ORIENTAL AROMATICS LIMITED MUMBAI , MUMBAI V. DCIT-CC-1(2)(2), MUMBAI , MUMBAI

ITA 6332/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3630 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2015-2016
• Appeal Filed On: 04-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BRAJENDRA KUMAR
• Assessee Lawyers: SURESH DHOOT
• Keywords: Rule 8D
• Section: 271(1)(c); 142(1); 234B; 14A; 143(1); 250; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 6332/MUM/2019 (A.Y: 2015-16) ORIENTAL AROMATICS LTD., 2 ND FLOOR, JAHANGIR BLDG 133, MG ROAD, FORT MUMBAI 400001 VS. DCIT, CC - 1(2)(2) AAYAKAR BHAVAN, MK ROAD, CHURCHGATE, MUMBAI. PAN/GIR NO. : AAACO4618F APPELLANT .. RESPONDENT APPELLANT BY : SHRI SURESH DHOOT, AR RESPONDENT BY : SHRI BRAJENDRA KUMAR, DR DATE OF HEARING 29 .0 4 .2021 DATE OF PRONOUNCEMENT 11 .0 5 .2021 / O R D E R PER PAVAN KUMAR GADALE, JM: THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -2 MUMB AI, PASSED U/S.143(3) AND 250 OF THE INCOME TAX ACT, 19 61. THE ASSESSEE HAS RAISED THE GROUNDS OF APPEAL: DISALLOWANCE U/S. 14A R.W. RULE 8D OF RS. 23,55,195 /- 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -2 , MUMBAI ['CIT(A)'] ERRED IN FACT AND IN LAW IN CONFIRMING T HE ACTION OF THE LEARNED DEPUTY COMMISSIONER OF INCOME TAX- CIRC LE 1(2)(2), MUMBAI ('THE AO') IN COMPUTING THE DISALLOWANCE U/S . 14A OF THE INCOME TAX ACT, 1961 ('THE ACT') READ WITH RULE 8D OF THE ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 2 - INCOME TAX RULES, 1962 ('THE RULES') AND THEREBY MA KING DISALLOWANCE AMOUNTING TO RS. 23,55,195/-. 2. THE LEARNED CJT(A) ERRED IN FACT AND IN LAW CONFIRM ING THE ACTION OF LEARNED AO IN INVOKING PROVISIONS OF SECT ION 14A OF THE ACT READ WITH RULE 8D DESPITE THE FACT THAT THE APPELLANT WAS HAVING SURPLUS INTEREST FREE FUNDS TO MAKE INVE STMENT. 3. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW CONFIRM ING THE ACTION OF LEARNED AO IN INVOKING PROVISIONS OF SECT ION 14A OF THE ACT READ WITH RULE 8D, WITHOUT RECORDING ANY SATISF ACTION AS TO THE CORRECTNESS OF THE CLAIM OF THE APPELLANT HAVIN G REGARD TO THE ACCOUNTS OF THE APPELLANT. 4. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW CONFIRM ING THE ACTION OF THE LEARNED AO IN MAKING DISALLOWANCE U/S 14A OF THE ACT ON THE BASIS OF ASSUMPTIONS AND PRESUMPTION S. 5. WITHOUT PREJUDICE TO ABOVE, THE LEARNED CIT(A) ERRE D IN FACT AND IN LAW IN CONFIRMING THE ACTION OF THE ID. AO IN CO NSIDERING ALL INVESTMENTS I.E. INCLUDING INVESTMENT YIELDING TAXA BLE INCOME, FOR THE COMPUTATION OF DISALLOWANCE U/S 14A R.W.R. 8D AND THEREBY MAKING AN ERRONEOUS COMPUTATION OF THE DISA LLOWANCE AMOUNTING TO RS. 23,55,195. 