PHULCHAND EXPORTS LTD., MUMBAI V. D.C.I.T. CIRCLE 3(2), MUMBAI

ITA 7295/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8712 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 01-11-2011
• 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 C, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTAT MEMBER I.T.A. NO.7295/M/2011 ASSESSMENT YEAR: 2008-2009 M/S. PHULCHAND EXPORTS LTD., C/O. SHANKARLAL JAIN &ASSOCIATES, 12,ENGINEERING BUILDING, 265, PRINCES STREET, MUMBAI 400 002. PAN: AAACP2529C VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(2), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.L. JAIN, AR RESPONDENT BY : SHRI OM PRAKASH, DR DATE OF HEARING: 9.10.2012 DATE OF ORDE R: 12.10.2012 O R D E R PER D. KARUNAKARA RAO, AM: THIS APPEAL FILED BY THE ASSESSEE ON 1.11.2011 IS D IRECTED AGAINST THE ORDER OF CIT (A)-4, MUMBAI DATED 15.9.2011 IN RELATION TO AS SESSMENT YEAR 2008-2009. 2. IN THIS APPEAL, ASSESSEE RAISED THE FOLLOWING GR OUNDS READ AS UNDER: 1 . LD. CIT (A) ERRED IN CONFIRMING DISALLOWANCE U/S 14 A AS MADE BY THE ASSESSING OFFICER WITH CERTAIN DIRECTIONS WITHOUT P ROPERLY APPRECIATING THE FACTS OF THE CASE THAT: (I) BORROWINGS ARE MADE FOR THE PURPOSE OF BUSINESS AND NO PART OF BORROWINGS HAS BEEN UTILIZED FOR INVESTMENT. (II) INTEREST PAID BY THE APPELLANT IS RS. 197.94 LAKHS WHILE INTEREST RECEIVED IS RS.213.44 LAKHS. AS NO INTEREST IS BEI NG PAID, NO INTEREST IS DISALLOWABLE UNDER RULE-8D (2)(II). (III) APPELLANT NOT HAVING INCURRED ANY EXPENSE FOR EARNI NG OF DIVIDEND, NO EXPENSE IS DISALLOWABLE UNDER RULE-8D (2)(III). 2. IT IS PRAYED THAT DISALLOWANCE MADE U/S 14A BE D ELETED. 3. BRIEFLY STATED THE RELEVANT FACTS OF THE CASE AR E THAT THE ASSESSEE IS ENGAGED IN TRADING OF TEXTILE PRODUCTS, IRON ORE FINES, COTTON , COTTON YARN, METALS, DIAMOND AND 2 M/S. PHULCHAND EXPORTS LTD., OTHER COMMODITIES. ASSESSEE REPORTED EARNINGS OF D IVIDEND INCOME AND THE ASSESSING OFFICER PROPOSED TO APPLY SECTION 14A R.W. RULE-8D OF THE ACT. AO RELIED ON THE DECISION OF THE SPECIAL BENCH, ITAT MUMBAI IN THE C ASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. IN ITA NO.8057/MUM/2003 AND MADE DISALLOW ANCE OF RS. 43,73,082/-. 4. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE MADE WRITTEN SUBMISSIONS VIDE LETTER DATED 14.9.2011 WHICH ARE REPRODUCED IN PARA 4 OF THE IMPUGNED ORDER. AFTER CONSIDERING THE SAME, THE CIT (A) AFFIRMED THE FACT THAT ASSESSEE MADE INVESTMENT IN THE SECURITIES OUT OF THE BORROWED FUNDS AND GENERA TED EXEMPT INCOME. WHILE AFFIRMING THE APPLICABILITY OF RULE-8D, CIT (A) DEN IED THE CLAIM OF NETTING OF INTEREST PAID AGAINST THE INTEREST EARNED BY THE ASSESSEE FO R WANT OF NEXUS BETWEEN THE TWO. REGARDING INCLUSION OF BANK CHARGES AND THE AVERAGE INVESTMENT, THE ISSUES WERE SENT BACK TO THE AO WITH A DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE AND RECALCULATE THE DISALLOWANCE AS PER RULE-8D OF INCOME TAX RULES, 19 62. 5. AGGRIEVED WITH THE ABOVE DECISION OF CIT (A), TH E ASSESSEE FILED THE PRESENT APPEAL BEFORE US. 6. DURING THE COURSE OF PROCEEDINGS BEFORE US, LD C OUNSEL SRI S.L. JAIN MENTIONED THAT THERE IS NEED FOR NETTING OF THE INTEREST CRED ITS AGAINST THE INTEREST DEBITS FOR THE PURPOSE OF APPLYING THE SAID RULE-8D. LD COUNSEL W AS ALSO CRITICAL OF THE DECISION OF REMANDING OF THE ISSUES RELATING TO BANK CHARGES AN D AVERAGE INVESTMENT TO THE FILES OF AO. HOWEVER, HE FAIRLY MENTIONED THAT THE SAID DIR ECTION OF THE CIT (A) IS STILL PENDING FOR ADJUDICATION BEFORE THE ASSESSING AUTHORITIES. 7. ON THE OTHER HAND, LD DR MENTIONED THAT THE ORDE R OF THE CIT (A) IS AN ORDER. HE ALSO SUBMITTED THAT IT IS NOT THE BINDING THAT H ONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. VS. CIT ( 328 ITR 81) (BOM) SHOULD BE APPLIED FOR THE CURRENT ASSESSMENT YEAR 2008-2009. FOR THI S PURPOSE, THE WHOLE ISSUE MAY BE REMANDED TO THE FILES OF AO FOR A FRESH DECISION IN THIS REGARD. 3 M/S. PHULCHAND EXPORTS LTD., 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES. IT IS A FACT THAT CIT (A) IN ONE WAY U PHELD THE APPLICABILITY OF RULE-8D AND IN OTHER WAY DENIED THE BENEFIT OF NETTING AND ALSO REMANDED THE ISSUES RELATING TO BANK CHARGES AND AVERAGE INVESTMENT TO THE FILE OF AO. IT IS A FACT THAT THESE ISSUES ARE STILL PENDING FOR FINALITY BEFORE THE ASSESSING OFFICER. THERE IS NO DISCUSSION IN PARA 5 OF THE IMPUGNED ORDER ABOUT THE NEXUS BETWEEN INT EREST DEBITS VIS A VIS INTEREST CREDITS. INTEREST CREDITS NEEDS TO BE CONSIDERED ON LY IF THEY ANY NEXUS WITH THE FUNDS IF ANY ARE DIVERTED OUT OF THE INTEREST BEARING FUNDS. FURTHER, IT IS TRUE THAT ASSESSEE PAID INTEREST AMOUNT OF RS. 197.94 LAKKHS AND HE RECEIVE D THE INTEREST AMOUNT OF RS. 213.44 LAKHS. IT IS TRUE THAT THE ASSESSEE EARNED A DIVID END INCOME OF RS. 10,900/-. THE DISCUSSION GIVEN IN THE ORDER OF THE CIT (A) IS NOT A SPEAKING ONE IN THE LIGHT OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F GODREJ BOYCE MFG. CO. LTD. (SUPRA). REGARDING THE DECISION OF THE CIT(A) REMA NDING TO THE FILES OF THE AO, ON THE ISSUES OF BANK CHARGES AND INVERAGE INVESTMENTS, CO NSIDERING THE ABSENCE ANY FINALITY TILL DATE AT THE LEVEL OF THE AO, IN OUR OPINION, T HE SAME DOES NOT CALL ANY INTERFERENCE FOR THE REASONS GIVEN BY THE CIT(A) IN HIS ORDER. C ONSIDERING THE ABOVE DEFICIENCIES, WE ARE OF THE OPINION THAT THE GROUNDS RAISED BY THE A SSESSEE MUST BE SET ASIDE FOR FRESH DECISION. ACCORDINGLY, GROUNDS RAISED BY THE ASSES SEE ARE SET ASIDE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF OCTOBER, 2012. SD/- SD/- (D.K. AGARWAL) (D. KARU NAKARA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE :12.10. 2012 AT :MUMBAI OKK 4 M/S. PHULCHAND EXPORTS LTD., COPY TO : 1. PHULCHAND EXPORTS LTD., MUMBAI. 2. DCIT, CIR.3(2), MUMBAI. 3. THE CIT (A), CONCERNED. 4. THE CIT CONCERNED. 5. THE DR C, BENCH, ITAT, MUMBAI. 6. GUARD FILE. // TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI