MANUBHAI SONS & CO, MUMBAI V. ACIT CEN CIR-25, MUMBAI

ITA 6900/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1319 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 17-06-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 03-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OJHA
• Assessee Lawyers: BURJOR F PAVRI
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F MUMBAI BEFORE SHRI T.R. SOOD (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO.6900/MUM/2008 ASSESSMENT YEAR-2005-06 M/S. MANUBHAI SONS & CO., SIDHWA HOUSE, N.A. SAWANT MARG, COLABA, MUMBAI-400 005 PAN AAAFM 2188B VS. THE ACIT, CEN. CIR-25, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI BURJOR F. PAVRI RESPONDENT BY: SHRI VIRENDRA OJHA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 6.10.2008 PASSED BY THE LD. CIT(A)-CENTRAL V, M UMBAI FOR THE ASSESSMENT YEAR 2005-06. 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM. THE INCOME OF THE ASSESSEE FIRM COMPRISES OF COMPEN SATION RECEIVED FOR OFFICE PREMISES UTILIZED, INTEREST INCOME AND DIVID END. THE ASSESSEE FIRM HAS MADE INVESTMENT OF RS. 23,909,455/- IN THE SHAR ES OF MANUGRAPH INDIA LTD (MIL) UPTO 31 ST MARCH, 2005. DURING THE RELEVANT PREVIOUS YEAR, NO AMOUNT WAS INVESTED IN SHARES OF MIL. MIL IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF PRINTING MACHINES. THE SHARES OF MIL WERE ACQUIRED FOR THE PURPOSE OF HAVING CONTROLLING INTE REST IN THE MANAGEMENT OF MIL. BY VIRTUE OF THE SAID INVESTMEN T, THE ASSESSEE HAS EARNED SUBSTANTIAL INCOME OVER A PERIOD OF YEARS, I N THE FORM OF ITA NO. 6900/M/08 2 COMMISSION ON SALES AND INSTALLATION AND SERVICE CH ARGES. DURING THE RELEVANT PREVIOUS YEAR, THE ASSESSEE PAID INTEREST AMOUNTING TO RS. 5,615,889/- AND RECEIVED INTEREST AMOUNTING TO RS. 2,984,887/-. 3. THE ASSESSING OFFICER ON THE BASIS OF THE ACCOUN TS OF THE FIRM FOR THE YEAR ENDED 31 ST MARCH, 2005 HAS COME TO THE CONCLUSION THAT THE FIRM HAS UTILIZED ITS INTEREST BEARING BORROWED FUN DS FOR INVESTMENT IN SHARES OF MIL. ON THE BASIS HE DETERMINED THAT INT EREST PAID AMOUNTING TO RS. 808,607/- WAS ATTRIBUTABLE TO BORROWED FUNDS USED FOR INVESTMENT IN SHARES OF MIL AND DISALLOWED THE INTEREST AMOUNT U/S. 14A OF THE ACT CONSIDERING THE SAME AS EXPENDITURE INCURRED IN REL ATION TO EXEMPT DIVIDEND INCOME OF RS. 9,444,661/-. 4. THE LD. CIT(A)) CONFIRMED THE ORDER OF THE AO A ND DISMISSED THE ASSESSEES APPEAL. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE U S. WE FIND THAT THIS ISSUE IS COVERED IN ITAT MUMBAI BENCH B IN ITA NO. 785/-M/2008 VIDE ORDER DT. 8 TH SEPTEMBER, 2009 FOR A.Y. 2004-05 IN WHICH IT HAS B EEN HELD AS FOLLOWS: NOW THE ISSUE OF DISALLOWANCE TO BE MADE U/S. 14A HAD BEEN CONSIDERED BY THE HONBLE SPECIAL BENCH OF ITAT, MU MBAI IN THE CASE OF ITO V/S. DAGA CAPITAL MANAGEMENT PVT. LTD., 119 TTJ 289, (MUMBAI) (S.B.) AND THE HONBLE SPECIAL BENCH OF THE TRIBUNAL HAS CONSIDERED THE SCOPE AND APPLICATION O F SEC. 14A.IN THE PRESENT CASE FORMULA USED BY THE A.O FOR MAKIN G THE DISALLOWANCE IS NOT IN ACCORDANCE WITH THE GUIDELIN ES GIVEN BY THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAG EMENT PVT LTD. (SUPRA). WE, THEREFORE, CONSIDER IT FIT TO RES TORE THE ISSUE OF DISALLOWANCE U/S. 14A TO THE FILE OF THE A.O WITH T HE DIRECTION THAT THE A.O SHOULD WORK OUT THE DISALLOWANCE IN TH E LIGHT OF THE GUIDELINES GIVEN BY THE HONBLE SPECIAL BENCH OF TH E TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. (SUPR A). WE MAKE IT CLEAR THAT IN NO CASE, THE DISALLOWANCE SHO ULD NOT BE MORE THAN MADE ORIGINALLY. ITA NO. 6900/M/08 3 BY WAY OF GROUND NO.4, THE ASSESSEE HAS RAISED THE ALTERNATE PLEA THAT THE INVESTMENT MADE IN THE SHAR ES OF THE MIL WAS FOR THE PURPOSE OF ACQUIRING THE CONTROLLIN G STAKE OF THE COMPANY. HENCE, OTHERWISE ALSO, NO DISALLOWANCE C AN BE MADE. THIS GROUND WAS ALSO RAISED BEFORE THE LD CI T(A) BY WAY OF GROUND NO. 6 & 7 BUT, ON THE PERUSAL OF THE ORDE R OF THE LD CIT(A), IT IS SEEN THAT THERE IS NO DISCUSSION AT A LL ON THE SAID GROUNDS. MOREOVER, THE A.O HAS ALSO NOT CONSIDERED THIS ISSUE. WE, THEREFORE, CONSIDER IT FIT TO RESTORE THE ALTER NATE PLEA TAKEN BY THE ASSESSEE BY WAY OF GROUND NO. 4, TO THE FIL E OF THE A.O, AS THIS ASPECT HAS ALSO NOT BEEN CONSIDERED AND EXA MINED WHILE COMPLETING THE ASSESSMENT. AFTER CONSIDERING THE F ACTS AS WELL AS THE RELEVANT LAW, THE A.O SHOULD ALSO DECIDE THE ALTERNATE PLEA OF THE ASSESSEE AS WE HAVE RESTORED THE ORIGIN AL PLEA OF THE ASSESSEE TO THE FILE OF THE A.O, HENCE THE ALTERNAT E PLEA OF THE ASSESSEE IS ALSO RESTORED TO THE FILE OF THE A.O. THE A.O IS DIRECTED TO GIVE REASONABLE OPPORTUNITY OF BEING HE ARD TO THE ASSESSEE AS PER THE PRINCIPLES OF NATURAL JUSTICE. 6. RESPECTFULLY FOLLOWING THE ABOVE DECISION IN ASS ESSEES OWN CASE FOR A.Y. 2004-05, WE RESTORE THIS ISSUE TO THE FILE OF THE AO AND DIRECT THE AO TO GIVE REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE AS PER THE PRINCIPLES OF NATURAL JUSTICE. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (T.R. SOOD) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ ITA NO. 6900/M/08 4 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 6900/M/08 5 DATE INITIALS 1 DRAFT DICTATED ON: 15.6.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 16. 6 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______