ACIT RG 6(2), MUMBAI V. ESJAY INTERNAITIONAL LTD, MUMBAI

ITA 6270/MUM/2011

• Counselvise Citation: 627019914 RSA 2011
• Duration Of Justice: 2 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: DAMODAR KABRA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . , , , BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER . / ITA NO. 6270 / MUM./ 2011 ( / ASSESSMENT YEAR : 20 0 7 08 ) ASSTT. COMMISSIONER OF INCOME TAX CIRCLE 6(2), AAYAKAR BHAVAN 101, M.K. ROAD, MUMBAI 400 020 .. / APPELLANT V/S M/S. ESJAY INTERNA TIONAL LTD. 48, LAXMI INDUSTRIAL ESTATE HANUMAN GALLI, LOWER PAREL MUMBAI 400 013 .... / RESPONDENT . / PERMANENT ACCOUNT NUMBER AAACE1066B / REVENUE BY : MR. ASHOK SURI / ASSESSEE BY : MR. DAMODAR KABRA / DATE OF HEARING 04 . 0 2 .201 4 / DATE OF ORDER 12.02.2014 / ORDER , / PER AMIT SHUKLA , J.M. THE PRESENT APPEAL HAS BEEN PREFERRE D BY THE REVENUE CHALLENGING THE IMPUGNED ORDER DATED 21 ST JUNE 2011 , PASSED BY M/S. ESJAY INTERNATIONAL LTD. 2 THE COMMISSIONER (APPEALS) X I I , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 20 07 08 , ON THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE UNDER SECTION 41(1) BY IGNORING FACT THAT ASSESSEE VIDE LETTER DATED 19.11.2009 HAD GIVEN CONSENT TO MAKE ADDITIO N OF OUTSTANDING CREDITORS OF ` 39,52,717 OUT OF THE TOTAL CREDITORS OF ` 45,14,976 REFERENCE OF WHICH HAS BEEN MENTIONED IN THE BODY OF THE ASSESSMENT ORDER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN DELE TING THE ADDITION MADE U/S 41(1) ON THE BASIS OF LIST OF CREDITORS PRODUCED BEFORE HER UPTO F.Y. 2010 11 WHICH WAS NEVER PRODUCED BEFORE THE A.O. WHICH IS IN CONTRAVENTION OF RULE 46A. 2 . THE ASSESSEE IS MAINLY ENGAGED IN THE BUSINESS OF MANUFACTURING AND E XPORT OF READYMADE GARMENTS. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ` 1,05,00,236, LONG TERM CAPITAL GAIN OF ` 1,34,22,152, AND INTEREST FROM TAX FREE BONDS OF ` 21,11,361 . THESE INCOMES WERE CLAIMED AS EXEMPT. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS NOT APPORTIONED ANY EXPENDITURE RELATABLE FOR EARNING OF SUCH INCOME. ACCORDINGLY, AFTER APPLYING THE PROVISIONS OF RULE 8D, HE MADE DISALLOWANCE OF ` 1,06,43,206 UND ER SECTION 14A OF THE ACT. 3 . THE ASSESSEE, BEFORE THE LEARNED COMMISSIONER (APPEALS), MADE VERY DETAIL SUBMISSIONS AS TO WHY NO DISALLOWANCE IS CALLED FOR IN ASSESSEES CASE, FIRSTLY, NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSING OFFICER IN RESPECT OF INTE REST EXPENDITURE IN THE EARLIER ASSESSMENT YEAR THAT IS 2006 07 AND THE INVESTMENT MADE UP TO 31 ST MARCH 2006 HAS BEEN ACCEPTED BY THE REVENUE; SECONDLY, THE ASSESSEE HAS INTEREST FREE M/S. ESJAY INTERNATIONAL LTD. 3 FUNDS FOR MAKING THE INVESTMENTS IN THE FORM OF PAID UP SHARE CAPITAL A ND FREE RESERVES AND LASTLY, PROVISIONS RULE 8D ARE NOT APPLICABLE IN THE ASSESSMENT YEAR 2007 08 IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG. CO. LTD. V/S DCIT, (2010), 328 ITR 081 (BOM.). THE LEARNED COMMISSIONE R (APPEALS) PARTLY ACCEPTED THE ASSESSEES CONTENTION INSOFAR AS THAT THE PROVISIONS OF RULE 8D IS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007 08 IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE MFG, CO. LTD. (SUPRA). HE AL SO AGREED WITH THE CONTENTION OF THE ASSESSEE THAT NO INTEREST EXPENDITURE CAN BE DISALLOWED FOR THE REASON THAT IN THE EARLIER YEARS AND IN THE SUBSEQUENT YEARS, NO SUCH DISALLOWANCE HAS BEEN MADE AND FURTHER THERE WERE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. AFTER GIVING DETAIL REASONS, HE DIRECTED THE ASSESSING OFFICER TO CALCULATE THE DISALLOWANCE UNDER SECTION 14A @ 5% OF THE EXEMPT INCOME RECEIVED IN THIS YEAR WHICH WILL COVER SOME PART OF THE ADMINISTRATIVE EXPENDITURE ATTRIBUTABLE TO THE EA RNING OF EXEMPT INCOME. 4 . THE LEARNED DEPARTMENTAL REPRESENTATIVE, BEFORE US, STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT THE DISALLOWANCE UPHELD BY THE LEARNED COMMISSIONER (APPEALS) IS FAR LESS AS COMPARED TO THE INVESTMENT MADE BY THE ASSESSEE AND EXEMPT INCOME EARNED. 5 . THE LEARNED COUNSEL, ON THE OTHER HAND, STRONGLY RELIED UPON THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS). 6 . AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT INSOFAR AS THE APPLICAB ILITY OF THE PROVISIONS OF RULE 8D IS CONCERN, THIS ISSUE HAS BEEN SETTLED BY THE HON'BLE JURISDICTIONAL HIGH COURT THAT M/S. ESJAY INTERNATIONAL LTD. 4 PROVISIONS OF RULE 8D IS NOT APPLICABLE PRIOR TO THE ASSESSMENT YEAR 2008 09. COMING TO THE REASONABLENESS OF THE DISALLOWANCE UNDER SE CTION 14A, WE FIND THAT THE LEARNED COMMISSIONER (APPEALS) HAS GIVEN A PROPER JUSTIFICATION AND HAS DISALLOWED 5% OF THE EXEMPT INCOME SPECIFICALLY WHEN THE ASSESSEES CORE BUSINESS IS MANUFACTURING AND EXPORTING OF READYMADE GARMENTS. ONCE THE INTEREST EX PENDITURE CANNOT BE SAID TO BE ATTRIBUTABLE FOR THE PURPOSE OF EARNING DIVIDEND INCOME, THEN THE DISALLOWANCE OF 5% OF THE EXEMPT INCOME AS UPHELD BY THE LEARNED COMMISSIONER (APPEALS) IS QUITE JUSTIFIED. WE DO NOT FIND ANY REASON TO DEVIATE FROM THE FINDI NGS OF THE LEARNED COMMISSIONER (APPEALS) AND DECLINE TO INTERFERE IN THE MATTER AS SUCH. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS TREATED AS S I D MISSED. 7 . 7 . IN THE RESULT, REVENUES APPEAL IS TREATED AS DISMISSED . 12 TH FEBRUARY 2014 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY 2014 SD / - . D. KARUNAKARA RAO ACCOUNTANT MEMBER SD / - AMIT SHUKLA JUDICIAL MEMBER MUMBAI, DATED : 4 TH FEBRUARY 2014 M/S. ESJAY INTERNATIONAL LTD. 5 / COPY OF THE ORDER FORWA RDED TO : ( 1 ) / THE ASSESSEE ; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED ; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUARD FILE . / T RUE COPY / BY ORDER . / PRADEEP J. CHOWDHURY / SR. PRIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI