DCIT 5(3), MUMBAI V. SUASHISH DIAMONDS LTD, MUMBAI

ITA 6884/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92377 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-04-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 27-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N V NADKARNI
• Assessee Lawyers: AJAY R SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI . . , , , BEFORE SHRI B.R. B ASKARAN ,AM AND SHRI AMIT SHUKLA, J M ./ ITA NO. 6884/MUM/2013 ( / ASSESSMENT YEAR: 2005 - 06 ) DCIT - 5(3) ROOM NO.573, AAYAKAR BHAVAN M.K. ROAD, MUMB A I - 20 . / VS. M/S. SUASHISH DIAMONDS LTD. 11 TH FLOOR, MEHTA MAHAL 15, MATHEW ROAD OPERA HOUSE, MUMBAI - 400 004. ./ ./ PAN/GIR NO. AAACS 8246 H ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : S MT. N.V. NADKARNI - DR / RESPONDENT BY : SHRI AJAY R. SINGH - AR / DATE OF HEARING : 23/04/2015 / DATE OF PRONOUNCEMENT : 23/04/2015 / O R D E R PER AMIT SHUKLA , JM: THE AFORE SAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER DATED 17.9.201 3 PASSED BY THE CIT(A) - 9, MUMBAI FOR THE QUANTUM OF A SSESSMENT PASSED U/S.143(3) R.W.S. 254 FOR THE ASSESSMENT YEAR 2005 - 06 ON FOLLOWING GROUNDS : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE L D . CIT(A) HA S ERRED IN HOLDING DISALLOWANCE U/S. 14A SHOULD BE RESTRICTED TO 10% OF THE DIVIDEND INCOME ? 2. WHETHER ON THE FACTS, AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD.CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT THE AO HAD MADE THE 2 ITA NO.6884/M/13 AY :05 - 06 DISALLOWANCE ON REASONABLE BASIS/METHOD FOLLOWING THE DECISION OF HON'BLE BOMBAY HIGH COURT I N THE CASE OR GODREJ & BOYCE MFG. CO. LTD. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXPORTING OF CUT AND POLISHED DIAMONDS. DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, DISALLOWANCE U/S.14A WAS M ADE FOR RS.53,23,082/ - . THE SAID ISSUE OF DISALLOWANCE HAD REACHED UPTO THE STAGE OF TRIBUNAL , WHERE IN THE TRIBUNAL SET ASIDE THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO DETERMINE THE QUANTUM OF DISALLOWANCE U/S. 14A BY ADOPTING SOME REASONABLE METHOD , BECAUSE RULE 8D WAS NOT APPLICABLE IN THE IMPUGNED ASSESSMENT YEAR . IN PURSUANCE OF ITAT ORDER, THE ASSESSEE BEFORE THE ASSESSING OFFICER SUBMITTED THAT THE FOLLOWING DIRECT AND INDIRECT EXPENSES OF RS.2.74 LACS , WHICH CAN BE DISALLOWED FOR THE PU RPOSE OF EARNING EXEMPT INCOME : - SR.NO. NATURE OF EXPENSES AMOUNT (RS.) A. DIRECT EXPENSES (100%) 1. DEMAT CHARGES 7,638 B INDIRECT EXPENSES (PROPORTIONATE) 2. SALARY 1,48,171 3. GENERAL EXPENSES 1,18,732 TOTAL 2,74,541 2.2 THE ASSESSING OFFICER HOWEVER HELD THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS.1,17,11,323/ - WHICH HAS BEEN CLAIMED AS EXEMPT , AND HAS ALSO DEBITED INTEREST EXPENDITURE OF RS.3,03,71,074/ - IN THE P&L ACCOUNT. IT HAS NOT ATTRIBUTED ANY EXPENDITURE TOWARDS EARNING OF SUCH EXEMPT INCOME. FURTHER, THE ASSESSEE FAILED TO PROVE ANY NEXUS BETWEEN DEPLOYMENT OF ITS OWN FUNDS AND ITS UTILISATION FOR ITS INVESTMENT, THE INCOME FROM WHICH IS CLAIMED TO BE EXEMPT. ACCORDINGLY, HE WORKED OUT THE DISALLOWANCE U/S. 14A AT RS.24,34,620/ - AS PE R WORKING GIVEN AT PAGE - 5 OF THE ASSESSMENT ORDER. 3. BEFORE CIT(A), THE ASSESSEE SUBMITTED THAT IT HAS HUGE SURPLUS FUNDS FOR MAKING THE INVESTMENT WHICH IS EVIDENT FROM THE FACT THAT SHARE CAPITAL AND RESERVES AND SURPLUS WERE APPROXIMATELY RS. 470 CRO RE S, 3 ITA NO.6884/M/13 AY :05 - 06 WHEREAS INVESTMENT IN SHARES AND MUTUAL FUND IS ONLY RS.73.77 CRORES. IT WAS FURTHER BROUGHT TO THE NOTICE OF THE LD. CIT (APPEALS) , THAT IN THE IMMEDIATELY SUCCEEDING YEAR I.E. 2006 - 07 THE TRIBUNAL VIDE ORDER DATED 15.3.2013 IN THE CASE OF THE ASSESSEE HAS UPHELD THE DISALLOWANCE TO THE EXTENT OF 10% OF THE DIVIDEND INCOME WHICH CAN BE SAID TO BE REASONABLE EXPENDITURE FOR THE PURPOSE OF DISALLOWANCE IN THE CASE OF THE ASSESSEE. THE LD. CIT(A), ACCEPTED THE ASSESSEES CONTENTION AND HELD THAT, SINCE MATE RIAL FACTS OF ASSESSMENT YEAR 2005 - 06 ARE ALMOST IDENTICAL TO THAT OF ASSESSMENT YEAR 2006 - 07, THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL THE DISALLOWANCE U/S. 14A SHOULD BE RESTRICTED TO 10% OF THE DIVIDEND INCOME. 4. AFTER CONSIDER ING THE RIVAL SUBMISSIONS AND ALSO ON PERUSAL OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE , IT IS SEEN THAT ON SIMILAR FACTS THE TRIBUNAL HAS HELD THAT 10% OF THE DIVIDEND INCOME SHOULD BE DISALLOWED U/S. 14A WHICH CAN BE SAID TO BE REASONABLE ALLOC ATION OF EXPENDITURE FOR THE PURPOSE OF EARNING EXEMPT INCOME. THUS, LOOKING INTO THE FACT THAT THE ASSESSEE HAS HUGE SURPLUS FUNDS IN COMPARISON TO THE INVESTMENT MADE IN SHARES AND MUTUAL FUNDS, THE DISALLOWANCE OF 10% OF THE DIVIDEND INCOME CAN BE SAID TO BE REASONABLE EXPENDITURE BOTH FOR DIRECT AND INDIRECT . ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 10% OF THE DIVIDEND INCOME U/S. 14A. THUS, GROUND S RAISED BY THE REVENUE ARE DISMISSED. 5. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON APRIL 23 RD , 201 5. SD/ - SD/ - ( B.R. BASKARAN ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED : 23 .0 4 .201 5 . . . JV , SR. PS 4 ITA NO.6884/M/13 AY :05 - 06 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / TH E CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI