SHRIYAM BROKING INTERMEDIARY LTD, MUMBAI V. ADDL CIT 4(2), MUMBAI

ITA 7013/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75544 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 04-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 08-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK SURI
• Assessee Lawyers: DR PRAYAG JHA
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ./I.T.A. NO.7013/M/2010 ( AY: 2007 - 2008 ) M/S. SHRIYAM BROKING INTERMEDIARY LTD., 712 - 715, TULSIANI CHAMBERS, 212, NARIMAN POINT, MUMBAI 400 021. / VS. ADDL. CIT - 4(2), AAYAKAR BHAVAN, MUMBAI 400 020. ./ PAN : AAACS 8108 ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : DR. PRAYAG JHA / REVENUE BY : SHRI ASHOK SURI, DR / DATE OF HEARING :04.2.2014 / DATE OF PRONOUNCEMENT :12 .2.2014 / O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 8.10.2010 IS AGAINST THE ORDER OF THE CIT (A) - 8, MUMBAI DATED 25.8.2010 FOR THE ASSESSMENT YEAR 2007 - 2008. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GROUNDS WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN NOT ALLOWING DEPRECIATION AMOUNTING TO RS. 32,90,625/ - ON BSE MEMBERSHIP CARD, FOLLOWING THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF CIT VS. TECHNO SHARES & STOCKS R EPORTED IN 225 CTR 337. THIS DECISION OF BOMBAY HIGH COURT HAS SINCE BEEN REVERSED BY HONBLE SUPREME COURT IN CIVIL APPEAL NO.7780 - 7781 OF 2010 (ARISING OUT OF SLP (C) NOS. 4053 4054 OF 2010) DATED 9.9.2010 AND HELD THAT THE MEMBERSHIP CARD IS A BUSINE SS OR COMMERCIAL RIGHT WHICH CONTAINS A LICENSE OR A FRANCHISE IN TERMS OF SECTION 32(1)(II) ON WHICH DEPRECIATION AS PER IT PROVISIONS IS AN ALLOWABLE DEDUCTION. IT IS, THEREFORE, PRAYED THAT THE APPELLANT MAY BE ALLOWED DEPRECIATION ON MEMBERSHIP CARD A S HELD BY THE SUPREME COURT IN THE SAID JUDGMENT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE FOLLOWING FORMULA. = TOTAL EXPENDITURE (DIRECT & INDIRECT) X VALUE OF TRANSACTION YIELDING EXEMPT INCOME VALUE OF TOTAL TRANSACTIONS 2 IT IS THE PRAYER OF THE APPELLANT THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING DIVIDEND INCOME AND ACCORDINGLY IT IS PRAYED THAT NO DISALLOWANCE U/S 14A I S CALLED FOR IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE. 3. WITHOUT PREJUDICE TO GROUND NO.2, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A) ERRED IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT AS PER THE FOLLOWING FORMULA. = TOTAL EXPENDITURE (DIRECT & INDIRECT) X VALUE OF TRANSACTION YIELDING EXEMPT INCOME VALUE OF TOTAL TRANSACTIONS THE APPELLANT SUBMITS THAT THE SAID FORMULA ADOPTED BY THE HONBLE CIT (A) TO COMPUTE DISALLOWANCE U/S 14A IS TO TALLY IRRATIONAL AND AGAINST THE PRINCIPAL LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. COMPANY LTD VS. DCIT IN INCOME TAX APPEAL NO.626 OF 2010. 3. AT THE OUTSET, DR. PRAYAG JHA, LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT INTERESTED TO PRESS THE GROUND NO.1 OF THE APPEAL. AFTER HEARING THE LD DR IN THIS REGARD, THE SAID GROUND NO.1 IS DISMISSED AS NOT PRESSED. 4. REFERRING TO GROUND N O.2 & 3 , LD COUNSEL MENTIONED THAT THE ONLY ISSUE EMANATING FROM THE SAID GROUNDS IS THE DISALLOWANCE OF RS. 1,83,385/ - , WHICH INCLUDES DIVIDEND INCOME OF RS. 89,225/ - AND CAPITAL GAINS OF RS.4,328/ - , MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ON APPEAL, CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE AND ISSUED CERTAIN DIRECTION TO THE AO IN THIS REGARD. AGGRIEVED WITH THE DECISION OF THE CIT (A), ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL BY RAISING THE ABOVE MENTIONED GROUND NOS. 2 AND 3. 5. DURING THE PROCEEDINGS BEFORE US, A T THE OUTSET, LD C OUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 AND MENTIONED THAT IN VIEW OF THE ABOVE MENTIONED JUDGMENT OF THE HIGH COURT, THE ITAT HAS TAKEN THE VIEW THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO 2% OF THE DIVIDEND INCOME. LD COUNSEL ALSO RELIED ON VARIOUS DECISIONS OF THE ITAT, KOLKATA BENCHES IN SUPPORT OF HIS CONTENTION. 6 . ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7 . WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID P ROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.2007 - 08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. 3 DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE B OMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX 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 IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY 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 I N THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPENDITURE ONLY TO THE EXTENT OF 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 A SSESSMENT 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 .1. CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HONBLE HIGH COURT . ACCORDINGLY, GRO UND NO.2 AND 3 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRON OUNCED IN THE OPEN C OURT ON 1 2 T H FEBRUARY, 2014. S D / - S D / - (AMIT SHUKLA) (D. KARUNAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; 12 .2 .2014 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 4 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI