ACIT, Circle-1(1), Hyderabad V. M/s. AP Industrial Development Corporation Ltd, Hyderabad

ITA 767/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66236 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 21-05-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: V SRINIVAS
• Assessee Lawyers: A V RAGHURAM
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 767/HYD/2012 ASSESSMENT YEAR: 2007-08 ASSTT. COMMISSIONER OF INCOME-TAX, ... APPELLANT CIRCLE 1(1), HYDERABAD. VS. M/S AP INDUSTRIAL DEVELOPMENT CORPN.LTD., R ESPONDENT HYDERABAD. (PAN AABCA7395Q) APPELLANT BY : SHRI V. SRINIVAS RESPONDENT BY : SHRI A.V. RAGHURAM DATE OF HEARING : 06/09/2012 DATE OF PRONOUNCEMENT : 14/09/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 15/03/2012 FOR THE ASSESSMENT YEAR 2007-08. 2. THE AO HAD MADE AN ADDITION OF RS. 56,30,772/- U /S 14A OF THE IT ACT, AFTER REDUCING THE AMOUNT OF DISALLOWAN CE OF RS. 1,00,000/- BY THE ASSESSEE IN THE COMPUTATION OF IN COME. 3. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) RAISING THE FOLLOWING GROUNDS OF APPEAL: - I) THE AO ERRED IN MAKING A DISALLOWANCE OF RS. 56, 30,772/- U/S 14A. ITA NO. 767/HYD/12 M/S A.P. INDUSTRIAL DEVELOPMENT CORPN. LTD. 2 II) THE AO OUGHT TO HAVE SEEN THAT NO EXPENDITURE I S INCURRED TO EARN THE DIVIDENDS. III) THE AO OUGHT TO HAVE FOLLOWED THE ORDER OF APP ELLATE TRIBUNAL IN APPELLANTS OWN CASE IN EARLIER YEARS. 4. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE ASSESSEE HAD EARNED RS. 1,53,21,337/- FROM DIVIDENDS AND CLA IMED IT AS EXEMPT, AND IN TERMS OF THE ORDERS OF THE HONBLE I TAT, HYDERABAD AND CIT(A)S IN ITS OWN CASE FOR EARLIER YEARS A SU M OF RS. 1,00,000/- WAS DISALLOWED U/S 14A OF THE ACT (THOUG H THE TRIBUNAL RESTRICTED THE DISALLOWANCE TO RS. 50,000/- IN THE EARLIER YEARS, DUE TO INCREASE IN DIVIDEND INCOME IT HAS CONSIDERED RS . 1 LAKH AS DISALLOWANCE) BY THE ASSESSEE ITSELF IN THE RETURNS OF INCOME FILED AND THE AO DISALLOWED FURTHER SUM OF RS. 56,30,772/ - IN THE ASSESSMENT ORDER. IT WAS SUBMITTED THAT THE CORPORA TION DID NOT INCUR ANY EXPENDITURE TO EARN THE DIVIDEND INCOME A ND THE INVESTMENTS HAD BEEN MADE OUT OF SHARE CAPITAL AND RESERVES AND NO BORROWINGS HAD BEEN MADE FOR THE PURPOSE OF INVE STMENT IN SHARES AND HENCE THERE WAS NO INTEREST COST ATTRIBU TABLE FOR THE INVESTMENT. IT WAS ALSO SUBMITTED THAT DUE TO AP GO VERNMENTS DIRECTIONS TO WIND UP OR MERGE THE CORPORATION WITH ANOTHER SIMILAR CORPORATION, THE ASSESSEE CORPORATION HAD NOT BEEN MAKING ANY FRESH INVESTMENTS SINCE MORE THAN FOUR YEARS, AND T HE LOANS BORROWED AND OUTSTANDING ARE USED ONLY FOR THE REGU LAR BUSINESS OF THE CORPORATION. 5. IT WAS FURTHER SUBMITTED THAT THE FACT OF THE CO RPORATION NOT INCURRING INTEREST EXPENDITURE HAD BEEN ESTABLISHED BY THE ORDERS OF THE APPELLATE TRIBUNAL IN ALL THE EARLIER YEARS UP TO AY 2005-06. FROM 77-78 ONWARDS, THE AO USED TO DISALLOW PROPORT IONATE EXPENDITURE INCURRED TO EARN DIVIDENDS FOR THE PURP OSE OF CALCULATION ITA NO. 767/HYD/12 M/S A.P. INDUSTRIAL DEVELOPMENT CORPN. LTD. 3 OF DEDUCTION AVAILABLE U/S 80K AND 80M WITHOUT ACT UALLY ESTABLISHING IF ANY EXPENDITURE WAS EVER INCURRED. THE ISSUE WAS REMITTED BACK TO THE AO BY THE APPELLATE TRIBUNAL T O SCRUTINIZE THE EXPENDITURE WITH A VIEW TO VET THE ASSESSEE CLAIM T HAT NONE OF THE EXPENSES ARE DIRECTLY RELATABLE TO THE DIVIDEND INC OME AND SUCH EXPENDITURE WAS ULTIMATELY ESTIMATED AT RS. 50,000/ -. IN THE ASSESSMENT YEAR 2004-05, THE APPELLATE TRIBUNAL VID E ITS ORDER DT. 09/01/2009 DISCUSSED AT LENGTH THE ORDER OF SP. BEN CH IN DAGA CAPITAL MANAGEMENT PVT. LTD. HELD THAT THE SAID DEC ISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE AND UPHELD THE DISALLOWANCE AT RS. 50,000/-. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) FOLLOWING THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR AYS 2002-03, 2003-04, & 2005-05, RESTRICTED THE DISALLOWANCE U/S 14A TO THE AMOUNT OF RS. 1,00,000/- AS CLAIMED BY THE ASSESSEE AND DIRECTED THE AO TO DELETE THE DISALLOWANCE OF RS. 56,30,772/ - MADE BY HE AO. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US RA ISING THE FOLLOWING GROUNDS OF APPEAL:- 1. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE DISA LLOWANCE OF RS. 56,30,772/- MADE BY THE AO U/S 14A IN ACCORD ANCE WITH RULE 8D. 2. THE LEARNED CIT(A) OUGHT TO HAVE NOTICED THAT SI NCE THE FUNDS ARE MIXED UP THE DISALLOWANCE OF INTEREST EXP ENDITURE SHOULD BE AS PER CLAUSE (III) OF RULE 8D AND NOT AS PER CLAUSE (II) OF RULE 8D. 3. THE LEARNED CIT(A) OUGHT TO HAVE NOTICED THAT TH E DEPARTMENTS APPEALS ARE PENDING BEFORE THE HONBLE HIGH COURT IN THIS CASE FOR THE EARLIER YEARS AND THE SA ME HAVE NOT REACHED A FINALITY. ITA NO. 767/HYD/12 M/S A.P. INDUSTRIAL DEVELOPMENT CORPN. LTD. 4 8. WE HAVE HEARD THE ARGUMENTS OF THE PARTIES, PERU SED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE C ASE OF GODREJ & BOYCE MFG. CO. LTD., [2010] 328 ITR 81 (BOM.) WHERE IN THE HONBLE COURT HELD AS UNDER:- THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH H AVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, WOULD APP LY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8D WAS NOT APPLI CABLE, THE AO HAD TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE AO IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE AO MUST ADOPT A REASONABLE BASIS OR ME THOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMST ANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCEEDINGS FOR ASSESSMENT YEAR 2002-03 WOULD STAND REMANDED TO THE AO. THE AO SHOULD DETERMINE AS TO WHETHER THE ASSESSEE HAD INCURRED ANY EXPENDITURE (DIRECT OR INDIRECT) IN RE LATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE AO CAN ADOPT A REASONABLE BASIS FOR EFFECT ING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE AO SHOULD PROVIDE A REASONABLE OPPORTUNITY TO THE ASSE SSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATE RIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ( SUPRA), WE SET ASIDE THE ORDER OF THE CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION DECIDE THE ISSUE AFRESH IN THE LIGHT OF THE SAID JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH CO URT AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA NO. 767/HYD/12 M/S A.P. INDUSTRIAL DEVELOPMENT CORPN. LTD. 5 6. IN THE RESULT, APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 14/09/2012. SD/- SD/- ( CHANDRA POOJARI) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED: 14 TH SEPTEMBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 1(1), HYDERABAD, 2) M/S AP INDUSTRIAL DEVELOPMENT CORPORATION LTD., PARISHRAM BHAVAN, BASHEERBAGH, HYDERABAD. 3) THE CIT (A)-II, HYDERABAD 4) CIT-I, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABA D.