6. THE LEARNED CIT(A) ERRED IN FACT AND IN LAW CONFIRM ING THE ACTION OF LD. AO IN LEVYING INTEREST U/S. 234B OF THE ACT. 7. THE LEARNED AO ERRED IN FACT AND IN LAW IN INITIATI NG PENALTY PROCEEDING U/S 271(1)(C) OF THE INCOME TAX ACT, 196 1. 8. YOUR APPELLANT CRAVES THE RIGHT TO ADD TO OR ALTER, AMEND, SUBSTITUTE, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 3 - 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE MANUFACTURING AND SALE OF PERFUMERY COMPOUND, FRAGRANCE AND FLAVORS. THE ASSE SSEE FILED THE RETURN OF INCOME ON 28.11.2015 FOR THE A .Y 2015-16 WITH A TOTAL INCOME OF RS.8,79,82,770/- AND THE RETURN OF INCOME WAS PROCESSED U/S 143(1) OF THE AC T. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AN D NOTICE U/S 143(2) AND 142(1) OF THE ACT ARE ISSUED. IN COMPLIANCE, THE LD. AR OF THE ASSESSEE APPEARED FRO M TIME TO TIME AND FURNISHED THE DETAILS AND THE CASE WAS DISCUSSED. THE A.O ON PERUSAL OF THE AUDITED FINANC IAL STATEMENTS FOUND THAT THE ASSESSEE HAS EARNED DIVID END INCOME DURING THE YEAR AND HAS CLAIMED EXEMPTED. TH E ASSESSEE WAS CALLED TO SUBMIT THE DETAILS IN RESPEC T OF THE EXPENSES RELATED TO THE DIVIDEND INCOME. WHEREAS, T HE ASSESSEE HAS FILED A LETTER ON 14.11.2017 EXPLAININ G THAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENDITU RE ON EARNING EXEMPTED DIVIDEND INCOME AND THE INVESTMENTS ARE MADE IN SUBSIDIARY COMPANY NOT WIT H AN INTENTION TO EARN DIVIDEND INCOME. WHEREAS, THE A.O FIND THAT THE EXPLANATIONS FILED BY THE ASSESSEE ARE NOT SATISFACTORY AND DEALT ON THE PROVISIONS OF SEC. 1 4A R.W.R 8D AND OBSERVED THAT THE ASSESSEE HAS RECEIVED SUBSTANTIAL DIVIDEND INCOME BUT HAS NOT DISALLOWED ANY EXPENSES U/S 14A R.W.R 8D WHICH IS MANDATORY. ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 4 - THEREFORE, CONSIDERING THE PROVISIONS OF SEC.14A AN D RULE 8D AND THE JUDICIAL DECISIONS, THE A.O. HAS CALCULA TED THE DISALLOWANCE U/S 14A R.W. 8D(2)(III) OF IT RULES AN D MADE DISALLOWANCE OF RS.23,55,195/- AND ASSESSED THE TOT AL INCOME OF RS.9,03,37,965/- AND PASSED ORDER U/S 143 (3) DATED 28.12.2017. 3. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE HAS FILED AN APPEAL WITH THE CIT(A),WHEREAS THE APPELLA TE AUTHORITY CONSIDERED THE GROUNDS OF APPEAL, PROVISI ONS OF LAW AND ADDITIONAL GROUNDS OF APPEAL RAISED.WHEREA S THE CONTENTIONS OF THE ASSESSEE THAT IT HAS SUBSTANTIAL SURPLUS OWN FUNDS AND THEREFORE NO DISALLOWANCE UNDER SECTION 14A R.W.R 8D(2)(III) IS APPLICABLE. BUT, TH E CIT(A) HAS DISMISSED THE GROUND OF APPEAL ON DISALLOWANCE U/S 14A AND HAS GRANTED RELIEF IN OTHER GROUNDS OF APP EAL AND PARTLY ALLOWED THE ASSESSEE APPEAL. AGGRIEVED B Y THE ORDER OF THE CIT(A),THE ASSESSEE HAS FILED AN APPEA L BEFORE THE HONBLE TRIBUNAL. 4.AT THE TIME OF HEARING, THE LD. AR OF THE ASSESSE E SUBMITTED THAT THE ASSESSEE HAS SUBSTANTIAL OWN FUN DS AND OUT OF THE SAID FUNDS, THE INVESTMENTS ARE MADE IN SUBSIDIARY OF THE ASSESSEE COMPANY AND THE DIVIDEN D INCOME EARNED WAS CLAIMED EXEMPTED. FURTHER THE BORROWED FUNDS ARE NOT UTILIZED FOR THE PURPOSE OF ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 5 - INVESTMENTS. SINCE THE OWN/SURPLUS FUNDS ARE MORE T HAN THE INVESTMENTS IN SUBSIDIARY COMPANY, THEREFORE TH E DISALLOWANCE U/S 14A R.W.RULE 8D2(III) IS NOT WARRA NTED AND PRAYED FOR ALLOWING THE ASSESSEE APPEAL. 5. CONTRA, THE LD.DR SUPPORTED THE ORDER OF THE CIT (A) AND SUBMITTED THAT THE ASSESSEE COMPANY COULD NOT SUBSTANTIATE THAT IT HAS SURPLUS FUNDS AND ALSO THE INVESTMENTS ARE MADE OUT OF ITS OWN FUNDS. 6.WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE SOLE CRUX OF THE DISPUTED ISSUE BEING DISALLOWANCE U/S 14A R.W.R 8D2 (III) AS THE ASSESSEE COMPANY HAS RECEIVED SUBSTANTIAL DIVIDEND INCOME BUT NO DISALLOWANCE OF EXPENSES INC URRED FOR EARNING THE EXEMPTED INCOME. THE LD.AR SUBMITTE D THAT THE INVESTMENTS MADE IN SUBSIDIARY COMPANY ARE OUT OF SURPLUS/OWN FUNDS AND HENCE DISALLOWANCE IS NOT REQUIRED. THE LD.AR HAS BEEN EMPHASIZING ON THE AVAILABILITY OF THE OWN FUNDS BUT ON PERUSAL OF TH E ASSESSMENT ORDER, WE COULD NOT FIND ANY OBSERVATION S OF THE A.O. THAT THE ASSESSEE COMPANY HAS FILED DETAIL S IN RESPECT OF THE OWN FUNDS EXCEPT MENTIONING THAT THE INVESTMENTS MADE IN SUBSIDIARY COMPANY ARE MADE NOT WITH AN INTENTION TO EARN DIVIDEND INCOME BUT BUSIN ESS STRATEGY. THE LD.DR HAS RIGHTLY POINTED OUT THAT TH ERE ARE ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 6 - NO SPECIFIC OBSERVATIONS OF THE A.O ON THE DISPUTED ISSUE. WE CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES AND THE INFORMATION DEALT ARE OF THE OPINION THAT THE A.O. HAS TO VERIFY AND EXAMINE WHETHER ASSESSEE COMPANY HAS SURPLUS FUNDS AND THE INVESTMENTS ARE MADE OUT OF T HE OWN FUNDS. ACCORDINGLY, WE PROVIDE ONE MORE OPPORTU NITY TO THE ASSESSEE TO SUBSTANTIATE ITS CASE BEFORE THE ASSESSING AUTHORITY AND RESTORE THE DISPUTED ISSUE FOR LIMITED PURPOSE TO THE FILE OF THE ASSESSING OFFICE R TO EXAMINE THE FACTS. THE ASSESSEE SHOULD BE PROVIDED ADEQUATE OPPORTUNITY OF HEARING AND SHALL COOPERATE IN SUBMITTING THE DETAILS AND WE ALLOW THE GROUNDS OF APPEAL OF THE ASSESSEE FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 11.05.2021 SD/- SD/- (SHAMIM YAHYA) (PAVAN KUMAR GAD ALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 11.05.2021 KRK, PS ITA NO. 6332/MUM/2019 ORIENTAL AROMATICS LTD., MUMBAI - 7 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. ( ) / CONCERNED CIT 5. !!' , $ % , / DR, ITAT, MUMBAI 6. () * + / GUARD FILE. / BY ORDER, ! //TRUE COPY// 1. ( ASST. REGISTRAR) ITAT, MUMBA I