SILVASSA FIBRES P.LTD, MUMBAI V. DCIT CIR 3(3)(2), MUMBAI

ITA 630/MUM/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100761 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 24-01-2014
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: PALLAVI GUDKA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO . 630 / MUM/20 1 4 ( / ASSESSMENT YEAR : 20 10 - 11 ) SILVASSA FIBRES PRIVATE LIMITED, 82, MAKER CHAMBERS III, NARIMAN POINT, MUKBAI - 400021 VS. ITO - 3(3)(2), MUMBAI ./ ./ PAN/GIR NO. : A A BCS 7950 F ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : MS. PALLAVI GUDKA /REVENUE BY : SHRI NEIL PHILIP / DATE OF HEARING : 02 /0 7 / 2015 / DATE OF PRONOUNCEMENT / /2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , MUMBAI , FOR THE ASSESSMENT YEAR 20 10 - 11 , IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE I.T.ACT . 2. IN THIS APPEAL, THE ASSESSEE IS AGGRIEVED FOR DISALLOWANC E OF RS. 9,35,299/ - TOWARDS EARNING OF EXEMPT INCOME U/S.14A R.W.R.8D. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT T HE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.4,24,750/ - AS EXEMPT U/S.10(34). FURTHER THE ASSESSEE HAS SUO MOTO MADE THE DISALLOWANCE U/S. 14A AT RS. 25,000/ - . THE AO ASKED THE ASSESSEE TO GIVE ITA NO. 630 /1 4 2 DETAILS OF EXPENSES INCURRED FOR EARNING EXEMPT INCOME AND REQUESTED TO EXPLAIN AS TO WHY THE EXPENSES INCURRED AND C L AIMED IN RESPECT OF SUCH EXEMPT INCOME SHOULD N OT BE DISALLOWED AS PER THE PROVISIONS OF SECTION 14A R.W.R. 8 D . IN RESPONSE TO IT, THE ASSESSEEE SUBMITTED THA T IT HAS ALREADY DISALLOWED RS. 25,000/ - AS EXPENSES INCURRED IN RELATION TO EARNING EXEMPT INCOME U/S. 14A AND WITHOUT PREJUDICE TO THE SAME IT H AS FURNISHED THE WORKING OF DISALLOWANCE U/S. 14A R.W.R. 8 D AT RS, 72,027/ - . THE AO ON PERUSAL OF IT FOUND THAT THE DISALLOWANCE CONSIDERED U/ S. 14A WHILE COMPUTING THE TOTAL INCOME IS NOT AS PER THE RELEVANT PROVISIONS OF LAW. HE RELIED ON THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF M/ S. GODREJ & BOYCE M/G. CO. LTD. AND CALCULATED THE EXPENSES ATTRIBUTABLE FOR EXEMPT INCOME AS PER RULE 8 D WHICH COMES TO RS.10,21,321/ - . SINCE THE ASSESS E E HAS SUO MOTO DISALLOWED THE STT OF RS.61,022/ - AND U/S. 14A OF RS. 25,000/ - WHILE COMPUTING THE INCOME, HE RESTRICTED THE DISALLOWANCE IN THIS REGARD TO RS.9,35,299/ - [RS 10,21,32 / - (RS 61022+ RS 25000) = RS 9,35,299]. THUS, HE MADE AN ADDITION OF RS. 9,35,299/ - TO THE TOTAL INCOME OF THE ASSESSEE. SINCE TH E ASSESSEE HAS NOT MADE ANY ADJUSTMENT U/S. 14A IN COMPUTING THE BOOK PROFIT, HE ALSO ADDED AN AMOUNT OF RS. 10,21,321/- TO THE BOOK PROFIT OF THE ASSESSEE. 4. BY THE IMPUGNED ORDER, THE CIT(A) CONFIRMED THE DISALLOWANCE U/S.14A R.W.R.8D, AGAINST WHICH ASS ESSEE IS IN FURTHER APPEAL BEFORE US. 5. IT WAS ARGUED BY THE LD. AR THAT SATISFACTION OF THE AO WHILE MAKING DISALLOWANCE U/S.14A R.W.R.8D SHOULD BE HAVING REGARD TO THE ACCOUNTS OF ITA NO. 630 /1 4 3 THE ASSESSEE. SHE FURTHER SUBMITTED THAT SUB - SECTION 14A DOES NOT IFSO FA CTO ENABLE THE AO TO APPLY THE METHOD PRESCRIBED BY THE RULES STRAIGHTWAY WITHOUT CONSIDERING WHETHER THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IS CORRECT. SHE INVITED OUR ATTENTION TO THE TOTAL EXPENDITURE VIS - - VIS EXPENDITURE INCURRE D FOR EARNING THE EXEMPT INCOME AND AFTER HIGHLIGHTING THE SAME AS PER TOTAL INCOME AND EXEMPT INCOME, THE DISALLOWANCE WORKS OUT TO BE RS.72,027/ - . ACCORDINGLY, SHE PRAYED THAT THE AO HAS NOT CORRECTLY COMPUTED DISALLOWANCE UNDER RULE 8D KEEPING IN VIEW T HE ACTUAL EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. 6. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES AND CONTENDED THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. LTD., 328 ITR 81, HAS PRESCRIBED FOR APPLICATION OF RULE 8D W.E.F. A.Y.2008 - 09, SINCE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS 2010 - 11 . HE CONTENDED THAT THE AO WAS JUSTIFIED IN APPLYING RULE 8D FOR COMPUTING DISALLOWANCE. 7. WE HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE TH ROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM THE RECORD WE FOUND THAT DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 4,27,750/ - OUT OF TOTAL INCOME OF RS. 75,71,614/ - EARNED DURING THE YEAR. THE TOTAL EXPENDITURE INCURRED AMOUNTS TO RS.13,44 ,972/ - , AGAINST WHICH DIRECT EXPENDITURE ATTRIBUTABLE TO SUCH EXEMPT INCOME IN THE FORM OF STT PAID WAS RS.61,022/ - WHICH LEAVES THE BALANCE EXPENDITURE OF RS.12,83,950/ - . THERE IS NO DISPUTE TO THE FACT THAT W.E.F. A.Y.2008 - 09, COMPUTATION OF ITA NO. 630 /1 4 4 DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME IS TO BE MADE AS PER RULE 8D, HOWEVER, AT THE SAME TIME, THE HONBLE HIGH COURT HELD THAT IT IS NOT ARBITRARY OR UNREASONABLE AND ALSO NOT RETROSPECTIVE. IT HAS BEEN FURTHER HELD THAT U/S. 14A RES ORT CAN BE MADE TO RULE 8D OF THE IT RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THE SATISFACTION OF THE AO IS TO BE ARRIVED AT ON AN OBJECTIVE BASIS IN REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS AC COUNTS AND RECORDING OF REASONS BY THE AO IN THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. IN THE INSTANT CASE BEFORE US, THE AO HAS NOT RECORDED ANY OF SUCH SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. ACCORDINGLY, WE SET ASIDE THE MATTER BACK TO THE FILE OF AO FOR DECIDING AFRESH THE DISALLOWANCE TO BE MADE UNDER RULE 8D, KEEPING IN VIEW THE PROPOSITION OF LAW LAID DOWN BY THE COORDINATE BENCH IN THE CASE OF M/S JAI CORP. LTD., ITA NO.601 1/MUM/2012, ORDER DATED 26 - 11 - 2014 AND M/S JUBLIANT ENTERPRISES PVT. LTD., ITA NO.6364/MUM/2012, ORDER DATED 12 - 3 - 2014. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART FOR STATISTICAL PURPOSES. ITA NO. 630 /1 4 5 O RDER PRONOUNCED IN THE OPEN COURT ON THIS 19/08 / 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 19/08 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//