WELSPUN WINTEX LIMITED, MUMBAI V. I.T.O. WD.-7(3)(4), MUMBAI

ITA 7294/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9233 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 11-12-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 01-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Assessee Lawyers: MITESH SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI RAJENDRA SINGH , ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER ITA NO. 7294/MUM/2011 (ASSESSMENT YEAR: 2008-09) M/S. WELSPUN WINTEX LIMITED, TRADE WORLD, B WING, 9 TH FLOOR, KAMALA MILLS COMPOUND, SENAPATI BAPAT MARG, LOWER PAREL, MUMBAI-400 013 PAN: AAACW 0488 M VS INCOME-TAX OFFICER, WARD- 7(3)(4), MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MITESH SHAH RESPONDENT BY : SHRI O.P. MEENA DATE OF HEARING :11-12-2012 DATE OF PRONOUNCEMENT :19-12-2012 O R D E R PER VIVEK VARMA, JM: THE APPEAL IS DIRECTED AGAINST THE ORDER OF CIT(A) 13, MUM BAI, DATED 21.06.2011, WHEREIN THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: THE GROUND OR GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO ONE ANOTHER. 1.A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION TO THE EXTE NT OF RS 1,40,703/- MADE BY THE AO TO THE INCOME OF THE APPELLANT BY WA Y OF DISALLOWING CERTAIN EXPENDITURE CLAIMED TO HAVE BEEN INCURRED R ELATING TO EXEMPT INCOME INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. B) THE LD. CIT(A) FAILED TO APPRECIATE THAT:- (I) THERE IS NO REASON AND BASIS IN REACHING TO DI S-SATISFACTION WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT THAT NO EXPENDITURE OTHER THAN DEMATE CHARGES OF RS 3,348/- WAS INCURRE D IN RELATION TO DIVIDEND INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME; (II) THE MOST OF THE SHARES HAVE BEEN ACQUIRED FOR CONTROLLING INTEREST IN GROUP COMPANIES; (III) THE APPELLANT INCURRED TOTAL EXPENDITURE OF RS 1,40 ,703/- ON THE BUSINESS OF TRADING IN FABRICS AND INVESTMENT IN SH ARES; AND (IV) THE MAJOR PART OF THESE EXPENSES WERE INCURRED IN R ELATION TO THE TRADING BUSINESS AND AS SUCH DISALLOWANCE OF THE EN TIRE EXPENSES IS ILLOGICAL AND IRRATIONAL ON THE FACTS O F THE CASE. M/S. WELSPUN WINTEX LIMITED ITA NO. 7294/MUM/2011 2 C) IN REACHING TO THE CONCLUSION AND CONFIRMING SUC H ADDITION THE LD. CIT(A) OMITTED TO CONSIDER RELEVANT FACTORS, CONSIDERATION S, PRINCIPLES AND EVIDENCES WHILE HE WAS OVERWHELMED, INFLUENCED AND PREJUDICED BY IRRELEVANT CONSIDERATIONS AND FACTORS. 2. THE LD. CIT(A) ERRED IN NOT DISPOSING THE GROUN D NO. 3 RAISED DISPUTING LEVY OF INTEREST U/S 234C OF THE INCOME TAX ACT, 19 61. 2. THE SOLITARY ISSUE IS WITH REGARD TO THE ATTRIBUTION OF EXPENSES AS PER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D. 3. THE AR, APPEARING FOR THE ASSESSEE CONCEDED THAT SI NCE ASSESSMENT YEAR INVOLVED IS ASSESSMENT YEAR 2008-09, AS PER THE RECENT JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT REPORTED IN 328 ITR 81 SHALL B E FULLY APPLICABLE AND EXPENSES SHALL HAVE TO BE ALLOCATED TOWARDS INCOME CLAIMED AS EXEMPT. 4. THE FACTS ARE THAT THE ASSESSEE IS IN THE BUSINESS O F TRADING IN YARN AND IN ITS PROFIT AND LOSS ACCOUNT HAS CLAIMED A TO TAL EXPENSE OF RS 1,40,703, WHICH ARE, 1. SALARY 12,600/- 2. RATES & TAXES 6,178/- 3. LEGAL & PROFESSIONAL FEES 78,989/- 4. PROFESSIONAL TAX 2,500/- 5. CONVEYANCE 7,754/- 6. COUERIER & POSTAGE 8,412/- 7. DEMATE CHARGES 3,848/- 8. PRINTING & STATIONARY 3,568/- 9. AUDIT FEES 16,854/- TOTAL 1,40,703/- 5. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO COM PUTED THE EXPENSE ATTRIBUTABLE TOWARDS EXEMPT INCOME AT RS 38,64 ,318 IN ACCORDANCE WITH RULE 8D READ WITH SECTION 14A AND MADE THE ADDITION. 6. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), BEFORE WHOM THE ASSESSEE SUBMITTED THAT INVESTMENT IN SHARES WAS LIMITED ONLY TO HOLD M/S. WELSPUN WINTEX LIMITED ITA NO. 7294/MUM/2011 3 THE CONTROLLING INTEREST IN GROUP COMPANY. EXCEPT FOR THAT, THERE WERE NO INVESTMENT IN SHARES AS SUCH. IT WAS THE RECEIPT O F THESE DIVIDEND INCOME, ON WHICH THE AO HAS APPLIED THE FORMULA PRESCRIBED UND ER RULE 8D. 7. THE CIT(A), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLOWANCE TO THE EXPENSES CLAIMED AT RS 1,40,703. 8. THE ASSESSEE IS IN APPEAL AGAINST THE OBSERVATIO NS OF THE CIT(A). 9. BEFORE US, THE AR POINTED OUT THAT NEITHER OF TH E REVENUE AUTHORITIES HAVE APPLIED THE PROVISIONS ENTAILING THE DISALLOWA NCE OF EXPENSES. THE AR POINTED OUT THAT EXCEPT FOR THE DMAT CHARGES, THERE CANNOT BE ANY OTHER EXPENSE WHICH COULD BE ATTRIBUTED TOWARDS DIVIDEND INCOME RECEIVED FROM THE OWN GROUP COMPANY, WHERE THE ASSESSEE WAS HOLDI NG CONTROLLING SHARES. THE AR ALSO POINTED OUT THAT FOR MAKING/COMPUTING T HE DISALLOWANCE UNDER RULE 8D, IT IS IMPERATIVE THAT SOME SATISFACTION IS RECORDED AND IT SHOULD BE ASCERTAINED WHETHER THE CLAIM OF THE ASSESSEE IS CO RRECT OR THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE IS ATTRIBUTED IS A CTUALLY A BONA FIDE CLAIM. THIS PRELIMINARY EXERCISE HAS NOT BEEN DONE BY THE REVENUE AUTHORITIES. THE AR, THEREFORE, PLEADED THAT HOW CAN ADMINISTRATIVE EXPENSES COULD BE ATTRIBUTED TOWARDS EXEMPT INCOME. HE, CONCLUDED TH AT THE REVENUE AUTHORITIES ERRED IN MAKING THE DISALLOWANCE OF THE ENTIRE ADMINISTRATIVE EXPENSES AT RS 1,40,703. 10. THE DR PLACED RELIANCE ON THE ORDER OF THE REVE NUE AUTHORITIES AND FURTHER PLEADED THAT NOW THAT THE EXPENDITURE HAS T O BE ATTRIBUTED TOWARDS INCOME CLAIMED AS EXEMPT IN ACCORDANCE WITH THE FOR MULA AS PRESCRIBED IN RULE 8D, AS DECIDED BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ & BOYCE (SUPRA). 11. WE HAVE HEARD THE ARGUMENTS FROM EITHER SIDES A ND WE FIND THAT THE AO DID NOT CONSIDER THE FACT THAT THE ASSESSEE HAD RECEIVED THE EXEMPT INCOME IN THE FORM OF DIVIDEND FROM THE GROUP COMPA NY WHERE THE SHARES WERE HELD TO HOLD CONTROL. THE AO ALSO DID NOT CON SIDER THE FACT THAT THERE WERE ACTUALLY NO EXPENSES INCURRED TO EARN THE DIVI DEND INCOME AND HE, M/S. WELSPUN WINTEX LIMITED ITA NO. 7294/MUM/2011 4 THUS, MECHANICALLY PROCEEDED ON THE APPLICATION OF RULE 8D AND COMPUTED THE DISALLOWANCE AT RS 38,64,318. THE CIT(A), ALSO DID NOT CONSIDER THE FACTUM OF SATISFACTION TO HAVE BEEN RECORDED BY THE AO. THE CIT(A), HOWEVER REDUCED AND RESTRICTED THE DISALLOWANCE AT RS 1,40, 703, WHICH WAS EQUAL TO THE TOTAL EXPENSES OF THE ASSESSEE. 12. IN OUR OPINION, THE REVENUE AUTHORITIES HAVE ER RED ON BOTH LEVELS, I.E. THE AO AS WELL AS BY THE CIT(A). BOTH THE REVENUE AUTHORITIES DID NOT CONSIDER THE CIRCUMSTANCE AND THE ACTUAL SOURCE. BO TH THE REVENUE AUTHORITIES HAVE MOVED MECHANICALLY. 13. WE, IN THESE CIRCUMSTANCES, IN THE INTEREST OF JUSTICE SET ASIDE THE ORDER OF THE CIT(A) ON THE ISSUE OF DISALLOWANCE TO BE MADE U/S 14A READ WITH RULE 8D AND DIRECT THE AO TO RECONSIDER THE FACTS A ND SOURCE OF EARNING THE DIVIDEND INCOME AND THEN AFTER SATISFYING HIMSELF A CCORD THE JUSTIFICATION OF APPLICABILITY OF THE DISALLOWANCE. NEEDLESS TO SAY THAT THE PROPER AND ADEQUATE OPPORTUNITY SHALL BE AFFORDED TO THE ASSES SEE TO PRESENT ITS CASE. 14. GROUND NO. 1 COVERING A TO C ARE THEREFORE TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO. 2 IS CONSEQUENTIAL. 16. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH DECEMBER, 2012. SD/- SD/- (RAJENDRA SINGH) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI : 19 TH DECEMBER, 2012 M/S. WELSPUN WINTEX LIMITED ITA NO. 7294/MUM/2011 5 COPY TO: 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT (A)-13, MUMBAI. 4) THE CIT 7, MUMBAI 5) THE DR, G BENCH MUMBAI BY ORDER / / TRUE COPY / / ASST. REGISTRAR, ITAT, MUMBAI *CHAVAN