KIRIT SHANTILAL SHAH, MUMBAI V. DCIT CEN CIR 38, MUMBAI

ITA 6472/MUM/2010

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92947 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-06-2015
• Assessment Year: 2001-2002
• Appeal Filed On: 03-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S PADMAJA
• Assessee Lawyers: MATHURIA
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER . / ITA NO. 6472 TO 6478/MUM/2010 / ASSESSMENT YEARS 2001-02 TO 2007-08 SHRI KIRIT SHANTILAL SHAH, C/O. VIRENDRA & COMPANY, 274, NEW DARUKHANA, MAZGAON, MUMBAI 400 010 / VS. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 38, 3/21. GROUND FLR. AAYKAR BHAVAN, MK ROAD, MUMBAI 400020 ./ ./ PAN/GIR NO. : AAFPS 9370Q ( / APPELLANT ) .. ( / RESPONDENT ) APPELLANT BY SHRI M.S.MATHURIA RESPONDENT BY : MS. S. PADMAJA # $ % / DATE OF HEARING : 17/06/2015 # $ % / DATE OF PRONOUNCEMENT : 17/06/2015 / O R D E R PER I.P.BANSAL, JM: ALL THESE APPEALS ARE FILED BY THE ASSESSEE AND T HEY ARE DIRECTED AGAINST CONSOLIDATED ORDER DATED 06/06/2010 PASSED BY LD. CIT(A)-41, MUMBAI FOR ASSESSMENT YEARS 2001-02 TO 2007-08. GROUNDS OF AP PEAL IN ALL THE APPEALS ARE IDENTICAL AND READ AS UNDER: 1. ON THE FACTS AND IN LAW, IMPUGNED ASSESSMENT OR DER AS PASSED BY THE AO IS BAD IN LAW AB-INITIO AND IS REQUIRED TO BE QU ASHED. 2. ON THE FACTS AND IN LAW, LEARNED CIT(A) HAS ERRE D IN SUSTAINING ADDITIONS MADE BY THE AO U/S.14A WHILE PASSING IMPU GNED ASSESSMENT ORDER. ITA NO. 6472 TO 6478/MUM/2010 A.YS.2001-02 TO 2007-08 2 2. AT THE TIME OF HEARING GROUND NO.1 WAS NOT PRES SED BY LD. AR, THEREFORE, THE SAME IS DISMISSED FOR ALL THE YEARS AS NOT PRESSED. 3. APROPOS GROUND NO.2, IT RELATES TO DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT,1961 (THE A CT). THE AMOUNT OF DISALLOWANCE IN RESPECT OF EACH OF THE YEAR IS AS UNDER: ASSESSMENT YEAR AMOUNT IN RS. 2001-02 1,314 2002 - 03 1,000 2003-04 946 2004-05 27,030 2005-06 1,03,800 200 6 - 07 1,25,504 2007-08 1,73,844 4. AT THE OUTSET, IT WAS SUBMITTED BY LD. AR THAT T HE DISALLOWANCE WAS CALCULATED BY THE AO AS PER RULE 8D AND THE SAME HA S BEEN CONFIRMED BY LD. CIT(A) AS PER PARA 2.3 OF THE ORDER AS PER THE SP ECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF ITO VS. DAGA CAPITAL MANAG EMENT PVT. LTD. 117 ITD 169(MUM). IT WAS SUBMITTED THAT THE SAID DECISION OF SPECIAL BENCH WAS CONSIDERED BY HONBLE BOMBAY HIGH COURT IN THE CAS E OF GODREJ & BOYCE MFG. CO. LTD., VS. DCIT, 328 ITR 81(BOM) AND AFTER CONSI DERING THE SAID DECISION IT WAS OBSERVED THAT PROVISIONS OF RULE 8D SHALL HAVE NO APPLICATION PRIOR TO ASSESSMENT YEAR 2008-09. THUS, IT WAS SUBMITTED TH AT THE DECISION OF LD. CIT(A) IS CONTRARY TO THE AFOREMENTIONED DECISION OF HONBLE BOMBAY HIGH COURT. IT WAS SUBMITTED THAT THEIR LORDSHIPS HAVE OBSERVED THAT FOR THE YEARS PRIOR TO A.Y 2008-09 THOUGH RULE 8D WOULD NOT BE AP PLICABLE BUT AO HAS TO ENFORCE PROVISIONS OF SUB-SECTION(1) OF SECTION 14A . FOR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HA S BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AND AO MUST ADOPT A REASONABLE BASIS OR METHOD CON SISTENT WITH ALL RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONA BLE OPPORTUNITY TO ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. IT W AS SUBMITTED THAT IN VIEW OF THESE OBSERVATIONS OF THEIR LORDSHIPS, THE MATTER M AY BE REMANDED BACK TO THE ITA NO. 6472 TO 6478/MUM/2010 A.YS.2001-02 TO 2007-08 3 FILE OF AO TO RE-ADJUDICATE THE MATTER IN THE LIG HT OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. VS. DCIT(SUPRA). 5. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDER PASSED BY AO AND LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND ALSO THEIR CO NTENTIONS HAVE CAREFULLY BEEN CONSIDERED. THEIR LORDSHIPS OF HONBLE BOMBA Y HIGH COURT HAVE CONSIDERED THE PROVISIONS OF RULE 8D VIS--VIS SECT ION 14A AND THE FINDINGS RECORDED BY THEIR LORDSHIPS READ AS UNDER: 88. OUR CONCLUSIONS IN THIS JUDGMENT ARE AS FOLLOWS : (I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FA LLING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME-TAX ACT, 1961, AS WAS APPLICAB LE FOR THE ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, BY VIRTUE OF THE PROVISIONS OF SECTION 14A(1) ; (II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTIO N 115-O(1) OF ADDITIONAL INCOME-TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARG E ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPANY IS CHARGEABLE TO TAX ON ITS PR OFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHARGE OF ITS OWN LIABILITY AND N OT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDERS. IN THE HANDS OF THE SHAREHOLDER AS TH E RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROVISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS ; (III) THE PROVISIONS OF SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE INCOME-TAX ACT 1961 ARE CONSTITUTIONALLY VALID ; (IV) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES AS INSERTED BY THE INCOME-TAX (FIFTH AMENDMENT) RULES, 2008, ARE NOT ULTRA VIRES THE PRO VISIONS OF SECTION 14A, MORE PARTICULARLY SUB-SECTION (2) AND DO NOT OFFEND ARTI CLE 14 OF THE CONSTITUTION; (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RUL ES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH EFFECT FROM T HE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB- SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICER IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHI NG A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECOR D; ITA NO. 6472 TO 6478/MUM/2010 A.YS.2001-02 TO 2007-08 4 (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002- 03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETER MINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT OR IN DIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFIC ER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO T HE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6.1 THEREFORE, IN VIEW OF ABOVE DECISION OF THEIR L ORDSHIPS, WE HOLD THAT DISALLOWANCE HAS WRONGLY BEEN COMPUTED BY AO IN RES PECT OF ALL THESE YEARS AS PER RULE 8D, WHICH IS NOT APPLICABLE TO THE IMPUGNE D ASSESSMENT YEARS. HOWEVER, THE DISALLOWANCE HAS TO BE COMPUTED ON THE REASONABLE BASIS OR METHOD CONSISTENT WITH ALL RELEVANT FACTS AND CIRCU MSTANCES OF THE CASE. THEREFORE, WE DIRECT THE AO TO GIVE A REASONABLE OP PORTUNITY OF HEARING TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON RECORD. AFTER GIVING SUCH OPPORTUNITY THE AO WILL RE-ADJUDICATE THE ISSUE REGARDING DISA LLOWANCE TO BE MADE UNDER SECTION 14A AS PER AFOREMENTIONED OBSERVATIONS OF THEIR LORDSHIPS. GROUND NO.2 FOR ALL THE YEARS IS CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, ALL TH E APPEALS FILED BY THE ASSESSEE ARE PARTLY ALLOWED IN THE MANNERS AFORESAI D. ORDER PRONOUNCED IN THE OPEN COURT ON 17/06/201 5 # + , - 17/06/2015 # SD/- SD/- ( . . / B.R.BASKARAN ) . . /I.P.BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; , DATED 17/06/2015 ITA NO. 6472 TO 6478/MUM/2010 A.YS.2001-02 TO 2007-08 5 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. /$ ( ) / THE CIT(A)- 4. /$ / CIT 5. 01 $23 , % 23 , / DR, ITAT, MUMBAI 6. 4 / GUARD FILE. / BY ORDER, 0$ $ //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI . . ./ VM , SR. PS