SHANKAR PACKAGINGS LTD, MUMBAI V. ADDL CIT RG 5(3), MUMBAI

ITA 6577/MUM/2010

• Counselvise Citation: 657719914 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 09-09-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B JAYA KUMAR
• Assessee Lawyers: APOORVA R SHAH VIVEK AGARWAL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP (A.M) & SHRI N.V.VASUDEVAN( J.M) ITA NO. 6577/M/10(A.Y. 2007-08) M/S. SHANKAR PACKAGING LIMITED, 303, TURF ESTATE, OFF DR. E. MOSSES ROAD, SHAKTI MILL LANE, MAHALAXMI (WEST), MUMBAI - 11 PAN:AAACS 8076P (APPELLANT) VS. THE ADDL. CIT, RANGE 593), AAYKAR BHAVAN, MK ROAD, MUMBAI - 400 020. (RESPONDENT) APPELLANT BY : S/SHRI APOORVA R.SHAH / VIVEK AGARWAL RESPONDENT BY : SHRI B.JAYA KUMAR DATE OF HEARING : 16/04/2012 DATE OF PRONOUNCEMENT : 20/04/2012 ORDER PER N.V.VASUDEVAN, J.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 1/7/2010 OF CIT(A)-9, MUMBAI RELATING TO THE ASSESSMENT YEAR 20 07-08. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS: THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-9, MU MBAI HAS ERRED IN:- 1.1 IN HOLDING THAT RULE 8D WAS TO BE APPLIED IN THE AP PELLANTS CASE ALTHOUGH THE SAID RULE WOULD BE APPLICABLE ONLY FRO M A.Y 2008- 09. 1.2 IN NOT APPRECIATING THAT THE APPELLANT HAD ALREADY PLEADED THAT PORTION OF THE ADMINISTRATIVE EXPENSES SHOULD BE AL LOCATED TO THE EARNING OF THE DIVIDEND INCOME. HE ERRED IN NOT HO LDING THAT THE SAME WAS A REASONABLE ESTIMATION OF THE EXPENSES IN CURRED TO EARN DIVIDEND INCOME. ITA NO. 6577/M/10(A.Y. 2007-08) 2 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF MANUFACTURE OF FLEXIBLE INTERMEDIATE BULK CONTAINERS. THE ASSESSE E EARNED INCOME WHICH DID NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. THE PROVISIONS OF SEC.14-A OF THE INCOME TAX ACT, 1961(THE ACT) WERE THEREFORE APPLICABLE AND ANY EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THE ACT, HAS TO BE DISALLOWED. THE AS SESSEE COMPUTED THE AMOUNT THAT HAS TO BE DISALLOWED U/S.14-A OF THE AC T, AS FOLLOWS: WORKING OF DISALLOWANCE U/S. 14A AMOUNT(RS.) TOTAL ADMIN COST 3,96,56,766 LESS: DONATION AND LOSS ON 4O5674, SALE OF ASSETS TOTAL ADMIN COST 3,89,82,361 TAX FREE INCOME 25,82,095 TOTAL INCOME 76,54,57,958 % ON TOTAL INCOME 0.34% DISALLOWABLE UNDER SECTION 14A 1,31,498 ========== 3. THE A.O INVOKED RULE 8D OF THE IT RULES AND DI SALLOWED A SUM OF RS.2,73,090/-. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED THE ORDER OF THE AO. IN DOING SO THE REVENUE AUTHORITIES RELIED ON THE DECI SION OF SPECIAL BENCH OF ITAT, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD,, 26 SOT 603 (MUM) WHEREIN IT WAS HELD THAT RULE 8D IS APPLICABL E RETROSPECTIVELY FROM 1/4/1962. AGGRIEVED BY THE ORDER OF THE CIT(A) T HE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. ITA NO. 6577/M/10(A.Y. 2007-08) 3 5. THE HONBLE BOMBAY HIGH COURT IN INCOME TAX APPE AL NO.626 OF 2010 IN THE CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS. DY. COMMISSIONER OF INCOME TAX,RANGE 10(2), MUMBAI & AN R. AND W.P. 758/10 GODREJ & BOYCE MFG.CO.LTD. MUMBAI. VS.DY. COMMISSIO NER OF INCOME TAX RANGE 10(2), MUMBAI & ORS. BY JUDGMENT DATED 12-8-2 010 HAS DEALT WITH THE DISALLOWANCE THAT CAN BE MADE U/S.14-A OF THE A CT. THE HONBLE COURT ALSO DEALT WITH THE DECISION OF THE SPECIAL BENCH O F THE ITAT IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT.LTD. 117 ITD 169 (MUM) (SB) AND HAS LAID DOWN THE FOLLOWING PROPOSITION: I) DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS FAL LING WITHIN THE AMBIT OF SECTION 10(33) OF THE INCOME TAX ACT 1961, AS WAS A PPLICABLE FOR ASSESSMENT YEAR 2002-03 IS NOT INCLUDIBLE IN COMPUTING THE TOT AL INCOME OF THE ASSESSEE. CONSEQUENTLY, NO DEDUCTION SHALL BE ALLOWED IN RESP ECT 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 O F THE PROVISIONS OF SECTION 14A(1); II) THE PAYMENT BY A DOMESTIC COMPANY UNDER SECTION 115O(1) OF ADDITIONAL INCOME TAX ON PROFITS DECLARED, DISTRIBUTED OR PAID IS A CHARGE ON A COMPONENT OF THE PROFITS OF THE COMPANY. THE COMPAN Y IS CHARGEABLE TO TAX ON ITS PROFITS AS A DISTINCT TAXABLE ENTITY AND IT PAYS TAX IN DISCHA RGE OF ITS OWN LIABILITY AND NOT ON BEHALF OF OR AS AN AGENT FOR ITS SHAREHOLDER S. IN THE HANDS OF THE SHAREHOLDER AS THE RECIPIENT OF DIVIDEND, INCOME BY WAY OF DIVIDEND DOES NOT FORM PART OF THE TOTAL INCOME BY VIRTUE OF THE PROV ISIONS OF SECTION 10(33). INCOME FROM MUTUAL FUNDS STANDS ON THE SAME BASIS; III)THE PROVISIONS OF SUB SECTIONS (2) AND (3) OF S ECTION 14A OF THE INCOME TAX ACT 1961 ARE CONSTITUTIONALLY VALID; IV)THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S AS INSERTED BY THE INCOME TAX (FIFTH AMENDMENT) RULES 2008 ARE NOT ULT RA VIRES THE PROVISIONS OF SECTION 14A, MORE PARTICULARLY SUB SECTION (2) A ND DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION; V) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULE S WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09; ITA NO. 6577/M/10(A.Y. 2007-08) 4 VI)EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN 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 OFFICE R IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N 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 CON SISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON TH E RECORD; VII)THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 SHA LL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHA LL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT O R INDIRECT) IN RELATION TO DIVIDEND INCOME / INCOME FROM MUTUAL FUNDS WHICH DO ES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPO RTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEV ANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. IN VIEW OF THE AFORESAID DECISION OF THE HONBL E BOMBAY HIGH COURT THE ISSUE WITH REGARD TO DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE IN ACCORDANCE WITH THE PRINCIPLE LAID DOWN BY THE HON BLE BOMBAY HIGH COURT. RULE 8D SHOULD NOT BE APPLIED AS THE SAID RULE WAS APPLICABLE ONLY FROM AY 08-09. THE AO HAS TO ADOPT A REASONABLE BASIS OR M ETHOD CONSISTENT WITH ALL RELEVANT FACTS AND CIRCUMSTANCES AND AFTER AFFO RDING REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON THE RECORD. WE, THEREFORE, REMIT THE ISSUE TO THE A.O FOR FRESH CON SIDERATION AS STATED ABOVE. ITA NO. 6577/M/10(A.Y. 2007-08) 5 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE 20 TH DAY OF APRIL 2012 SD/- SD/- (P.M.JAGTAP ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 20 TH APRIL 2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM.