GRABAL ALOK IMPEX LTD, MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 6619/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84217 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Assessee
• Bench Allotted: G
• Next Hearing Date: 23-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 13-09-2010
• Court: TRIBUNAL
• Department Lawyers: SACHCHIDANAND DUBE
• Assessee Lawyers: RAJAN VORA MR NIKHIL TIWARI
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . , . , BEFORE SHRI D. MANMOHAN , VICE PRESIDENT AND SHRI D. KARUNAKARA RAO, AM ./I.T.A. NO. 6619/M/2010 (AY:2007 - 2008) M/S. GRABAL ALOK IMPEX LIMITED, PENINSULA TOWERS, PENINSULA CORPORATE PARK, G.K. MARG, LOWER PAREL, MUMBAI 400 013. VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 6(3), MUMBAI 400 020. ./ PAN : AAACG2733R ( / APPELLANT) .. ( / RESPONDENT ) / APPELLANT BY : SHRI RAJAN VORA, MR. NIKHIL TIWARI / RESPONDENT BY : SHRI SACHCHIDANAND DUBE, DR / DATE OF HEARING : 23.09.2014 / DATE OF PR ONOUNCEMENT : 14 .11.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 13.9.2010 IS AGAINST THE ORDER OF THE CIT (A) - 12, MUMBAI DATED 11.6.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. A SSES SEE RAISED TWO ISSUES IN THIS APPEAL, NAMELY (I) THE DISALLOWANCE OF EXPENSES U/S 14 A AMOUNTING TO RS. 35 ,66,548/ - ( GROUND NOS. 1 TO 6 ) AND (II) CONSIDERING THE SAID AMOUNT FOR THE PURPOSE OF COMPUTING THE BOOK PROFITS U/S 115JB OF THE ACT. 2. BRIEFLY STATED RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF EMBROIDERY PRODUCTS. ASSESSEE FILED THE RETURN OF INCOME DECLARI NG THE TOTAL INCOME OF RS. 6,04,60,627/ - UNDER THE NORMAL PROVISIONS OF THE IT ACT AND RS. 11,17,07,617/ - UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT. IN THE YEAR UNDER CONSIDERATION , ASSESSEE EARNED DIVIDEND INCOME 2 OF RS. 62,49,277/ - AND CLAIMED THE SAME AS EXEMPT U/S 10(34) OF THE ACT. IT IS THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF THE SAID DIVIDEND INCOME. DURING THE ASSESSMENT PROCEEDINGS, AO ASK ED THE ASSESSEE TO DEMONSTRATE THE CLAIM THAT NO EXPENDITURE WAS INCURRED. CONSIDERING THE ASSESSEES FAILURE IN THIS REGARD, AO INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT MENTIONING THAT THE SAID PROVISIONS APPLY RETROSPECTIVELY T O THE AY 2007 - 2008 UNDER CONSIDERATION. AO QUANTIFIED RS. 30,07,145/ - TO BE DISALLOWED UNDER SUB - RULE (II ) OF THE RULE 8D (2) . FURTHER, AO DISALLOWED RS. 5,59,403/ - BEING 0.5% OF THE AVERAGE INVESTMENT UNDER SUB - RULE (III) OF RULE 8D(2) . THE SAID AMOUNT WAS ALSO CONSIDERED WHILE COMPUTATION OF BOOKS PROFITS U/S 115JB OF THE ACT . 3. DURING THE PROCEEDINGS BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE MADE VARIOUS WRITTEN SUBMISSIONS STATING THAT RULE 8D IS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. FURTHER, ASSESSEE TOOK A STAND THAT THE IMPUGNED INVESTMENTS ARE MADE OUT OF OWN FUNDS AND THEREFORE, NO AMOUNT OF INTEREST IS DISALLOWED. ASSESSEE IS ALSO POINTED OUT CERTAIN MISTAKES IN THE AOS COMPUTATION OF DISALLOWANCE U/S 14A OF THE ACT. CIT (A) CONSIDERED THE SAID SUBMISSIONS OF THE ASSESSEE AND RELIED HEAVILY ON THE SPECIAL BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT (117 ITD 169). REGARDING THE ASSESSEES SUBMISSIONS ON THE INVESTMENT IN SHARES OUT OF ASSESSEES OWN FUNDS, THE CIT (A) IS OF THE VIEW THAT, CONSIDERING THE MANDATORY APPLICATION OF THE RULE 8D OF IT RULES, 1962, THE SA ID ARGUMENTS OF THE ASSESSEE HAVE TO BE REJECTED. THUS, THE CIT (A) UPHELD THE DISALLOWANCE MADE BY THE AO WITH A DIRECTION TO ADOPT THE CORRECT FIGURES. REGARDING THE ADDITION OF THE SAME TO THE BOOK PROFITS MADE U/S 115JB OF THE ACT, CIT (A) DISMISSED THE ASSESSEES SUBMISSIONS AND UPHELD THE ADDITION MADE BY THE AO U/S 115JB OF THE ACT. AGGRIEVED WITH THE SAME, ASSESSEE FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 4. AT THE OUTSET, SHRI RAJAN VORA AND NIKHIL TIWARI, LD COUNSELS FOR THE ASSESSEE MENTIONED THAT MOST OF THE INVESTMENTS WERE MADE IN ALOK INDUSTRIES , SISTER CONCERN FOR THE PURPOSE OF CONTROL AND MANAGEMENT OF THE COMPANY AND NOT FOR THE PURPOSE OF EARNING OF THE DIVIDEND INCOME. IN THIS REGARD, THEY RELIED ON VARIOUS JU DGMENTS, COPIES OF WHICH ARE PLACED IN THE PAPER BOOK FILED BEFORE US. THEY ALSO SUBMITTED THAT NO EXPENDITURE IS INCURRED FOR EARNING OF THE SAID DIVIDEND INCOME. 3 WITHOUT PREJUDICE, LD COUNSELS FOR THE ASSESSEE MENTIONED THAT THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD (328 ITR 81) HAS CLEARLY RULED THAT THE PROVISIONS OF RULE 8D APPLY FROM THE AY 2008 - 2009 AND NOT TO THE AY UNDER CONSIDERATION. 5. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 6. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A SETTLED PROPOSITION IN LAW THAT THE RELEVANT ASSESSMENT YEAR 2007 - 08 IS OUTSIDE THE SCOPE OF PROVISIONS OF NEWLY INSERTED RULE 8D AS THEY APPLY PROSPECTIVELY FROM THE AY 2008 - 2009 ONWARDS . IT IS SO HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TA X APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE FOR THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMB AY HIGH COURT (SUPRA) READS AS UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT O F 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOWANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' 7 . CONSIDERING THE BINDING NATURE OF THE JUDGMENT IN THE CASE OF GODREJ AGROVE (SUPRA) AND ALSO THE OVERALL FACTUAL MATRIX OF THE PRESENT CASE, WE RESTRICT THE DISALLOWANCE TO 5% OF THE TOTAL EXEMPT INCOME. ACCORDINGLY, GROUND NOS. 1 TO 6 RAISED BY THE ASSES SEE ARE PARTLY ALLOWED. 8. T HE SECOND ISSUE RELATES TO THE EFFECT OF DISALLOWANCE OF RS. 35,66,548/ - U/S 14A OF THE ACT ON THE COMPUTATION OF THE BOOK PROFITS U/S 115JB OF THE ACT. IN THIS REGARD, AT THE OUTSET, LD COUNSEL S FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ORDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. M/S. ZENSAR TECHNOLOGIES LTD VIDE ITA NO.4538/M/2005, DATED 15.12.2010 WHEREIN THE TRIBUNAL 4 ADJUDICATED THE SIMILAR ISSUE VIDE PARA 2.4.1 OF ITS ORDER (SUPRA ) AND HELD THAT THE SAID DISALLOWANCES NEED TO BE ADDED TO THE BOOK PROFITS U/S 115JB OF THE ACT. IT IS AGAINST THE ASSESSEE . 9. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE SAID ORDER OF THE TRIBUNAL IN THE CASE OF M/S. ZENSAR TECHNOLOGIES LTD (SUPRA), DATED 15.12.2010, WE FIND PARA 2.4.1 IS RELEVANT IN THIS REGARD AND THE SAME IS EXTRACTED AS UNDER: 2.4.1. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ADDITION OF THE EXPENDI TURE RELATABLE TO THE EXEMPT DIVIDEND INCOME UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). THE AO HAD ATTRIBUTED A SUM OF RS. 13,35,850/ - RELATING TO THE DIVIDEND INCOME AND THEREFORE, WHILE COMPUTING THE BOOK PROFIT HE ADDED THE SAME UNDER CLAUS E (F). WE HAVE ALREADY CONSIDERED THE ISSUE OF ATTRIBUTION OF EXPENSES RELATING TO DIVIDEND INCOME WHILE DEALING WITH THE EARLIER GROUND AND ARE HELD THAT ONLY A SUM OF RS. 25,000/ - WILL BE CONSIDERED AGAINST DIVIDEND INCOME. WE THEREFORE, MODIFY THE ORD ER OF THE CIT (A) AND HOLD THAT A SUM OF RS. 25,000/ - SHALL BE UNDER CLAUSE (F) WHILE COMPUTING THE BOOK PROFIT. 10. FROM THE ABOVE, WE FIND THE TRIBUNAL HAS DECIDED THAT THE INCOME ATTRIBUTED TO THE EARNING OF THE DIVIDEND INCOME HAS TO BE ADDED T O B O O K P R O F I T S UNDER CL AUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT. CONSIDERING THE SAME AS WELL AS FOLLOWING THE PRINCIPLE OF CONSISTENCY, THIS ISSUE SHOULD BE DECIDED AGAINST THE ASSESSEE. AO IS DIRECTED TO CONSIDER THE DECISION GIVEN IN PARA 7 OF THIS ORDER, WH ILE COMPUTING THE BOOK PROFITS. ACCORDINGLY, THE GROUND NO.7 RAISED BY THE ASSESSEE IS PARTLY ALLOWED . 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCE D IN THE OPEN COURT ON 1 4 T H NOVEMBER, 2014. S D / - S D / - (D. MANMOHAN ) (D. KARUNAKARA RAO ) / VICE PRESIDENT / ACCOUNTANT MEMBER MUMBAI ; 14/11/2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 5 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI