Mohali V. Sh. Ramesh Kumar Dudani, Mohali

ITA 618/CHANDI/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60938 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 10-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 02-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: ATUL MANDHAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE SHRI H.L. KARWA, VP AND SHRI T.R. SOOD, AM ITA NO. 618/CHD/2011 ASSESSMENT YEAR: 2007-08 D.C.I.T. CIRCLE 6(1) V SHRI RAMESH KUMAR DUDANI MOHALI PLOT NO. C-104 INDUSTRIAL AREA PHASE VII MOHALI ABBPD 0633 J (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI N.K. SAINI RESPONDENT BY: SHRI ATUL MANDHAR DATE OF HEARING: 10.07.201 2 DATE OF PRONOUNCEMENT: 11.07.2012 ORDER PER T.R. SOOD, A.M IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWI NG GROUND: 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN GIVING RELIEF OF RS. 1702233/- OUT OF TOTAL DISALLOWANCE OF RS. 18,02,472/- MADE BY THE ASSESSI NG OFFICER IN VIEW OF PROVISIONS OF SECTION 14A. 2. DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER NOTICED THAT THE ASSESSEE HAS INVESTED A SUM OF RS. 2.75 CRORES IN S HARES OF MUTUAL FUNDS AND EARNED DIVIDEND INCOME WHICH IS EXEMPT. THEREFORE, HE INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D AND DISALLOW ED A SUM OF RS. 18,02,472/- U/S 14A OF THE ACT. 3. ON APPEAL BEFORE THE LD. CIT(A), IT WAS MAINLY C ONTENDED THAT RULE 8D OF IT RULES WAS NOT APPLICATION IN THIS YEAR. THE LD. CIT(A) RELIED ON THE DECISION OF SPECIAL BENCH IN CASE OF ITO V. DAGA CAPITAL MAN AGEMENT, 312 ITR (AT) 1. HOWEVER, HE FURTHER OBSERVED THAT RULE 8D(I) IS APP LICABLE ONLY ONCE IT HAS BEEN PROVED THAT SOME EXPENDITURE WAS INCURRED FOR EARNING INTEREST. SIMILARLY RULE 8D(II) IS APPLICABLE ONLY WHEN THERE IS NEXUS BETWEEN THE INTEREST AND EXEMPTED INCOME. THEREAFTER HE SIMPLY HELD THAT RU LE 8D (III) SHALL BE APPLICABLE. 2 4. BEFORE US, THE LD. DR FOR THE REVENUE SUBMITTED THAT THE LD. CIT(A) HAS NOT GIVEN ANY REASON WHY RULE 8D IS NOT APPLICABLE. 5. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT IT HAS BEEN HELD IN CASE OF GODREJ & BOYEE MANUFACTURING V DCIT, 328 ITR 81 BY HON'BLE BOMBAY HIGH COURT THAT RULE 8D HAS NO RETRO SPECTIVE APPLICATION SINCE ASSESSING OFFICER HAS NOT FOUND THAT ANY EXPENDITUR E OR INTEREST HAD BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPTED INCOME , NO DISALLOWANCE WAS CALLED FOR. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY. THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYEE MANUFACTURING V DCIT ( SUPRA) HAS HELD AS UNDER: HELD, THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008 WOULD APPL Y WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFI CER HAD TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EX PENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST A DOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE A SSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FO R ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE ASSESSING OFFIC ER. THE ASSESSING OFFICER SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIV IDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED U/S 14A. THE ASSESSING OFFICER CAN AD OPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKIN G THAT DETERMINATION, THE ASSESSING OFFICER SHOULD PROVIDE A REASONABLE O PPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. FROM ABOVE IT IS CLEAR THAT RULE 8D IS NOT APPLICAB LE DURING ASSESSMENT YEAR 2007-08. HOWEVER, AT THE SAME TIME THE ASSESSING O FFICER CAN WORK OUT REASONABLE DISALLOWANCE AFTER EXAMINING WHETHER ANY EXPENDITURE OR INTEREST WAS INCURRED FOR EARNING EXEMPT INCOME. THEREFORE, IN THE INTEREST OF JUSTICE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO REDETERMI NE THE DISALLOWANCE U/S 14A IN THE LIGHT OF THE DECISION OF HON'BLE BOMBAY HIGH COURT IN CASE OF GODREJ & BOYEE MANUFACTURING V DCIT (SUPRA). 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 11 .07.2012 SD/- SD/- (H.L. KARWA) (T.R. SOOD) VICE PRESIDENT ACCOUNTANT MEMBER DATED: 11.07.2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/ THE DR 3