UNITOP CHEMICALS P.LTD, MUMBAI V. ADDL CIT RG 8(3), MUMBAI

ITA 6614/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75179 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 31-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAHUL K HAKANI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL F , BENCH MUMBAI BEFORE SHRI I.P.BANSAL & SHRI D.KARUNAKARA RAO, AM ITA NO. 6614 / MUM/20 1 2 ( ASSESSMENT YEAR : 200 9 - 10 ) UNITOP CHEMICALS PVT. LTD., UNITOP HOUSE, C WING, EAST WEST ESTATE,SAFED POOL, ANDHERI - KURLA ROAD, MUMABI - 400 072 VS. ADCIT RG. 8(3), MUMBAI - 400 020. PAN/GIR NO. : A A AC U 1406 F ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : MR. RAHUL K. HAKANI /REVENUE BY : MR . RAVI PRAKASH DATE OF HEARING : 2 ND JANUARY , 201 4 DATE OF PRONOUNCEMENT : 2 ND JANUARY , 201 4 O R D E R PER I.P.BANSAL ( J .M.) : THIS APPEAL IS FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 21 - 8 - 2012 , PASSED BY THE LEARNED CIT (A) - 18 , MUMBAI FOR THE ASSESSMENT YEAR 200 9 - 10 . 2 . THE ASSESSEE IN ITS APPEAL HAS FILED REVISED GROUNDS WHICH ARE FOLLOWS : - 1. THE LEARNED CIT(A) ERRED IN CONFIRMING ORDER OF ASSESSING OFFICER MAKING DISALLOWANCE U/S. 14A OF RS.17 ,34,205/ - BY APPLYING RULE 8D WITHOUT APPRECIATING THAT ASSESSING OFFIC ER HAD APPLIED RULE 8D IN AN AUTOMATIC FASHION THOUGH RULE 8D WAS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE AS ASSESSEE HAD MADE INVESTMENT OUT OF OWN FUNDS AND NO EXPENSES WERE INCURRED TO EARN EXEMPT INCOME AND HENCE DISALLOWANCE U/S. 14A OF RS.17 ,34,205/ - MAY BE DELETED. ITA NO. 6614 /20 1 2 2 1.1 THE LEARNED CIT(A) ERRED IN CONFIRMING ORDER OF ASSESSING OFFICER MAKING DISALLOWANCE U/S. 14A OF RS. RS.17,34,205/ - BY APPLYING RULE 8D WITHOUT APPRECIATING THAT ASSESSING OFFICER HAD HIMSELF FOR COMPUTING DISALLOWANCE U/S. 14A R.W. RULE 8D HAD TAKEN EXPENDITURE DIRECTLY RELATING TO EXEMPT INCOME AT NIL AND HENCE RULE 8D IS APPLIED AUTOMATICALLY WHICH IS CONTRARY TO THE SCHEME OF S. 14A AND HENCE DISALLOWANCE U/S. 14A OF RS. RS.17,34,205/ - MAY BE DELETED. 1.2 WITHOUT PREJU DICE TO ABOVE, DISALLOWANCE U/S. 14A OF RS. 17,34,205 / - IS ON A HIGHER SIDE AND THE SAME MAY BE REDUCED. 3 . AT THE OUTSET IT WAS SUBMITTED BY THE LEARNED AR THAT THE ISSUE RAISED BY THE ASSESSEE IS COVERED BY THE EARLIER DECISION OF THE TRIBUNAL IN ASS ESSEES OWN CASE. REFERENCE IN THIS REGARD WAS MADE TO THE ORDER DATED 14 - 9 - 2012, PASSED IN ITA NO. 6819/M/2011. COPY OF THIS ORDER IS PLACED IN PAPER BOOK AT PAGES 23 TO 28. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THE AFOREMENTIONED ORDER ARE REPRODUC ED HERE UNDER : - 6. NOW WE TAKE UP APPEAL FOR ASSESSMENT YEAR 2008 - 09 BEING I.T.A. NO.6819/M/2011. 7. GROUNDS OF APPEAL RAISED BY ASSESSEE ARE AS UNDER: 1 THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF RS.18,87,811 U/S.14A R.W. RULE 8D WITHO UT APPRECIATING THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY INCLUDING INTEREST EXPENDITURE OF RS.4,13,530 WAS INCURRED FOR EARNING EXEMPT INCOME AND HENCE, DISALLOWANCE U/S.14A R.W. RULE 8D MAY BE DELETED. 2. THE AO FAILED TO APPRECIATE THAT INTEREST EXP ENDITURE OF RS.4,13,530 HAS NO NEXUS WITH EARNING OF EXEMPT INCOME AS THE INVESTMENTS ON WHICH EXEMPT INCOME IS EARNED IS OUT OF OWN FUNDS AND HENCE DISALLOWANCE U/S.14A R.W RULE 8D MAY BE DELETED. 3. THE LD CIT(A) FAILED TO APPRECIATE THAT DISALLOWANCE U/S.14A R.W RULE 8D IS MORE THAN THE INTEREST EXPENSE AND HENCE, DISALLOWANCE U/S.14A R.W RULE 8D MAY B E DELETED. ITA NO. 6614 /20 1 2 3 4. WITHOUT PREJUDICE TO ABOVE, DISALLOWANCE U/S.14A MAY BE RESTRICTED TO 10% OF THE EXEMPT INCOME. 8. WITH REFERENCE TO THE EXEMPTED I NCOME CLAIMED BY THE ASSESSEE, THE AO INVOKED SECTION 14A OF THE I.T.ACT, 1961 AND COMPUTED THE DISALLOWANCE WITH REFERENCE TO RULE 8D. THE DISALLOWANCE HAS BEEN COMPUTED AT RS.18,87,811 BY THE AO. IT WAS THE CONTENTION OF THE ASSESSEE THAT IT DID NOT INCU R ANY EXPENDITURE REGARDING INTEREST, THEREFORE, INTEREST ELEMENT CANNOT BE TAKEN INTO ACCOUNT WHILE COMPUTING DISALLOWANCE WITH REFERENCE TO RULE 8D. TO SUPPORT SIMILAR CONTENTION, LD A.R PLACED BEFORE US AN ORDER DATED 30.4.2012 OF CO - ORDINATE BENCH IN I .T.A. NO.3185/M/2011 FOR A.Y. 2008 - 09 IN THE CASE OF M/S. AUCHTEL PRODUCTS LTD VS ACIT AND OTHERS, COPY OF THE SAME WAS ALSO GIVEN TO LD D.R. IN THAT CASE, IT WAS THE CONTENTION OF THE ASSESSEE THAT ASSESSEE HAD NOT UTILIZED ANY INTEREST BEARING DEPOSITS A ND THE INVESTMENT MADE BY THE ASSESSEE FROM WHICH EXEMPT INCOME HAS BEEN EARNED AND ON THIS ISSUE, THE TRIBUNAL AFTER ANALYZING ALL THE PROVISIONS HAS COME TO THE CONCLUSION THAT ACCORDING TO THE PROVISIONS OF SECTION 14A(2) & (3) THE AO SHALL DETERMINE TH E AMOUNT DISALLOWANCE AS PER RULE 8D, IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. EVEN IF THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED IN RESPECT OF EXEMPT IN COME, THE AO IS SUPPOSED TO FOLLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM. IN OTHER WORDS, DISALLOWANCE U/S.14A IS CALLED FOR WHEN THE AO IS NOT SATISFIED WITH THE ASSESSEES CLAIM OF HAVING INCURRED NO E XPENDITURE OR SOME AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME. THEREFORE, IT WAS HELD THAT SATISFACTION OF THE AO AS TO THE INCORRECT CLAIM MADE BY THE ASSESSEE IS SINE QUA NON FOR INVOKING THE APPLICABILITY OF RULE 8. SUCH SATISFACTION CAN BE REAC HED AND RECORDED ONLY WHEN THE CLAIM OF THE ASSESSEE IS VERIFIED. IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PARTICULAR EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GETS SATISFIED, THEN THERE IS NO REQUIREMENT TO STILL PROCEE D WITH THE COMPUTATION OF AMOUNT DISALLOWABLE AS PER RULE 8D. IT WAS NOTED FROM THE ASSESSMENT ORDER THAT AO SIMPLY KEPT THE ASSESSEES SUBMISSIONS ON RECORD WITHOUT APPRECIATING AS TO WHETHER THESE WERE CORRECT OR NOT. THE AO PROCEEDED ON THE PREMISE AS I F THE DISALLOWANCE AS PER RULE 8D IS AUTOMATIC IRRESPECTIVE OF THE GENUINENESS OF THE ASSESSEES CLAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL FROM THE SAID ORDER ARE AS UNDER: 13. HAVING H EARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, THERE IS NO DISPUTE ON THE FACT THAT RULE 8D IS APPLICABLE W.E.F. ASSESSMENT YEAR 2008 - 09. PRESENTLY, WE ARE DEALING WITH THE ASSESSMENT YEAR 2008 - 09 AND RESULTANTLY RULE 8D IS TO BE A PPLIED. HOWEVER, IT HAS BEEN CONTENDED BY THE LD. AR THAT SUFFICIENT MATERIAL WAS PLACED BEFORE THE AO IN SUPPORT OF ITS CLAIM OF NOT HAVING INCURRED ANY INTEREST EXPENDITURE IN RESPECT OF THE EXEMPT DIVIDEND INCOME. FROM THE ASSESSMENT ORDER, IT CAN BE SE EN THAT THE AO HAS ITA NO. 6614 /20 1 2 4 CATEGORICALLY RECORDED ASSESSEES SUBMISSION IS KEPT ON RECORD. THERE IS NO DISCUSSION WHATSOEVER ON THE SUBMISSIONS SO MADE ON BEHALF OF THE ASSESSEE IN THIS REGARD. 14. AT THIS JUNCTURE, IT WILL BE RELEVANT TO NOTE THAT SECTION 14 A PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SO THE REFERENCE TO THE AMOUNT DISALLOWABLE IS THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EXEMPT INCOME. IT IS RELEVANT TO NOTE DOWN THE PROVISIONS OF SUB - SECTIONS (2) AND (3) OF SECTION 14A WHICH HAVE BEEN INSERTED W.E.F. ASSESSMENT YEAR 2007 - 08 READING AS UNDER : (2) THE ASSESSING OFFICER SHALL DETERMINE THE AM OUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFI ED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB - SECTION (2) SHALL ALSO APPLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 15. A BARE PERUSAL OF THE ABOVE PROVISIONS INDICATES THAT THE AO SHALL DETERMINETHE AMOUNT DISALLOWABLE AS P ER RULE 8D, IF HE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO EXEMPT INCOME. EVEN IF THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED IN RESPECT OF EXEMPT INCOME, THE AO IS SUPPOSE D TO FOLLOW THE MANDATE OF RULE 8D IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE ASSESSEES CLAIM. TO PUT IT SIMPLY, THE FURTHER DISALLOWANCE U/S.14A IS CALLED FOR WHEN THE AO IS NOT SATISFIED WITH THE ASSESSEES CLAIM OF HAVING INCURRED NO EXPENDITUR E OR SOME AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME. SATISFACTION OF THE AO AS TO THE INCORRECT CLAIM MADE BY THE ASSESSEE IN THIS REGARD IS SINE QUA NON FOR INVOKING THE APPLICABILITY OF RULE 8D. SUCH SATISFACTION CAN BE REACHED AND RECORDED ONLY WHEN THE CLAIM OF THE ASSESSEE IS VERIFIED. IF THE ASSESSEE PROVES BEFORE THE AO THAT IT INCURRED A PARTICULAR EXPENDITURE IN RESPECT OF EARNING THE EXEMPT INCOME AND THE AO GETS SATISFIED, THEN THERE IS NO REQUIREMENT TO STILL PROCEED WITH THE COMPUTATIO N OF AMOUNT DISALLOWABLE AS PER RULE 8D. FROM THE ASSESSMENT ORDER, IT IS OBSERVED THAT THE AO SIMPLY KEPT THE ASSESSEES SUBMISSIONS ON RECORD WITHOUT APPRECIATING AS TO WHETHER THESE WERE CORRECT OR NOT. HE PROCEEDED ON THE PREMISE AS IF THE DISALLOWANCE AS PER RULE 8D IS AUTOMATIC IRRESPECTIVE OF THE GENUINENESS OF THE ITA NO. 6614 /20 1 2 5 ASSESSEES CLAIM IN RESPECT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. IT IS AN INCORRECT COURSE ADOPTED BY THE AO. THE CORRECT SEQUENCE, IN OUR CONSIDERED OPINION, FOR MAKING ANY DISALLOWANCE U/S.14A IS TO, FIRSTLY, EXAMINE THE ASSESSEES CLAIM OF HAVING INCURRED SOME EXPENDITURE OR NO EXPENDITURE IN RELATION TO EXEMPT INCOME. I F THE AO GETS SATISFIED WITH THE SAME, THEN THERE IS NO NEED TO COMPUTE DISALLOWANCE AS PER RULE 8D. IT I S ONLY WHEN THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE OR NO EXPENDITURE HAVING BEEN INCURRED IN RELATION TO EXEMPT INCOME, THAT THE MANDATE OF RULE 8D WILL OPERATE. IN THE INSTANT CASE, THE AUT HORITIES BELOW HAVE DIRECTLY GONE TO THE SECOND STAGE OF COMPUTING DISALLOWANCE U/S.14A AS PER RULE 8D WITHOUT RENDERING ANY OPINION ON THE CORRECTNESS OR OTHERWISE OF THE ASSESSEES CLAIM IN THIS REGARD. WE, THEREFORE, SET ASIDE THE IMPUGNED ORDER ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF AO TO RE - COMPUTE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH OUR ABOVE OBSERVATIONS AFTER DULY EXAMINING THE ASSESSEES CLAIM IN THIS REGARD. 9. IT WAS SUBMITTED BY LD A.R. THAT RIGHT FROM THE BEGINNING IT HAS BE EN THE CONTENTION OF ASSESSEE THAT IT HAD NOT INCURRED INTEREST EXPENDITURE. THEREFORE, ON THE BASIS OF FINDINGS GIVEN IN THE AFOREMENTIONED DECISION BY CO - ORDINATE BENCH, THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO WITH SIMILAR DIRECTIONS. 10. ON THE OTHER HAND, LD D.R. RELIED UPON THE ORDER OF LD CIT(A). 11. WE HAVE HEARD RIVAL CONTENTIONS. RESPECTFULLY FOLLOWING THE AFOREMENTIONEDDECISION OF CO - ORDINATE BENCH IN THE CASE OF M/S. AUCHTEL PRODUCTS (SUPRA), TO EXAMINE THE CONTENTION OF ASSESSEE, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR DIRECTIONS AS HAS BEEN GIVEN IN THE AFOREMENTIONED CASE. WE DIRECT ACCORDINGLY. THIS APPEAL IS ALSO CONSIDERED TO BE ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT BOTH THE APPEALS FILED BY A SSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 4 . ON THE OTHER HAND, LEARNED DR RELIED UPON THE ORDER PASSED BY THE AO AND CIT(A). 5. AFTER HEARING BOTH THE PARTIES, AS THE ISSUE IS COVERED BY THE AFOREMENTIONED ORDER OF THE TRIBUNAL IN ASSESSEES OWN C ASE, WE RESTORE THIS ISSUE TO THE FILE OF AO WITH SIMILAR DIRECTIONS. ITA NO. 6614 /20 1 2 6 6. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS CONSIDERED AS ALLOWED FOR STATISTICAL PURPOSES IN THE MANNER AFORESAID . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 2 ND JANUARY . 201 4 . 2 ND JAN,2014 SD/ - SD/ - ( ) ( D.KARUNAKARA RAO ) ( ) ( I.P.B ANSAL ) / ACCOUNTANT MEMBER / JUDICIALMEMBER MUMBAI ; DATED 02 / 01/2014 /PKM , PS COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//