JAGRUTI RESINS P.LTD, MUMBAI V. ITO 8(2)(1), MUMBAI

ITA 7078/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78628 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-04-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: J
• Next Hearing Date: 03-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH J , MUMBAI BEFORE SHRI D. KARUNAKARA RAO , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 7078/M/2012 ASSESSMENT YEAR: 2009 - 10 M/S. JAGRUTI RESINS PVT. LTD. BHANSALI HOUSE, 1 ST FLOOR, PLOT NO.5A, OFF V.D. ROAD, ANDHERI (W), MUMBAI - 053 PAN: AAACJ1726D VS. ITO 8(2)(1) MUMBAI - 400020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI DARSHAK SHAH, A.R. REVENUE BY : SHRI MAURYA PR ATAP, D.R. DATE OF HEARING : 03.04 .201 4 DATE OF PRONOUNCEMENT : 03 .04.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAFTER RE FERRED TO AS CIT(A)] DATED 08.08.12. 2 . THE SOLE GROUND RAISED IN THE APPEAL IS WITH REGARD TO THE CONFIRMATION OF DISALLOWANCE O F RS. 14,40,379/ - U/S 14A OF THE INCOME TAX ACT. 3 . THE A SSESSING O FFICER (HEREINAFTER REFERRED TO AS THE AO) DURING THE ASS ESSMENT PROCEEDINGS OBSERVED THAT T HE ASSESSEE COMPANY HAD RECEIVED RS.8,28,000/ - BY WAY OF DIVIDEND AND CLAIMED THE SAME AS EXEMPT INCOME. HE ASKED THE ASSESSEE TO SUBMIT WORKING OF DISALLOWANCE U/S.14A R.W.R.8D. IN RESPONSE, THE AR OF THE ASSESSEE SUBMIT TED THE WORKING OF DISALLOWANCE ITA NO. 7078/M/2012 M/S. JAGRUTI RESINS PVT. LTD. 2 U/S.14A R.W.R.8D WHICH WAS WORKED OUT AT RS.14,40,379/ - . THE AO MADE THE DISALLOWANCE U/S.14A OF THE I.T. ACT ACCORDINGLY. 4 . IN APPEAL BEFORE THE CIT(A), THE LD. A . R . OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS HOLDI NG THE INVESTMENT IN SHARES SINCE 2003. D URIN G THE YEAR UNDER CONSIDERATION, NO TRADING OR INVESTMENT IN SHARES HAD BEEN DONE. N O EXPENDITURE WAS ATTRIBUTABLE TO THE EARNING OF THE DIVIDEND INCOME. THE AO HAD NOT GIVEN ANY FINDING FOR REJECTING THE A SSESSE ES CLAIM THAT NO DISALLOWANCE WAS REQUIRED U/S. 1 4A. 5 . THE LD. CIT(A) ASKED THE A SSESSEE TO IDENTIFY THE EXPENSES INCURRED DIRECTLY IN CONNECTION WITH ITS BUSINESS ACTIVITIES OF PLASTIC GRANULES. T HE A SSESSEE SUBMITTED THAT OUT OF TOTAL EXPENSES OF RS . 86. 45 LACS, A SUM OF RS. 81.81 LACS HAD BEEN INCURRED DIRECTLY WITH REGARD TO THE PLASTIC BUSINESS. A SUM OF RS. 4,57,073/ - , CONSISTING OF SALARY AND WAGES, AUDITOR'S REMUNERATION, MISCELLANEOUS EXPENSES, COMPUTER EXPENSES, OFFICE EXPENSES AND DIWALI EXPENS ES HAD BEEN CLASSIFIED AS COMMON EXPENSES. HOWEVER THE LD. CIT(A) OBSERVED THAT ON PERUSAL OF THE P&L A/ C IT WAS REVEALED THAT OTHER THAN SALES, THE A SSESSEE HAD RECEIVED INCOME FROM INTEREST AND DIVIDEND. UNDER SUCH CIRCUMSTANCES, A PART OF THE COMMON EXPENSES WAS ALLOCABLE TOWARDS THE EARNING OF DIVIDEND INCOME. HE THEREFORE HELD THAT THE PROVISIONS OF SECTION 14A HAD RIGHTLY BEEN INVOKED BY THE AO. AGGRIEVED AGAINST THE ORDER OF THE CIT(A), THE ASSESSEE HAS COME IN APPEAL BEFORE US. 6 . WE HAVE CONSID ERED THE SUBMISSIONS OF THE LD. REPRESENTATIVES OF THE PARTIES. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81 , THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D R.W.S. 14A(2) IS NOT ARBITRARY OR UNREASONABLE BU T CAN BE ITA NO. 7078/M/2012 M/S. JAGRUTI RESINS PVT. LTD. 3 APPLIED ONLY IF THE ASSESSEE'S METHOD IS NOT SATISFACTORY. IT HAS BEEN FURTHER HELD THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008 - 09. I T MAY BE FURTHER OBSERVED THAT UNDER SECTION 14A OF THE INCOME TAX ACT, RESORT CAN BE MADE TO RUL E 8D OF THE INCOME TAX RULES FOR DETERMINING THE AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME, IF, THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. HOWEVER, A PERUSAL OF THE ASSESSMENT OR DER REVEALS THAT THE AO WITHOUT RECORDING ANY DISSATISFACTION WITH REGARD TO THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME, STRAIGHTWAY APPLIED RULE 8D AGAINST THE MANDATE OF THE PROVISIONS OF SECT ION 14A OF THE INCOME TAX ACT. THE LD. CIT(A) THOUGH CALLED FOR THE WORKING FOR THE CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT FROM THE ASSESSEE, BUT IGNORED THE SAME WHILE CONFIRMING THE DISALLOWANCE. 7 . SO KEEPING IN VIEW OF THE OVERALL FACTS AND CI RCUMSTANCES OF THE CASE, WE RESTORE THIS ISSUE BACK TO THE FILE OF THE AO WITH A DIRECTION THAT THE AO WILL EXAMINE THE COMPUTATION/CALCULATION MADE IN THIS REGARD BY THE ASSESSEE. THE AO WILL BE AT LIBERTY TO CALL FOR ANY RECORD/EVIDENCES OR STATEMENT ETC . FROM THE ASSESSEE AS MAY BE REQUIRED BY HIM FOR DECIDING THE ISSUE UNDER CONSIDERATION. AFTER GOING THROUGH THE DETAILS PROVIDED BY THE ASSESSEE, IF THE AO WILL BE SATISFIED WITH THE OBJECTION/CALCULATION MADE BY THE ASSESSEE THEN HE WILL ASSESS THE INCO ME ACCORDINGLY. HOWEVER, IF THE AO DOES NOT AGREE WITH THE C OMPUTATION MADE BY THE ASSESSEE AND IN THAT EVENT , HE WILL HAVE TO RECORD HIS DISSATISFACTION WITH REASONING FOR THE SAME BY WAY OF A SPEAKING ORDER, THEN HE WILL BE AT LIBERTY TO RESORT TO THE PR OVISIONS OF RULE 8D. NEEDLESS TO SAY, THE ASSESSEE WILL CO - OPERATE AND PROMPTLY SUPPLY THE NECESSARY DETAILS ETC. TO THE AO FOR DECIDING THE ISSUE UNDER CONSIDERATION. ITA NO. 7078/M/2012 M/S. JAGRUTI RESINS PVT. LTD. 4 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. OR DER PRONOUNCED IN THE OPEN COURT ON 0 3 .04. 201 4 . SD/ - SD/ - ( D. KARUNAKARA RAO ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED : 0 3 .04. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMBAI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.