LINTAS INDIA PVT. LTD., MUMBAI V. D.C.I.T. - 3(2), MUMBAI

ITA 7268/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8549 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PRAKASH K JOTWANI
• Keywords: Earning of tax free income; Reason to believe
• Section: 14A; 147; 148

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A MUMBAI . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND , SHRI RAJENDRA, ACCOUNTANT MEMBER I.TA. NO. 7268/MUM/2011 ASSESSMENT YEAR 2006-07 M/S. LINTAS INDIA PVT. LTD., EXPRESS TOWERS, NARIMAN POINT, MUMBAI 400 021. PAN: AAACL 0124 F VS. DCIT 3(2), MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI PRAKASH K. JOTWANI ! # ' /RESPONDENT BY : SHRI MANOJ KUMAR $ # %& / DATE OF HEARING : 10-10-2012 '() # %& / DATE OF PRONOUNCEMENT : 10-10-2012 * / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT . 21-09-2011 PASSED BY THE CIT(A)-4, MUMBAI. FOLLOWING GROUNDS OF APPEAL HAVE BEEN RAISED BY THE ASSESSEE: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW: 1.THE LEARNED CIT(A) ERRED IN CONFIRMING THE REOPEN ING OF THE ASSESSMENT U/S.147/148, ON THE GROUND THAT THE APPELLANT DID N OT DISALLOW ANY EXPENSES IN RESPECT OF THE TAX FREE INCOME EARNED AS PER SECTIO N 14A(2) R.W. RULE 8D OF THE I.TAX ACT, 1961. 2.(A) THE LEARNED CIT(A) ERRED IN CONFIRMING THE AD HOC DISALLOWANCE MADE BY THE AO U/S. 14A OF RS. 31,35,222/- BEING ESTIMATED EXPENSE S WHICH HAVE BEEN INCURRED ON EARNING TAX FREE INCOME. (B) THE LEARNED CIT(A) ERRED IN CONSIDERING THAT NO EXPENSE CAN BE DISALLOWED, IF THE NEXUS CANNOT BE ESTABLISHED FOR INCURRING EXPENDITU RE FOR EARNING TAX FREE INCOME AND SECTION 14A CANNOT BE MERELY APPLIED ON PRESUMP TION. I.TA. NO. 7268/MUM/2011 M/S. LINTAS INDIA PVT. LTD., 2 (C) WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) ERRED IN COMPUTING THE DISALLOWANCE U/S. 14A, IN ACCORDANCE TO THE RULE 8D WHICH CAME INTO EFFECT ONLY ON 24-03-2008 AND THEREFORE APPLICABLE ONLY FROM A.Y. 2008-09 (AS IS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE - 328 ITR 81 (BORN). THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 2. FACTS OF THE CASE: ASSESSEE-COMPANY, FILED ITS E-RETURN OF IN COME ON 14-11-2006 DECLARING A TOTAL INCOME OF RS 41,85,46,158/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR THE ASSESSMENT YEAR (AY) 2007-08, ASSESSING OFFICER (AO ) GATHERED THAT THE ASSESSEE HAD SUBSTANTIAL EXEMPT INCOME AND THE IT HAD NOT MA DE ANY DISALLOWANCE U/S. 14A OF THE INCOME-TAX ACT, 1961(ACT) FOR THE PERIOD UNDER CONSIDERATION. CONSEQUENTLY A NOTICE U/S 148 OF THE ACT WAS ISSUED AND SERVED UPO N THE ASSESSEE-COMPANY ON 26-11- 2009. THE ASSESSEE WAS GIVEN A COPY OF THE REASONS RECORDED ON 8-12-2009. ASSESSEE VIDE ITS LETTER DTD.17-12-2009, SUBMITTING A COPY OF THE E-RETURN FILED BY IT, STATED THAT SAME SHOULD BE TREATED AS THE RETURN FILED IN RESP ONSE TO THE NOTICE ISSUED U/S.148. AFTER CONSIDERING THE OBJECTIONS RAISED BY THE ASSE SSEE FOR REOPENING THE ASSESSMENT AO FINALISED THE ASSESSMENT U/S.143(3) OF THE ACT D ETERMINING THE TOTAL INCOME AT RS. 42.16 CRORES. HE MADE A DISALLOWANCE U/S.14A OF TH E ACT AMOUNTING TO RS. 31.35 LAKHS. 3. ASSESSEE-COMPANY PREFERRED AN APPEAL BEFORE THE FIR ST APPELLATE AUTHORITY (FAA). ONE OF THE GROUNDS RAISED BY IT WAS RE-OPENING OF T HE ASSESSMENT U/S. 147 OF THE ACT. AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISS IONS OF THE ASSESSEE, HE HELD THAT THERE WAS NO ASSESSMENT IN THIS CASE PRIOR TO THE I SSUE OF NOTICE U/S. 148, THAT EVEN THE RETURNS WERE NOT PROCESSED U/S. 143(1) OF THE ACT, THAT ASSESSEE HAD EARNED HUGE DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION BUT HAD MADE NO DIS-ALLOWANCE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT, TH AT PRIMA-FACIE THERE WAS REASON TO BELIEVE THAT DIS-ALLOWABLE AMOUNT U/S. 14A OF THE A CT HAD ESCAPED ASSESSMENT. HE UPHELD THE ACTION OF THE AO AND DISMISSED THE GROUN D FILED BY THE ASSESSEE-COMPANY. WITH REGARD TO DIS-ALLOWANCE MADE U/S. 14A R.W.R. 8 D, HE HELD THAT RULE 8D WAS APPLICABLE FROM AY 2008-09, THAT FOR EARLIER YEARS A REASONABLE DISALLOWANCE HAD TO BE MADE ON ACCOUNT OF EXEMPT INCOME, THAT IT COULD NOT BE DENIED THAT CERTAIN ADMINISTRATIVE EFFORTS WERE REQUIRED TO BE INCURRED REGARDING THE EXEMPT INCOME, THAT CERTAIN PART OF ADMINISTRATIVE EXPENDITURE REQUIRED TO BE MADE TO THE EXEMPT INCOME AND SAME SHOULD BE REASONABLE. HE UPHELD THE ACTIO N OF THE AO FOR INVOKING PROVISIONS OF SECTION 14A OF THE ACT. 4. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTED THAT RULE 8-D WAS NOT APPLICABLE FOR THE AY 2008-09 AS PER THE JUDGMENT D ELIVERED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD., (328 ITR 81), THAT AO/FAA WAS NOT JUSTIFIED IN MAKING ADDITION/UP HOLDING THE ADDITION AS PER THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES 1962, THAT RE-OPENING OF THE CASE WAS NOT AS PER THE PROVISIONS OF THE ACT. DEPARTMENTAL REPRESENTATIVE (DR) RELIED UPON THE ORDERS OF THE AO AND THE FAA. HOWEVER, HE FAIR LY ADMITTED THAT DIS-ALLOWANCE AS PER THE PROVISIONS OF RULE 8D COULD NOT HAVE BEEN M ADE FOR THE AY 2006-07. I.TA. NO. 7268/MUM/2011 M/S. LINTAS INDIA PVT. LTD., 3 4.1 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED BEFORE US. WE ARE AGREEABLE TO THE SUBMISSIONS MADE BY THE AR, THAT IN LIGHT OF THE DECISION OF GODREJ & BOYCE (SUPRA), RULE 8D IS NOT APPLICABLE F OR THE AY 2006-07. FAA HAS ALSO MENTIONED THIS FACT IN HIS ORDER. THE HONBLE JURI SDICTIONAL HIGH COURT HAS ALSO HELD THAT FOR THE EARLIER YEARS, REASONABLE DISALLOWANCE COULD BE MADE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. WE ARE OF THE OPINI ON THAT IN THE INTEREST OF JUSTICE, IT WOULD BE PROPER IF THE MATTER IS RESTORED BACK TO T HE FILE OF THE AO. HE IS DIRECTED TO DECIDE THE ISSUE AFRESH WITHOUT INVOKING PROVISION OF RULE 8D FOR MAKING DISALLOWANCE IF ANY, FOR EARNING THE EXEMPT INCOME. HE IS FURTHER DIRECTED TO PASS A SPEAKING ORDER AFTER AFFORDING AN OPPORTUNITY OF RE ASONABLE HEARING TO THE ASSESSEE- COMPANY. 4.2 NOW, WE WOULD LIKE TO DISCUSS THE ISSUE OF RE-OPENI NG OF THE ASSESSMENT INITIATED AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. F ROM THE FACTS EMERGING FROM THE MATERIAL AVAILABLE, IT IS CLEAR THAT THE ASSESSEE F OR THE AY UNDER CONSIDERATION. IT WAS NOT PROCESSED U/S. 143(1)/143(3) OF THE ACT. AO CA ME TO KNOW ABOUT THE HUGE EXEMPT INCOME EARNED BY THE ASSESSEE-COMPANY FOR TH E AY 2006-07 WHILE HE WAS FINALIZING THE ASSESSMENT FOR THE AY 2007-08. HE F OUND THAT ASSESSEE HAD MADE NO DIS-ALLOWANCE U/S. 14A OF THE ACT. IN THESE CIRCUM STANCES; AFTER RECORDING THE REASONS, FOR RE-OPENING ASSESSMENT AS PER THE PROVI SIONS OF 147/148 OF THE ACT; HE STARTED RE-ASSESSMENT PROCEEDINGS. IN OUR OPINION, FOR ASSESSING THE ESCAPED INCOME U/S. 147 OF THE ACT, PRIMA-FACIE BELIEF OF ESCAPEME NT OF INCOME IS REQUIRED. AO IS NOT REQUIRED TO ESTABLISH THE EXACT AMOUNT OF ESCAPEMEN T AT THAT POINT OF TIME. CONSIDERING THE PECULIAR FACTS OF CASE AND THE CIRC UMSTANCES, WE ARE SATISFIED THAT THERE WERE REASONS TO BELIEVE THAT INCOME OF THE AS SESSEE HAS ESCAPED IN THE AY UNDER CONSIDERATION AS THE ASSESSEE-COMPANY HAD NOT MADE ANY DISALLOWANCE. IN OUR OPINION, FAA HAD RIGHTLY REJECTED THE GROUNDS OF AP PEAL TAKEN BY THE ASSESSEE IN THIS REGARD. APPEAL FILED BY THE ASSESSEE-COMPANY IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2012. SD/- SD/- ( . . / I.P. BANSAL ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI, +$ DATE: 10 TH OCTOBER, 2012 TNMM I.TA. NO. 7268/MUM/2011 M/S. LINTAS INDIA PVT. LTD., 4 * * * * # ## # %, %, %, %, -,)% -,)% -,)% -,)% / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI 6. GUARD FILE !,% % //TRUE COPY// *$ *$ *$ *$ / BY ORDER, . .. . / / / / / DY./ASSTT. REGISTRAR , / ITAT, MUMBAI