M/s. Bajaj Trading Company, Wardha V. Assistant Commissioner of Income Tax-Wardha Circle, Wardha, Wardha

ITA 63/NAG/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1822 (ITAT-NAGPUR)
• Duration Of Justice: 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 23-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D P T IWARI
• Assessee Lawyers: M A GOHEL
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , ( E - COURT), MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI RAJENDRA , A M ITA NO . 57 / N AG / 20 1 2 ( ASSESSMENT YEAR : 2007 - 08 ) ACIT, WARDHA CIRCLE, WARDHA. VS. M/S BAJAJ TRADING CO., BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 PAN/GIR NO. : A A BFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO . 63 / N AG / 20 1 2 ( ASSESSMENT YEAR : 200 8 - 0 9 ) M/S BAJAJ TRADING CO., BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 VS. ACIT, WARDHA CIRCLE, WARDHA. PAN/GIR NO. : A A BFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO . 58 / NAG /20 12 ( ASSESSMENT YEAR : 2007 - 08 ) ACIT, WARDHA CIRCLE, WARDHA. VS. M/S RISHAB TRADING CO., BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 PAN/GIR NO. : A ABFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 2 AND ITA NO . 64 / N AG / 20 1 2 ( ASSESSMENT YEAR : 200 8 - 0 9 ) M/S RISHAB TRADING CO , BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 VS. ACIT, WARDHA CIRCLE, WARDHA. PAN/GIR NO. : A A BFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO . 59 / NAG /20 12 ( ASSESSMENT YEAR : 2007 - 08 ) ACIT, WARDHA CIRC LE, WARDHA. VS. M/S ANANT TRADING CO., BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 PAN/GIR NO. : A ABFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) AND ITA NO . 6 2 / N AG / 20 1 2 ( ASSESSMENT YEAR : 2008 - 09 ) M/S ANANT TRADING CO., BACHHRAJ BHAVAN, BACHHRAJ ROAD, GANDHI CHOWK, WARDHA - 442 001 VS. ACIT, WARDHA CIRCLE, WARDHA. PAN/GIR NO. : A A BFB 3490 L ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : M R. D.P.TIWARI /ASSESSEE BY : MR. M.A.GOHE L DATE OF HEARING : 28 TH JAN ., 201 3 DATE OF PRONOUNCEMENT : 8 TH FEB. ,201 3 ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 3 O R D E R P ER BENCH : TH E SE SIX APPEALS HAVE BEEN PREFERRED BY THE DEPARTMENT AND THREE DIFFERENT ASSESSEES BEFORE THE ITAT NAGPUR BENCH, NAGPUR, AGAINST THE ORDER OF LEANED CIT (A) - I I , NAGPUR (MAHARASHTRA) RELATING TO THE ASSESSMENT YEAR S 2007 - 08 & 2008 - 09 , RESPECTIVELY , WHICH HAVE BEEN HEARD THROUGH E - COURT, MUMBAI . \ 2 . SINCE COMMON ISSUES ARE INVOLVED IN ALL THE CASES, THEREFORE, FOR THE SAKE OF CONVENIENCE , THESE CASES HAVE BEEN HEARD AND DISPOSED OF BY THIS CONSOLIDATED ORDER. 3 . FIRST , WE WILL TAKE APPEALS OF THE DEPARTMENT, WHEREIN THE DEPARTMENT IS OBJECTING IN A LLOWING RELIEF UNDER SECTION 14A R.W.RULE 8D. THE DEPARTMENT HAS ALSO TAKEN A GROUND THAT RULE 8D IS ONLY CLARIFICATORY IN NATURE FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE WHEN THE RESPECTIVE SECTION 14A WAS ALREADY IN EXISTENCE. THE DEPARTMENT HAS AL SO TAKEN A GROUND THAT THE LEARNED CIT(A) ERRED IN GIVING RELIEF TO THE ASSESSEE BY TREATING RULE 8D PROSPECTIVE THOUGH THE RULE 8D IS ONLY WORKING PART FOR CALCULATION OF DISALLOWANCE UNDER SECTION 14A. SIMILAR GROUNDS HAVE ALSO BEEN TAKEN IN ALL THESE TH REE APPEALS BY THE DEPARTMENT AS MENTIONED ABOVE. 3.1 THE FACTS GIVING RISE TO THE CASE ARE THAT THE AO MADE ADDITION UNDER SECTION 14A PLACING RELIANCE ON THE DECISION OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL, REPORTED IN 117 ITD 169 . ACCORDINGLY, TH E ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 4 AO APPLIED RULE 8D RETROSPECTIVELY AND DETERMINED THE DISALLOWANCE FOR DETERMINING THE INCOME FOR THE YEAR OF THESE ASSESSEES. 3.2 BEFORE CIT(A) , IT WAS SUBMITTED THAT THE HON BLE BOMBAY HIGH CURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. DCIT & OTH ERS, REPORTED IN [2010] 328 ITR 81 (BOM) , HAS HELD THAT RULE 8D IS PROSPECTIVE AND APPLICABLE W.E.F. ASSESSMENT YEAR 2008 - 09 . CONSIDERING THE DECISION OF THE HON BLE SUPREME COURT, THE CIT(A) HELD THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERA TION. ACCORDINGLY, HE DELETED THE DISALLOWANCE MADE UNDER SECTION 14A R.W.RULE 8D IN ALL THESE THREE CASES. NOW, DEPARTMENT IS IN APPEALS HERE BEFORE THE TRIBUNAL. 3.3 LEARNED DR STATED THAT THOUGH RULE 8D HAS BEEN HELD APPLICABLE WITH PROSPECTIVE I.E. F ROM THE ASSESSMENT YEAR 2008 - 09, HOWEVER, PROVISIONS OF SECTION 14A WAS ALREADY ON STATUTE AND IT HAS TO BE SEEN THAT WHETHER THERE IS A NEXUS BETWEEN EXPENDITURE INCURRED AND EXEMPTED INCOME AND THIS ASPECT HAS NOT BEEN TAKEN INTO CONSIDERATION BY THE LEA RNED CIT(A) , THEREFORE, MATTER SHOULD HAVE BEEN RESTORED TO THE FILE OF THE AO BY THE LEARNED CIT(A) INSTEAD OF DELETING THE ENTIRE ADDITION MADE BY THE AO . 3.4 ON THE OTHER HAND, LEARNED COUNSEL OF THE ASSESSEE FAIRLY AGREED THAT THE CONTENTION OF LEARNE D DR. 3.5 IN VIEW OF THE ABOVE FACTS OF THE CASE, WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) IN RESPECT TO THE GROUND INVOLVED IN THE APPEAL OF ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 5 THE DEPARTMENT AND RESTORE THE ISSUE TO THE FILE OF THE AO TO PASS A FRESH ORDER. RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION, AND THEREFORE, THE AO HAS TO EXAMINE AS TO WHETHER THERE WAS ANY NEXUS OF THE EXPENDITURE WITH THE EXEMPT INCOME OR HOW THE DISALLOWANCE CAN BE MADE UNDER SECTION 14A AFTER ALLOWING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY . 4 . NOW, WE WILL TAKE APPEALS OF THE THREE DIFFERENT ASSESSEES. 5 . ITA NO. 63/NAG/2012 FOR THE ASSESSMENT YEAR 2008 - 09 FILED BY THE ASSESSEE - M/S BAJAJ TRADING CO. 5.1 THE ASSESSEE IN ITS FIRST GROUND IS OBJECTING UPHOLD ING THE DISALLOWANCE COMPUTED UNDER SECTION 14A OF THE ACT R.W.RULE 8D AT RS. 11,48,593/ - . 5.2 BRIEF FACTS OF THE CASE ARE THAT THE AO IN THE ASSESSMENT ORDER, HAS OBSERVED THAT AFTER VERIFICATION OF THE WORKING OF AMOUNT DISALLOWABLE U/S.14A THAT THE ASSE SSEE HAS TAKEN ONLY INTEREST OF RS.11,94,023/ - PAID TO OTHERS ONLY AND INTEREST OF RS.5,92,528/ - NOT CONSIDERED, WHICH WAS PAID TO PARTNER ON THEIR CURRENT ACCOUNT. THE AO F URTHER OBSERVED THAT THE ASSESSEE WORKED OUT THE DISALLOWANCE OF RS. 8,18,497/ - THE A MOUNT OF EXPENDITURE DIRECTLY RELATED TO DIVIDEND INCOME ALSO TAKEN AS NIL , HOWEVER, THE AO WORKED OUT THE DISALLOWANCE OF RS. 11,48, 593/ - . THIS ALLOWANCE AROSE MAINLY ON THE GROUND THAT RS. 5,92,528/ - ON ACCOUNT OF INTEREST PAID TO THE PARTNER OF ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 6 THE FIRM W AS NOT CONSIDERED FOR THE PURPOSE OF DISALLOWANCE MADE BY THE AO. IT WAS SUBMITTED BEFORE THE AO THAT THE LOANS HAVE BEEN UTILIZED IN EARLIER YEARS MAINLY FOR ACQUIRING SHARES HELD BY IT AS STOCK - IN - TRADE OR INVESTMENT WHICH REMAINS EXEMPT FROM TAXATION. 5.3 SIMILAR CONTENTIONS WERE RAISED BEFORE THE CIT(A) , WHO AFTER CONSIDERING THE SUBMISSIONS HELD THAT DISALLOWANCE MADE BY THE AO WAS JUSTIFIED. ACCORDINGLY, HE CONFIRMED THE ORDER OF THE AO. WHILE CONFIRMING THE ORDER OF THE AO, THE CIT(A) OBSERVED THAT RULE 8D IS APPLICABLE FOR THE YEAR UNDER CONSIDERATION AND, THEREFORE, DISALLOWANCE MADE BY THE AO WAS CORRECT. NOW, THE ASSESSEE IS IN APPEAL HERE BEFORE THE TRIBUNAL. 5.4 AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD, WE FOUND TH AT THIS MATTER SHOULD GO BACK TO THE FILE OF THE AO FOR EXAMINING THE SAME AFRESH. THE ASSESSEE HAS CONTENDED THAT THE LOANS WERE TAKEN FOR MAKING THE INVESTMENTS IN SHARES FOR TRADING PURPOSE. IT HAS FURTHER BEEN STATED THAT ON ACCOUNT OF INVESTMENT OF SH ARES FOR EARNING DIVIDEND, THE ASSESSEE HIMSELF HAS DISALLOWED THE INTEREST EXPENDITURE UNDER SECTION 14A. IF THE CONTENTIONS OF THE ASSESSEE FOUND CORRECT THAT CERTAIN LOANS WERE TAKEN FOR THE PURPOSE OF TREATING IN SHARES THEN OF COURSE DISALLOWANCE UNDE R SECTION 14A CANNOT BE MADE, SINCE THE SAME HAS BEEN TAKEN FOR THE PURPOSE OF BUSINESS. EARNING OF DIVIDEND IS A CONSEQUENTIAL. HOWEVER, THE FACT WHICH HAS TO BE ASCERTAINED AS TO WHETHER THE INVESTMENT WAS MADE IN ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 7 SHARES FOR THE PURPOSE OF TRADING OR FOR THE PURPOSE OF INVESTMENT. ACCORDINGLY, WE SET ASIDE THESE ISSUES TO THE FILE OF THE AO TO FIND OUT THE FACTUAL ASPECT AND THEN PASS A FRESH ORDER AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE. 5.5 REMAINING ISSUE IS AGAINST DISALLOWANCE OF INTEREST PAID TO PARTNER IN VIEW OF THE PROVISION OF SECTION 14A R.W.RULE 8D. 5.6 THE AO DISALLOWED INTEREST PAID TO PARTNER BY APPLYING THE PROVISION OF SECTION 14A R.W.RULE 8D. LEARNED CIT(A) HAS ALSO CONFIRMED THE ACTION OF THE AO BY OBSERVING THAT SINCE THE ENTIRE I NCOME OF THE FIRM IS EXEMPT, THEREFORE, THE INTEREST PAYMENT TO THE PARTNER IS ALSO TO BE DISALLOWED AS THE EXPENDITURE OF INTEREST IS PAID ON ACCOUNT OF EARNING OF DIVIDEND INCOME. 5.7 AFTER CONSIDERING RIVAL SUBMISSIONS, WE FOUND THAT THE ASSESSEE DESE RVES TO SUCCEED ON THIS GROUND. IT IS A MATTER OF FACT THAT INTEREST INCOME IS TAXABLE IN THE HANDS OF THE PARTNER. IT IS FURTHER SEEN THAT THERE IS OTHER INCOME ALSO EARNED BY THE FIRM I.E. INCOME FROM HOUSE PROPERTY. SIMILAR ISSUE CAME BEF ORE THE TRIBUNA L IN THE CASE REPORTED IN 137 ITD 89 AND THE TRIBUNAL HAS HELD THAT DISALLOWANCE OF INTEREST PAID TO THE PARTNER WAS NOT JUSTIFIED UNDER SECTION 14A AS INTEREST PAID TO PARTNER IS TAXABLE IN THE HANDS OF THE PARTNER. IN VIEW OF THESE FACTS AND CIRCUMSTANCE S, THIS GROUND OF THE ASSESSEE IS ALLOWED . ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 8 6 . NOW, WE WILL TAKE ITA NO. 62/NAG/2012 FILED BY THE ASSESSEE - M/S ANANT TRADING COMPANY FOR THE ASSESSMENT YEAR 2008 - 09 . 6.1 IN THIS CASE ALSO THE AO HAS DISALLOWED INTEREST UNDER SECTION 14A R.W.RULE 8D AT RS. 13, 30,598/ - . 6.2 SIMILAR DISALLOWANCE WAS MADE IN ITA NO. 63/NAG/2012, WHEREIN WE HAVE RESTORED THE ISSUE TO THE FILE OF THE AO TO PASS A FRESH ORDER AFTER ASCERTAINING THE FACTUAL ASPECT AS TO WHETHER THE INVESTMENT WAS MADE FOR THE PUR CHASE OF SHARE FOR TRA DING PURPOSED OR IT WAS FOR INVESTMENT PURPOSE. IF THE INVESTMENT WAS MADE FOR TRADING PURPOSE, THEN OF COURSE NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A R.W.RULE 8D. ACCORDINGLY, THIS ISSUE IS ALSO SENT BACK TO THE FILE OF THE AO TO PASS A FRESH ORDER AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6.3 THE NEXT ISSUE IS DISALLOWANCE OF INTEREST PAID TO THE PARTNER UNDER SECTION 14A. 6.4 SIMILAR ISSUE WAS INVOLVED IN THE CASE OF M/S BAJAJ TRADING CO. IN ITA NO.63/NAG/2012 , WHERE IN WE HAVE ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. FACTS ARE SIMILAR, THEREFORE, ON THE SAME REASONING, THIS GROUND OF THE ASSESSEE IS ALLOWED. 7. NOW WE WILL TAKE ITA NO. 64/NAG/2012 , FILED BY M/S RISHAB TRADING CO. FOR THE ASSESSMENT YEAR 2008 - 09 . ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 9 7.1 THE FIRST ISSUE RELATES TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS . 8,35, 984/ - UNDER SECTION 14A R.W.RULE 8D. 7.2 SIMILAR ISSUE WAS INVOLVED IN THE CASE OF M/S BAJAJ TRADING CO. IN ITA NO.63/NAG/2012 AND IN THE CASE OF ANANT TRADING CO., IN ITA NO. 6 2/NAG/2012 , WHEREIN WE HAVE RESTORED THIS ISSUE TO THE FILE OF THE AO FOR PASSING A FRESH ORDER AFTER ASCERTAINING THE FACTUAL ASPECT AS TO WHETHER THE INVESTMENT WAS MADE FOR TRADING PURPOSE OR FOR EARNING DIVIDEND. ON THE SAME REASONING, WE RESTORE THIS ISSUE TO THE FILE OF THE AO TO PASS A FRESH ORDER AFTER AFFORDING REASONING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 7.3 SECOND ISSUE IN THE APPEAL OF THE ASSESSEE RELATES TO DISALLOWANCE INTEREST PAID TO PARTNER. 7.4 SIMILAR ISSUE WAS INVOLVED IN THE CASE OF M/S BAJAJ TRADING CO. IN ITA NO.63/NAG/2012, WHEREIN WE HAVE ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. FACTS ARE SIMILAR, THEREFORE, ON THE SAME REASONING, THIS GROUND OF THE ASSESSEE IS ALLOWED. 8 . IN THE RESULT , THE APPEAL S OF THE DEPARTMEN T I.E. ITA NOS. 57, 58 & 59/NAG/2012 ARE ALLOWED FOR STATISTICAL PURPOSES WHEREAS THE APPEALS OF THE ASSESSEE S I.E. ITA NO. 62, 63 & 64 /NAG/2012 ARE ALLOWED PARTLY AND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.57, 58 & 59/NA G/2012 ITA NO.62, 63 & 64/NAG/2012 ITA NO S . 57,58,59,62,63&64 / NAG /20 1 2 10 ORDER PRONOUNCED IN THE E - COURT ON THIS 8 TH DAY OF FEB , 201 3 . - 201 3 SD/ - SD/ - ( ) ( RAJENDRA ) ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 08 / 02 / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI / NAGPUR . 4. / CIT 5. / DR, ITAT, MUMBAI / NAGPUR . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI