DHANLAXMI EXPORT FABRICS P. LTD, MUMBAI V. ITO 4(1)(4), MUMBAI

ITA 8005/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8861 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 19-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMARD EEP
• Assessee Lawyers: N T ATAL
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D , MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER ITA NO. 8005/MUM/2010 ASSESSMENT YEAR : 2007-08 DHANLAXMI EXPORT FABRICS PVT. LTD. 285, PRINCESS STREET, C.J. HOUSE, 2 ND FLOOR MUMBAI-400 002. PAN NO. AABCD 1413 A INCOME TAX OFFICER WARD-4(1)(4) MUMBAI. (APPELLANT) VS. (RESPONDENT) ASSESSEE BY : SHRI N.T. ATAL DEPARTMENT BY : SHRI AMARDEEP DATE OF HEARING : 29.08.2012 DATE OF PRONOUNCEMENT : 12.09.2012 O R D E R PER RAJENDRA SINGH, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER D ATED 28.10.2010 OF CIT(A) FOR THE ASSESSMENT YEAR 2007-08. T HE ASSESSEE HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS WHICH RELAT E TO DISALLOWANCE OF EXPENSES UNDER SECTION 14A AND DISALLOWANCE OF MOTOR CAR EXPENSES. 2. WE FIRST TAKE UP THE DISPUTE RELATING TO DISALLOWAN CE OF EXPENSES RELATING TO EXEMPT INCOME UNDER SECTION 14A OF THE INCO ME TAX ACT. ITA NO.8005/M/10 A.Y.07-08 2 THE AO DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.7,96,532/- WHICH WAS E XEMPT FROM TAX. HE, THEREFORE, DISALLOWED EXPENSES RELATING TO DIV IDEND INCOME AT RS.1,33,666/- UNDER RULE 8D. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUBMITTED BEFORE CIT(A) THAT RULE 8D WAS APPLI CABLE ONLY FROM ASSESSMENT YEAR 2008-09 IN VIEW OF THE JUDGMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF GODREJ AND BOYCE MFG. CO. V S. DCIT (328 ITR 81). IT WAS ALSO SUBMITTED THAT THE ASSESSEE HAD RECEIV ED DIVIDEND FROM INVESTMENT IN SHARES AND MAJOR DIVIDEND INCOME WAS RECEIVED FROM SISTER CONCERN IN WHICH ONE TIME INVESTMENT WAS MADE. THE INVESTMENT MADE IN OTHER COMPANIES HAD NOT RESULTED INT O PAYMENT OF DIVIDEND. THEREFORE DISALLOWANCE OF EXPENSES @ 0.5% OF AVERAGE INVESTMENT WAS NOT TENABLE. CIT(A), AGREED THAT RULE 8D WAS NOT APPLICABLE AND PROCEEDED TO COMPUTE DISALLOWABLE EXPENSE S INDEPENDENTLY. IT WAS OBSERVED BY HIM THAT THE DIRECT EXPENDITURE AS WELL AS IN DIRECT INTEREST EXPENDITURE SHOWN BY THE ASSES SEE WAS NIL WHICH HAD BEEN ACCEPTED BY THE AO. AS REGARDS THE OTHER INDIRECT EXPENSES CIT(A) NOTED THAT PORTFOLIO MANAGERS WERE CHAR GING @ 2-3% WHICH ALSO INCLUDED THEIR PROFIT ELEMENT OF 1-1.5%. I N CASE OF THE ASSESSEE WHICH WAS DOING OTHER BUSINESS ALSO FURTHER EXCLUSION WAS REQUIRED ON ACCOUNT OF FIXED EXPENSES BEING THE ADMINIST RATIVE EXPENSES. CIT(A), THEREFORE, HELD THAT INDIRECT EXPENSE S RELATING TO ITA NO.8005/M/10 A.Y.07-08 3 USE OF INFRASTRUCTURE AND STAFF FOR MAINTAINING HUGE PO RTFOLIO HAD TO BE TAKEN AT 0.5% OF THE AVERAGE INVESTMENT WHICH IS THE SAME AS PER RULE 8D. HE, THEREFORE, CONFIRMED DISALLOWANCE MADE B Y AO AGGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE T RIBUNAL. 3. BEFORE US, LD. AR FOR THE ASSESSEE SUBMITTED THAT IN T ERMS OF JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN CASE OF GOD REJ AND BOYCE MFG. CO. (SUPRA), THE ASSESSEE WAS REQUIRED TO BE GI VEN AN OPPORTUNITY REGARDING DISALLOWANCE OF EXPENSES. IT WAS POINTED OUT THAT THOUGH RULE 8D WAS NOT APPLICABLE, CIT(A) MADE D ISALLOWANCE AS PER RULE 8D ONLY. IT WAS ALSO SUBMITTED THAT ACTUAL EX PENSES INCURRED WERE NOMINAL AGAINST WHICH HUGE DISALLOWANCE OF RS.4,37 ,272/- HAD BEEN MADE. IT WAS ACCORDINGLY URGED THAT THE ORDER OF CIT(A) SHOULD BE SET ASIDE. LD. DEPARTMENTAL REPRESENTATIVE PLACED ON THE ORDER OF CIT(A). 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPE NSES RELATING TO EXEMPT INCOME UNDER SECTION 14A OF THE ACT. IN VIEW O F THE JUDGMENT OF THE HON'BLE HIGH COURT OF BOMBAY IN CASE OF GODREJ A ND BOYCE MFG. CO. (SUPRA), RULE 8D FOR COMPUTATION OF DISALLOWABLE E XPENSES IS APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AND IN RESPE CT OF PRIOR YEARS, DISALLOWANCE HAS TO MADE ON A REASONABLE BASIS AFT ER HEARING ITA NO.8005/M/10 A.Y.07-08 4 THE ASSESSEE. IN THIS CASE AO MADE DISALLOWANCE UNDER RULE 8 D AND, THEREFORE, HAD NOT CONSIDERED THE ISSUE ON MERIT REGARD ING REASONABLENESS OF EXPENDITURE. THOUGH CIT(A) HAS GIVEN REASONS FOR MAKING DISALLOWANCE @ 5% OF AVERAGE INVESTMENT, IN FACT THE DISALLOWANCE IS SAME AS PROVIDED IN RULE 8D. CIT(A) HAS N OT GIVEN ANY SPECIFIC OPPORTUNITY TO THE ASSESSEE REGARDING BASIS OF DI SALLOWANCE ADOPTED BY HIM. IN OUR VIEW THE MATTER REQUIRES FRE SH EXAMINATION AT THE LEVEL OF AO IN THE LIGHT OF JUDGMENT OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ AND BOYCE MFG. CO. (SUPRA) . WE, THEREFORE, SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATIO N IN THE LIGHT OF OBSERVATIONS MADE ABOVE AND AFTER AFFORDING OPPORTUNI TY OF HEARING TO THE ASSESSEE. 5. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF MOTO R CAR EXPENSES. THE ASSESSEE CLAIMED DISALLOWANCE OF MOTOR CAR EXPE NSES INCLUDING DEPRECIATION AT RS.1,74,135/-. THE AO DISALLO WED ON ESTIMATE 20% OF THESE EXPENSES AMOUNTING TO RS.34,827/- AS INCURRE D FOR NON BUSINESS PURPOSES. IN APPEAL CIT(A) AGREED THAT EXPENSES A RE REQUIRED TO BE DISALLOWED BUT HE, RESTRICTED THE SAME T O 10% AMOUNTING TO RS.17,413/-. AGGRIEVED BY THE DECISION O F CIT(A), THE ASSESSEE IS IN APPEAL. ITA NO.8005/M/10 A.Y.07-08 5 6. BEFORE US, THE LD. AR ARGUED THAT IN RELATION TO MOTOR CAR EXPENSES, ASSESSEE HAD PAID FRINGE BENEFIT TAX AND, THER EFORE, NO DISALLOWANCE CAN BE MADE IN CASE OF THE ASSESSEE. RELIANCE W AS PLACED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF HANSRAJ M ATHURADAS IN ITA NO.2397/M/2010. THE LD. DR ON THE OTHER HAND PL ACED RELIANCE ON THE ORDER OF CIT(A). 7. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE RIVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING DISALLO WANCE OF MOTOR CAR EXPENSES RELATING TO PERSONAL USE. THE CASE OF THE ASSESSE E IS THAT THE ASSESSEE HAD PAID FRINGE BENEFIT TAX IN RELATION TO PERSONAL USE OF MOTOR CAR AND, THEREFORE, NO DISALLOWANCE CAN BE MADE. WE FIND THAT THE ISSUE IS COVERED BY THE TRIBUNAL DECISION IN THE CASE OF HANSRAJ MATHURADAS IN ITA NO.2397/M/10 ORDER DATED 16.9.201 1 FOR ASSESSMENT YEAR 2006-07, IN WHICH SAME ISSUE HAD BEEN CONSID ERED BY THE TRIBUNAL. THE TRIBUNAL NOTED THAT CBDT IN CI RCULAR NO.8/05 DATED 29.8.2005 HAD CLARIFIED THAT WHEN EXPENDITURE ON RUNNING OF MOTOR CAR IS LIABLE TO FRINGE BENEFIT TAX, EMPLOYEES SH OULD NOT BE LIABLE TO INCOME TAX ON THE PERQUISITE VALUE OF MOTOR CARS PRO VIDED BY EMPLOYERS. THE TRIBUNAL OBSERVED THAT FRINGE BENEFIT TAX IS LEVIED ON EXPENSES INCURRED BY EMPLOYER IRRESPECTIVE OF THE FACT WH ETHER THE SAME WERE INCURRED FOR OFFICIAL OR PERSONAL PURPOSE. THE TRIBUNAL, THEREFORE, HELD THAT NO DISALLOWANCE COULD BE MADE IN CASE OF THE ITA NO.8005/M/10 A.Y.07-08 6 COMPANY IN CASE FRINGE BENEFIT TAX HAD BEEN PAID. THE ASSESSEE HAS CLAIMED THAT IT HAD PAID FRINGE BENEFIT TAX. THE CLAI M OF THE ASSESSEE IS, THEREFORE, ALLOWED SUBJECT TO VERIFICATION OF FRIN GE BENEFIT TAX PAYMENT. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR ST ATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12.9.2012. SD/- SD/- (D. MANMOHAN) VICE PRESIDENT (RAJENDRA SINGH) ACCOUNTANT MEMBER MUMBAI, DATED: 12.9.2012. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.