METRO EXPORTERS P.LTD, MUMBAI V. ASST CIT CIR 6(3), MUMBAI

ITA 6267/MUM/2012

• Counselvise Citation: 626719914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 12-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GANESH BARE
• Assessee Lawyers: PIYUSH CHHAJED
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, CH CHCH CH INCOME TAX APPELLATE TRIBUNA L MUMBAI - B BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 6267/MUM/2012, ' ' ' ' # # # # / ASSESSMENT YEAR 2007-08 M/S METRO EXPORTERS PVT. LTD. KAKAD CHAMBERS, 132, DR. A.B.ROAD, WORLI, MUMBAI-400018 VS. ACIT 6(3) AAYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 PAN: AAACM9514C ( $% / ASSESSEE ) ( &'$% / RESPONDENT) $% $% $% $% ( (( ( ) ) ) ) / ASSESSEE BY :SHRI PIYUSH CHHAJED &'$% ( ) / RESPONDENT BY :SHRI GANESH BARE ' ' ' ' ( (( ( +, +, +, +, / DATE OF HEARING : 12 . 12 .2013 -.# ( +, / DATE OF PRONOUNCEMENT : 24 . 12 .2013 ' ' ' ' , 1961 ( (( ( 254 )1( +/+ +/+ +/+ +/+ 0 0 0 0 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER DTD.12.07.2012 OF THE CIT(A)- 12,MUMBAI,ASSESSEE HAS FILED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADHOC DISALLOWANCE U/S 14A AT RS. 9,31,332/- (BEING 10% OF EXEMPT INCOME EARNED) WITHOUT APPRECIATING T HAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND FU RTHERMORE AO HAS NOT ESTABLISHED ANY NEXUS OR GAVE ANY FINDING IN HIS ASSESSMENT ORDER. 2.THE APPELLANT CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUND OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF MANUFAC TURING AND EXPORT OF GARMENT AND BICYCLES, FILED ITS RETURN OF INCOME ON 20.11.2007DECLARING T OTAL INCOME OF RS.3,28,71958/-.ASSESSING OFFICER(AO)FINALISED THE ASSESSMENT ORDER U/S.143(3 ) OF THE ACT,ON 20.11.2009,DETERMINING THE TOTAL INCOME AT RS.3.43 CRORES. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION OF RS. 9,31,332/- MADE UNDER SECTION 14A OF THE ACT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAD SHOWN EXEMPT DIVIDEND INCOME AMOUNTING TO RS 86,33,619/-AGAINST WHICH IT HAD NOT SHOWN OR APPORTIONED ANY EXPENDITURE WHICH COULD BE HELD AS ATTRIBUTABLE FOR EARNING OF THIS EXEMPT INCOME. ACCORDINGLY, THE AO ISSUED A SHOW CAUSE TO THE ASSESSEE IN VIEW OF T HE PROVISIONS OF SECTION 14A OF THE ACT. ASSESSEE SUBMITTED THAT IT HAD NOT INCURRED ANY EXP ENSE FOR THE PURPOSE OF EARNING OF EXEMPT INCOME AND HENCE NO DISALLOWANCE U/S.14A WAS CALLED FOR.TAKING INTO CONSIDERATION THE REPLY OF THE ASSESSEE,AO HELD THAT THE SAME COULD NOT BE ACC EPTED,THAT THE ADMINISTRATIVE AND OTHER EXPENSES INCURRED BY THE ASSESSEE MUST HAVE FACILITATED IN E ARNING THE DIVIDEND INCOME CLAIMED AS INCOME EXEMPT TO TAX .AO MADE A PROPORTION NATE DISALLOWAN CE OF EXPENSES,AMOUNTING TO RS.12.63 LACS, AS PER RULE 8D OF THE INCOME-TAX RULES, 1962(RULES) R. W.S.14A OF THE ACT. 2 ITA NO.6267/MUM/2012 M/S METRO EXPORTERS PVT. LTD. 2.1. ASSESSEE PREFERRED AN APPEAL AGAINST THE ORDER OF T HE AO BEFORE THE FIRST APPELLATE AUTHORITY (FAA).IT WAS ARGUED BEFORE HIM THAT THE AO HAD ERRE D IN APPLYING RULE 8D AS THE SAME WAS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09.RELYIN G UPON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT DELIVERED IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO LTD (328 ITR 81),HE HELD THAT THE AOS ACTION IN INVOKING RULE 8D COULD NOT BE ACCEPTED AND UPHELD.HE FURTHER HELD THAT THE ASSESSEE HAD EARNED EXEMPT INCOME BUT HAD NOT BEEN ABLE TO GIVE ANY DETAILS REGARDING EXPENDITURE INCURRED BY IT FOR EARNING OF THE SAID INCOME,THAT EVEN THOUGH THE INVOCATION OF RULE 8D WAS NOT JUSTIFIED IN THE YEAR UNDER CONSIDERATION YET DISAL LOWANCE HAD TO BE MADE ON A REASONABLE BASIS AS PER THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD.(SUPRA).HE PLACED RELIANCE UPON THE DECISION OF THE MUMBAI TRIBUNAL IN THE CASE OF TATA PROJECTS LTD. (ITA NO.5862/M/06),WHEREIN THE TRIBUN AL HAD HELD THAT A DISALLOWANCE WOULD NEED TO BE MADE IN RESPECT OF ADMINISTRATIVE EXPENSES DEBIT ED TO THE PROFIT & LOSS ACCOUNT AND WHEREIN THE ASSESSEE HAD NOT APPORTIONED ANY EXPENSE IN REL ATION TO EARNING OF EXEMPT INCOME. HE REFERRED TO FIVE OTHER MATTERS DECIDED BY THE VARIOUS BENCHE S OF THE TRIBUNAL AND HELD THAT TOKEN ADMINISTRATIVE EXPENSE WERE TO BE DISALLOWED. AS A RESULT HE UPHELD THE ACTION OF THE AO OF INVOKING SECTION 14A OF THE ACT.TAKING INTO CONSIDE RATION THE FACTS AND CIRCUMSTANCES OF THE CASE HE HELD THAT 10% OF THE EXEMPT INCOME OF RS.93,13,3 16/-[(LTCG) RS.6,79,697 + 86,33,619/- (DIVIDEND INCOME)] SHOULD BE CONSIDERED AS REASONAB LE EXPENDITURE TO BE DISALLOWED U/S. 14A OF THE ACT. HOLDING IT TO BE THE AMOUNT EXPENDED BY TH E APPELLANT FOR EARNING OF EXEMPT INCOME. 2.2. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT THERE WAS NO JUSTIFICATION FOR MAKING DISALLOWANCE FOR INCOME EARNED THE HEAD LTCG,THAT T HE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE TO EARN EXEMPT INCOME,THAT NO DISALLOWANCE SHOULD H AVE BEEN MADE/CONFIRMED BY THE AO/FAA.HE SUBMITTED A STATEMENT BEFORE US,FOR REFERENCE PURPO SES WHEREIN CALCULATION AS PER RULE 8D OF THE RULES WAS MADE AND DETAILS OF VARIOUS INVESTMENT MA DE BY THE ASSESSEE WAS GIVEN.HE ALSO SUBMITTED A PAPER GIVING DETAILS OF SALARY PAID TO THE EMPLOYEES OF THE ASSESSEE.ALTERNATIVELY,HE ARGUED THAT THE DISALLOWANCE MADE WAS ON HIGHER SID E.DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE UPHOLD THE ORDER OF THE FAA THAT FOR THE AY.2007-08 PROVISIONS OF RULE 8D OF THE RULES WERE NOT APPLICABLE THOUGH A REASONABLE DISALLOWANCE AS PER THE SECTION 14A OF T HE ACT WAS TO BE MADE FOR THE EXEMPT INCOME WHERE ASSESSEE HAD CLAIMED SOME EXPENDITURE TO EARN SUCH INCOME.WE ARE OF OPINION THAT DISALLOWANCE SHOULD NOT HAVE BEEN MADE FOR THE LTCG EARNED BY THE ASSESSEE.FOR THE DIVIDEND INCOME EARNED BY THE ASSESSEE, FAA HAD MADE DISALLO WANCE OF RS. 9.31 LACS(@10%)AND IN THE STATEMENT SUBMITTED BY THE ASSESSEE FOR REFERENCE PURPOSEDISALLOWANCE HAS BEEN WORKED OUT AT RS.4.27 LACS (APP.5% OF THE DIVIDEND INCOME).AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT IN THE INTEREST OF JUSTICE DISALLOWANCE SHOULD BE RESTRICTED TO RS. 5 LACS. EFFECTIVE GROUND OF APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE, IN PART. AS A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. 1 2 '1+ 3 4 0 2 5+ ( + 67. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DECEMBER, 2013. 0 ( -.# 9 24 FNLA FNLA FNLA FNLACJ CJCJ CJ .2013 . ( /. SD/- SD/- ( . . . B.R.MITTAL ) ( ! ! ! ! / RAJENDRA ) / JUDICIAL MEMBER /ACCOUNTANT MEMBER 3 ITA NO.6267/MUM/2012 M/S METRO EXPORTERS PVT. LTD. / MUMBAI, :' /DATE: 24.12.2013 SK 0 0 0 0 ( (( ( &+; &+; &+; &+; < ;#+ < ;#+ < ;#+ < ;#+ / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR B BENCH, ITAT, MUMBAI / ;?/ &+' . CH CHCH CH , . . . 6. GUARD FILE/ / @ . ';+ &+ //TRUE COPY// 0' / BY ORDER, A / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI.