DCIT 56(2), MUMBAI V. K.. GIRDHARLAL INTERNATIONAL LTD, MUMBAI

ITA 65/MUM/2013

• Counselvise Citation: 6519914 RSA 2013
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 03-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVRAM
• Keywords: Earning of tax free income; Proportionate interest
• Section: 5(2); 14A

Judgement Text

A IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI .. , . . . . BEFORE SHRI P.M. JAGTAP, AM AND DR. S.T.M. PAVALAN, JM ./ I.T.A. NO.65 /MUM/2013 ( / ASSESSMENT YEAR : 2008-2009 D CIT 5(2) , ROOM NO. 571, 5 TH FLOOR, AAYAKAR BHAVAN, M.K. MARG, MUMBAI 20. / VS. M/S K. GIRDHARLAL INTERNATIONAL LTD., 1003, 10 TH FLOOR, PANCHRATNA, OPERA HOUSE, MUMBAI 400 004. ./ PAN :AACCK6101F ( % / APPELLANT ) .. ( &'% / RESPONDENT ) A PPELLANT BY SMT. NEERAJA PRADHAN R E SPONDENT BY : DR. K. SHIVRAM * / DATE OF HEARING : 19-3-2014 * / DATE OF PRONOUNCEMENT : 21-3-2014 [ / O R D E R PER P.M. JAGTAP, A.M . : .. , THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - 9, MUMBAI DATED 17-10-2012 WHEREBY HE DIRECTED THE A.O. TO RESTRICT THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 BY TAKING ONLY NET INTEREST OF RS. 24,77,09,718/- INSTEAD OF RS. 25,33,71,808/- TAKEN BY THE A.O. FOR THE PURPOSE OF COMPUTING DISALLOWANCE AS PER RULE 8D OF THE INCOME TAX RULES, 1962. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY WH ICH IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF ROUGH CUT AND POLISHED DIAMONDS. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED BY IT ON 29-9- ITA 65/M/13 2 2008 DECLARING TOTAL INCOME OF RS. 20,09,53,178/-. IN THE SAID RETURN OF INCOME, DIVIDEND INCOME OF RS. 2,07,32,616/- RECEIV ED DURING THE YEAR UNDER CONSIDERATION WAS CLAIMED TO BE EXEMPT BY THE ASSES SEE U/S 10(34) OF THE ACT. AS REGARDS THE DISALLOWANCE TO BE MADE U/S 14A OF T HE ACT IN RESPECT OF EXPENSES INCURRED IN RELATION TO EARNING OF THIS EX EMPT INCOME, THE ASSESSEE AGREED DURING THE COURSE OF ASSESSMENT PROCEEDING B EFORE THE A.O. FOR COMPUTING SUCH DISALLOWANCE AS PER RULE 8D(2)(I) ON ACCOUNT OF DIRECT EXPENDITURE INCURRED TOWARDS D-MAT CHARGES AND PMS FEES. THE ASSESSEE ALSO AGREED FOR THE DISALLOWANCE TO BE MADE AS PER RULE 8D(2)(III) TO THE EXTENT OF 0.5% OF AVERAGE VALUE OF INVESTMENTS. THE ASSESSEE , HOWEVER, CLAIMED THAT THE ENTIRE INVESTMENT FETCHING EXEMPT INCOME WAS MA DE OUT OF ITS OWN FUNDS AND THERE BEING NO BORROWED FUNDS UTILIZED FOR MAKI NG SUCH INVESTMENT, THE DISALLOWANCE ON ACCOUNT OF PROPORTIONATE INTEREST A S PER RULE 8D(2)(II) WAS NOT WARRANTED. THIS CLAIM OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE A.O. AND HE MADE A DISALLOWANCE OF RS. 4,22,66,024/ - ON ACCOUNT OF PROPORTIONATE INTEREST AS PER RULE 8D(2)(II). ON A PPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. IN PRINCIPLE IN MAKING THE D ISALLOWANCE ON ACCOUNT OF PROPORTIONATE INTEREST AS PER RULE 8D. HE HOWEVER D IRECTED THE A.O. TO COMPUTE SUCH DISALLOWANCE BY TAKING ONLY NET INTERE ST ON RS. 24,77,09,718/- AS AGAINST INTEREST EXPENSE OF RS. 25,33,71,808/- T AKEN BY THE A.O. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVENUE HAS PRE FERRED THIS APPEAL BEFORE THE TRIBUNAL. 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSER VED THAT THE IMPUGNED ORDER OF THE LD. CIT(A) SUSTAINING THE DISALLOWANCE MADE BY THE A.O. U/S 14A READ WITH RULE 8D WAS ALSO CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ITS ORDER DATED 29-1 1-2013 PASSED IN ITA NO. 300/MUM/2013 HAS REMITTED THIS ISSUE TO THE FILE OF LD. CIT(A) AFTER MAKING THE FOLLOWING OBSERVATIONS IN PARA 3.2 OF ITS ORDER :- ITA 65/M/13 3 3.2 DURING THE COURSE OF HEARING, BEFORE US, THE A UTHORISED REPRESENTATIVE (AR) SUBMITTED THAT IF THE MATTER IS RESTORED TO THE FAA, THE ASSESSEE WILL FURNISH BEFORE FAA THE REQUI SITE DETAILS OF DAY TO DAY AVAILABILITY OF FUND TO ESTABLISH THAT S AID FUND AVAILABLE FOR INVESTMENT IN SHARES/PFM WAS INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE AND INTEREST BEARING, B ORROWED FUND WAS USED FOR BUSINESS PURPOSES. CONSIDERING THE ABO VE SUBMISSION OF THE ASSESSEE WE ACCEPT THE REQUEST OF THE ASSESSEE TO RESTORE THIS ISSUE TO THE FILE OF THE FAA WITH T HE DIRECTION THAT THE ASSESSEE WILL FURNISH REQUISITE DETAILS TO THE FAA OF DAY TO DAY AVAILABILITY OF FUND TO ESTABLISH ONLY INTEREST FRE E FUND AVAILABLE WITH THE ASSESSEE WAS INVESTED IN INVESTMENT IN SHA RES/PFM AND THE BORROWED FUND WAS USED FOR BUSINESS PURPOSES ON LY, TO THE SATISFACTION OF THE FAA. HE SAID THAT IF THE ASSESS EE FAILED TO ESTABLISH THE NEXUS OF INVESTMENT AND AVAILABILITY OF FUND TO THE SATISFACTION OF THE FAA THAT NO INTEREST BEARING FU ND WAS USED FOR INVESTMENT IN SHARES/PFM, THE LEARNED FAA WILL BE A T LIBERTY TO MAKE DISALLOWANCE AS PER RULE 8D AND/OR SUCH DISALL OWANCE, AS HE MAY CONSIDER APPROPRIATE AS PER LAW. HENCE, GROU NDS NO. 1 TO 3 ARE ALLOWED FOR STATISTICAL PURPOSES BY RESTORING THE SAME TO FAA FOR HIS FRESH CONSIDERATION. 5. KEEPING IN VIEW THE ORDER OF THE TRIBUNAL PASSED ON A SIMILAR ISSUE WHILE DISPOSING OF THE APPEAL OF THE ASSESSEE FOR T HE SAME YEAR I.E A.Y. 2008- 09, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED IN THE PRESENT APPEAL OF THE REVENUE SHOUL D ALSO GO BACK TO THE LD. CIT(A) FOR DECIDING THE SAME AFRESH ALONG WITH THE ISSUE INVOLVED IN THE APPEAL OF THE ASSESSEE WHICH HAS ALREADY BEEN REMITTED BY THE TRIBUNAL TO HIM. ACCORDINGLY THE ISSUE INVOLVED IN THIS APPEAL OF TH E REVENUE IS ALSO REMITTED TO THE LD. CIT(A) WITH A DIRECTION TO DECIDE THE SA ME AFRESH ALONG WITH THE ISSUE INVOLVED IN THE ASSESSEES APPEAL WHICH HAS A LREADY BEEN REMITTED TO HIM BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL. ITA 65/M/13 4 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2014. . * 0 1 21-03-2014 * SD/- SD/ - (DR. S.T.M. PAVALAN) (P.M. JAGTAP ) JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 DATED 21-03-2014 [ .../ RK , SR. PS ' #%& '& / COPY OF THE ORDER FORWARDED TO : 1. % / THE APPELLANT 2. &'% / THE RESPONDENT. 3. 4 () / THE CIT(A)39 MUMBAI. 4. 4 / CIT CENT. II MUMBAI 5. 7 &9 , 9 , / DR, ITAT, MUMBAI A BENCH 6. ; / GUARD FILE. / BY ORDER, '7 & //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI