M/s. Motlay Finance Pvt. Ltd., Indore V. The Dy. CIT., Indore

ITA 63/IND/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9584 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 08-02-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PRADEEP MITRA
• Assessee Lawyers: H P VERMA; GIRISH AGRAWAL
• Section: 14A; 147; 68

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.63/IND/2010 A.Y.2005-06 MOTLAY FINANCE PRIVATE LIMITED INDORE PAN- AABCM-2050J APPELLANT VS DY. COMMISSIONER OF INCOME TAX CIRCLE 1(1), INDORE RESPONDENT APPELLANT BY : SHRI H.P. VERMA AND SHRI GIRISH AGRAWAL RESPONDENT BY : SHRI PRADEEP MITRA O R D E R PER JOGINDER SINGH, JUDICIAL MEMBER THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A) DATED 19.10.2009. 2. THE FIRST GROUND PERTAINING TO CONFIRMING THE DE CISION OF THE ASSESSING OFFICER IN REOPENING THE ASSESSMENT U/S 1 47 OF THE ACT WAS NOT PRESSED BY THE LD. COUNSEL FOR THE ASSESSEE, TH EREFORE, THE SAME IS DISMISSED AS NOT PRESSED. 3. THE NEXT GROUND PERTAINS TO CONFIRMING THE ADDIT ION OF RS.2 LACS BEING SHARE CAPITAL RAISED DURING THE YEAR U/S 68 O F THE ACT. THE CRUX OF 2 ARGUMENTS ON BEHALF OF THE ASSESSEE IS THAT THE ASS ESSEE SUBMITTED THE CONFIRMATION LETTERS, PHOTOCOPY OF INCOME TAX RETUR NS FILED BY THE INVESTOR, SHRI BASANT KUMAR, WHICH WAS NOT ACCEPTED AND DENIED TO BE TAKEN ON RECORD. RELIANCE WAS PLACED IN THE CASE O F CIT V. KUM SATYASATIA; 143 ITR 486 (MP). THE TRANSACTION BY T HE SHARE HOLDERS WAS CLAIMED TO BE THROUGH BANKING CHANNEL AND THE I NVESTOR IS AN INCOME TAX ASSESSEE FILED ITS RETURN FOR THE ASSESS MENT YEAR 2002-03 AND DEPOSITED THE TAX. RELIANCE WAS ALSO PLACED UP ON THE DECISION IN SHREE KELA PRAKASHAN PRIVATE LIMITED (2010) 14 ITJ 539 (INDORE) AND CIT V. LOVELY EXPORTS; 216 CTR 195 (SC). THE LEARN ED SENIOR DR CONTENDED THAT IDENTICALLY THE ISSUE WAS REMANDED B ACK TO THE FILE OF THE LEARNED ASSESSING OFFICER AND PLACED RELIANCE ON TH E DECISION IN CIT V. OMPRAKASH BAGDIA; 287 ITR 523 (MP). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE IS DEALING IN SHARES AND SECURITI ES, LENDING AND BORROWING OF INTER-CORPORATE DEPOSIT. THE ASSESSEE RECEIVED RS. 2 LACS FROM SHRI BASANT KUMAR WHICH WAS TREATED AS UNEXPLA INED CASH CREDIT U/S 68 OF THE ACT ON THE PLEA THAT THE ASSESSEE DID NOT ESTABLISH THE IDENTITY OF THE SUBSCRIBER. ON APPEAL, THE STAND O F THE LEARNED ASSESSING OFFICER WAS AFFIRMED WHICH IS UNDER CHALLENGE BEFOR E THE TRIBUNAL. IT IS SEEN THAT THE ADDITION WAS MADE BY THE ASSESSING OF FICER ON THE PLEA 3 THAT THE ASSESSEE COULD NOT ESTABLISH THE GENUINENE SS OF SHARE CAPITAL AS THE ASSESSEE DID NOT PRODUCE THE SHARE HOLDER. BEFORE US, THE CRUX OF ASSERTION ON BEHALF OF THE REVENUE IS THAT EVEN THE IDENTITY OF THE SHARE HOLDER WAS NOT ESTABLISHED WHEREAS THE STAND OF THE ASSESSEE IS THAT IN VIEW OF THE DECISION IN THE CASE OF LOVELY EXPORTS (SUPRA), NO ADDITION IS WARRANTED. IT IS SEEN THAT INSPITE OF REPEATED OPPORTUNITIES PROVIDED TO THE ASSESSEE, THE SHARE SUBSCRIBER WAS NOT PRODUCED BEF ORE THE ASSESSING OFFICER. HOWEVER, BY TAKING A LENIENT VIEW, WE REM AND THIS ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO PRODUCE SHRI BASANT KUMAR, (SHARE SUBSC RIBER) BEFORE THE ASSESSING OFFICER AND IF THAT PERSON IS PRODUCED, T HEN THE CASE MAY BE DECIDED IN VIEW OF THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF LOVELY EXPORTS (SUPRA) AND IF NOT THEN IT MAY BE D ECIDED AS PER THE PROVISIONS OF THE ACT, THEREFORE, THIS GROUND IS AL LOWED FOR STATISTICAL PURPOSES. 5. THE NEXT GROUND PERTAINS TO CONFIRMING THE ADDIT ION OF RS.1,61,152/- U/S 14A OF THE ACT, BEING EXPENDITURE INCURRED TO EARN DIVIDEND INCOME EXEMPT U/S 10. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. AS PER THE PROVISIONS OF SECTION 14A, ANY EXPENDITURE INCURRED FOR EARNING THE 4 EXEMPTED INCOME CANNOT BE ALLOWED AGAINST TAXABLE I NCOME. WHILE COMPUTING THE EXEMPTED INCOME, WHICH IS TAX FREE, T HE EXPENDITURE INCURRED FOR EARNING THE SAME IS TO BE REDUCED THER EFROM, MEANING THEREBY SUCH EXPENDITURE CANNOT BE ALLOWED AGAINST THE TAXABLE INCOME. SO FAR AS THE DIRECT EXPENDITURE, WHICH IS INCURRED FOR SUCH EARNING, IS CONCERNED, THE SAME IS TO BE DISALLOWED WITHOUT ANY DISPUTE. SO FAR AS THE COMMON EXPENSES ARE CONCERNED, WHICH ARE INCURR ED BOTH FOR EARNING THE EXEMPTED INCOME AND TAXABLE INCOME, A R EASONABLE PORTION OF SUCH EXPENSES ATTRIBUTABLE TO SUCH EARNING DESER VES TO BE DISALLOWED. LOOKING TO THE NATURE OF INVESTMENT AND THE EFFORTS REQUIRED FOR MAINTAINING THE ACCOUNTS IN RELATION TO SUCH INVEST MENT, A REASONABLE SUM OF COMMON EXPENSES IS REQUIRED TO BE DISALLOWED . FOR THIS PURPOSE, RULE 8 HAS BEEN INSERTED BY THE INCOME TAX (5TH ) AMENDMENT RULES, 2008 WITH EFFECT FROM 24.3.2008 WHICH PRESCR IBES METHOD FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION T O INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. THIS RULE WAS HELD TO BE EFFECTIVE RETROSPECTIVE BY THE ITAT, SPECIAL BENCH, IN THE CA SE OF DAGA INVESTMENT (SUPRA). THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) CLARIFIED THE POSITION WITH REGARD TO APPLICABILITY OF RULE 8D AND HELD THAT RULE 8D IS NOT RETROSPECTI VE AND IS APPLICABLE ONLY WITH EFFECT FROM 24.3.2008. SINCE THE ASSESSM ENT YEAR UNDER CONSIDERATION IS 2006-07, RULE 8D IS NOT APPLICABLE TO THE INSTANT YEAR. 5 HOWEVER, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE (SUPRA) FURTHER HELD THAT EVEN IN RELATION TO EARLI ER YEAR FALLING BEFORE 24.3.2008, THE ASSESSING OFFICER IS EMPOWERED TO RE ASONABLY ESTIMATE SUCH INDIRECT EXPENSES FOR THE PURPOSE OF DISALLOWA NCE. IN THE INTEREST OF JUSTICE AND FAIR PLAY, WE RESTORE THE ENTIRE ISS UE TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH IN TER MS OF DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODRAJ & B OYCE (SUPRA) AND THE ASSESSEE IS DIRECTED TO FURNISH FULL DETAILS OF DIRECT AND INDIRECT EXPENSES RELATABLE TO SUCH EARNING OF EXEMPTED INCO ME WE DIRECT ACCORDINGLY. WE DIRECT ACCORDINGLY. FINALLY, THE APPEAL OF THE ASSESSEE IS PARTLY ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT IN THE PRESENCE OF LEARNED REPRESENTATIVES OF BOTH THE SIDES AT THE CONCLUSION OF HEARING ON 17 TH FEBRUARY, 2011. (R.C.SHARMA) (JOGINDER SI NGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 TH FEBRUARY, 2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE DN/- 6