ACIT 9(1), MUMBAI V. ALLIED INSTRUMENTS P. LTD, MUMBAI

ITA 8042/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3625 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 16-04-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 01-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Earning of tax free income; Non-deduction of tax
• Section: 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'A' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI SANJAY ARORA, ACCOUNTANT MEMBER ITA NO. 8042/MUM/2011 (ASSESSMENT YEAR: 2008-09) ACIT, RANGE 9(1) M/S. ALLIED INSTRUMENT PVT. LTD. ROOM NO. 223, AAYAKAR BHAVAN 30-CD, GOVT. INDL. EST ATE M.K. ROAD, MUMBAI 400020 VS. KANDIVALI (W), MUMBAI 400067 PAN - AAACA 1032 F APPELLANT RESPONDENT CO NO. 234/MUM/2012 (ASSESSMENT YEAR: 2008-09) M/S. ALLIED INSTRUMENT PVT. LTD. ACIT, RANGE 9(1) 30-CD, GOVT. INDL. ESTATE ROOM NO. 223, AAYAKAR BHA VAN KANDIVALI (W), MUMBAI 400067 VS. M.K. ROAD, MUMBAI 400020 PAN - AAACA 1032 F CROSS OBJECTOR APPELLANT IN APPEAL REVENUE BY: SHRI O.P. SINGH ASSESSEE BY: SHRI SANJIV M. SHAH DATE OF HEARING: 16.04.2013 DATE OF PRONOUNCEMENT: 19.04.2013 O R D E R PER D. MANMOHAN, V.P. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-19, MUMBAI AND THEY PERTAIN TO A.Y. 2008-09. 2. THE ONLY GROUND URGED BY THE REVENUE READS AS UNDER : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCES U/S 40(A)(IA) FOR PURCHASE OF RS.1,43,49,490/-. M/S. ASHIT PACKAGING PVT. LTD. IS PROVIDING PACKAGING MATERIAL AS PER THE SPECIFICATI ON GIVEN BY THE ASSESSEE. ALL THE ITEMS PRODUCED/MANUFACTURED /PROV IDED BY M/S. ASHIT PACKAGING PVT. LTD. IS CUSTOM MADE AS PE R THE SPECIFIC REQUIREMENT OF THE ASSESSEE. ASSESSEE HAS MADE AN O FFER TO MANUFACTURE/PRODUCE OBJECT OF HIS SPECIFICATION WHI CH WAS DULY ACCEPTED BY M/S. ASHIT PACKAGING PVT. LTD. THE OBJE CT OF HIS SPECIFICATION WHICH WAS DULY ACCEPTED BY M/S. ASHIT PACKAGING ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 2 PVT. LTD. THE OBJECT OF THIS CONTACT/ORAL CONTRACT WAS LAWFUL AND WAS NOT VOID IN ANY LAW AND BOTH THE PARTIES WERE C OMPETENT TO MAKE A CONTRACT AND HAD ACCEPTED IT IN THEIR FAVOUR . HENCE, THE TRANSACTIONS BETWEEN ASSESSEE AND M/S. ASHIT PACKAG ING PVT. LTD. FULFIL ALL THE NECESSARY CONDITIONS FOR A CONT RACT. REGARDING M/S. LIBA ENTERPRISE, IT IS SISTER CONCERN OF THE A SSESSEE AND MADE SALES TO ASSESSEE ALL THE MOULDS FOR 500 PRODU CTS & COMPONENTS IT WAS MANUFACTURING AS PER SPECIFIC REQ UIREMENT OF THE ASSESSEE. THE LD. CIT(A) HAVE NOT REFUTED THAT THE TRANSACTIONS QUALIFY TO BE A CONTRACT. 3. FACTS NECESSARY FOR DISPOSAL OF THIS ISSUE ARE STAT ED IN BRIEF. ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE O F SCHOOL STATIONERY ARTICLES. DURING THE PREVIOUS YEAR RELEVANT TO A.Y. 2008-09 ASSESSEE DECLARED TOTAL INCOME OF ` 43,07,802/-. THOUGH IT WAS ORIGINALLY PROCESSED UND ER SECTION 143(1) OF THE ACT IT WAS LATER ON TAKEN UP FOR SCRUTINY AND ACCORDINGLY NOTICE UNDER SECTION 143(2) WAS ISSUED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSE SSEE HAS GOT THE WORK OF PACKAGING DONE FROM M/S. ASHIT PACKAGING PVT. LT D. AND M/S. LIBA ENTERPRISE BUT ON THE PAYMENTS MADE TO SUCH PARTIES THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. IN THE OPINION OF THE AO, P ROVISIONS OF SECTION 194C OF THE I.T. ACT ARE APPLICABLE AND UPON FAILURE TO DEDUCT TAX AT SOURCE AMOUNT PAID TO PARTIES CANNOT BE ALLOWED AS DEDUCTI ON IN VIEW OF SECTION 40(A)(IA) OF THE ACT. THE AO NOTICED THAT M/S. ASHI T PACKAGING PVT. LTD. IS DEALING WITH ASSESSEE COMPANY FOR THE LAST 25 YEARS . IT WAS MAKING PACKAGING MATERIAL AS PER ASSESSEES REQUIREMENTS, I.E. SIZE, QUALITY AND PRINTING WORK. ON BEHALF OF M/S. LIBA ENTERPRISE TH E PARTNER STATED ON OATH THAT IT IS A SISTER CONCERN OF THE ASSESSEE COMPANY AND MANUFACTURES MOULDS FOR M/S. ALLIED INSTRUMENTS PVT. LTD. HAVING REGARD TO THE FACTS OF THE CASE THE AO WAS PRIMA FACIE OF THE OPINION THAT THE PAYMENTS MADE TO M/S. ASHIT PACKAGING PVT. LTD. AND M/S. LIBA ENTERP RISE SHOULD BE TREATED AS PAYMENTS FOR JOB WORK GIVEN ON CONTRACTUAL BASIS . IN RESPONSE THERETO THE ASSESSEE SUBMITTED THAT THIS IS A CASE OF PURCHASE OF GOODS AND MATERIAL FROM THE RESPECTIVE PARTIES AND NOT A CASE OF CONTR ACT. IN SUPPORT OF THE ABOVE CONTENTION IT WAS SHOWN THAT BOTH THE PARTIES HAVE COLLECTED EXCISE DUTY ON GOODS SOLD TO THE ASSESSEE. HAD IT BEEN A L ABOUR WORK THERE WOULD NOT HAVE BEEN ANY EXCISE DUTY. ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 3 4. THE SUBMISSIONS OF THE ASSESSEE WERE REJECTED BY TH E AO. HE OBSERVED THAT M/S. ASHIT PACKAGING PVT. LTD. IS PROVIDING PA CKAGING MATERIAL AS PER SPECIFICATIONS GIVEN BY THE ASSESSEE. ALL THE ITEMS MANUFACTURED BY M/S. ASHIT PACKAGING PVT. LTD. ARE CUSTOM MADE AND AS PE R SPECIFICATIONS OF THE ASSESSEE. EVEN IF IT IS TREATED AS ORAL CONTRACT IT IS LAWFUL. HE THEREFORE CONCLUDED THAT THE TRANSACTIONS BETWEEN THE ASSESSE E AND M/S. ASHIT PACKAGING PVT. LTD. HAVE ALL THE INGREDIENTS OF A V ALID CONTRACT. 5. REGARDING M/S. LIBA ENTERPRISE THE AO OBSERVED THA T IT IS A SISTER CONCERN OF THE ASSESSEE AND ALL THE MOULDS FOR 500 PRODUCTS AND COMPONENTS WERE SOLD TO THE ASSESSEE AND MANUFACTUR ED AS PER SPECIFIC REQUIREMENTS OF THE ASSESSEE AND HENCE THIS SHOULD ALSO BE TREATED AS CONTRACT BETWEEN THE ASSESSEE AND M/S. LIBA ENTERPR ISE. SINCE IT IS A JOB WORK DONE FOR THE ASSESSEE, PROVISIONS OF SECTION 1 94C ARE APPLICABLE AND ASSESSEE SHOULD HAVE DEDUCTED TAX AT SOURCE WHILE M AKING PAYMENT TOWARDS PACKAGING MATERIAL AND FOR FAILURE TO DEDUCT TAX TH E AO INVOKED PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. HE ACCORDINGLY BRO UGHT TO TAX A SUM OF ` 1,43,49,490/-. 6. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE FIRST APPE LLATE AUTHORITY THAT IN THE CASE OF PURCHASE OF PACKAGING MATERIAL FROM M/S. ASHIT PACKAGING PVT. LTD., THE PURCHASE ORDER CLEARLY REFERS TO THE NUMBER OF PIECES, QUALITY OF BOXES, SIZE OF THE BOXES AND DELIVERY TIME FOR S UPPLY OF THE BOXES. IT ALSO REFERS TO LEVY OF EXCISE ON SALE OF SUCH GOODS. IT WAS THEREFORE CONTENDED THAT IT IS NOT A SERVICE BUT IT WAS SUPPLY OF GOODS. SIM ILARLY THE ASSESSEE PURCHASED MATERIAL FROM M/S. LIBA ENTERPRISE AS PER REQUIREMENTS GIVEN BY IT. THE PURCHASE ORDER CLEARLY REFERS TO NUMBER OF MOULDS AS ALSO THE DELIVERY TIME FOR SUPPLY OF MOULDS AND IT ALSO REFE RS TO LEVY OF EXCISE ON SUCH SALE OF GOODS, WHICH DENOTE THAT IT IS MERELY A SAL E AND IT WAS NOT A JOB WORK. ASSESSEE ALSO HIGHLIGHTED THE DISTINGUISHING FEATUR ES BETWEEN JOB CONTRACT AND PURCHASE OF GOODS TO CONTEND THAT PROVISIONS OF SECTION 194C ARE NOT APPLICABLE TO THE INSTANT CASE, SINCE THE RELATIONS HIP BETWEEN ASSESSEE AND THE ABOVE MENTIONED TWO CONCERNS WAS ON PRINCIPAL T O PRINCIPAL BASIS. BOTH THE SUPPLIERS HAD THEIR OWN ESTABLISHMENTS WHERE TH E PRODUCT WAS MANUFACTURED AND THE MATERIALS REQUIRED FOR MANUFAC TURE OF THE PRODUCT ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 4 WERE OBTAINED BY THE MANUFACTURERS FROM PERSONS OTH ER THAN THE ASSESSEE. IT IS ONLY THE END PRODUCT WHICH WAS DELIVERED TO T HE ASSESSEE AND HENCE IT IS IN THE NATURE OF SALE AND HENCE THERE WAS NO OBL IGATION TO DEDUCT TAX UNDER SECTION 194C OF THE ACT. 7. THE LEARNED CIT(A) PERUSED THE RECORD AND ANALYSED THE FACTS OF THE CASE TO NOTICE THAT THE ASSESSEE PURCHASED GOODS ON PRINCIPAL TO PRINCIPAL BASIS; THE SUPPLIERS HAVE THEIR OWN INFRASTRUCTURE AND MACHINERIES AND HAVE ALSO BOUGHT RAW MATERIAL THEMSELVES AND HENCE THE P URCHASE, IN THE INSTANCE CASE, CANNOT BE REGARDED AS WORKS CONTRACT , SINCE THE PRODUCTS PURCHASED REMAINED THE PROPERTY OF THE SUPPLIER TIL L THE TIME OF DELIVERY AND SUCH ITEMS GET TRANSFERRED TO THE ASSESSEE ONLY THE REAFTER. ON THE OTHER HAND, IT IS A PURE TRANSACTION OF SALE. BY PLACING RELIANCE UPON THE DECISION OF THE ITAT, DELHI BENCH, IN THE CASE OF REBOK INDI A, AS WELL AS AMENDED PROVISIONS OF SECTION OF 194C THE LEARNED CIT(A) OB SERVED THAT THE ASSESSEE HAD NOT SUPPLIED ANY MATERIAL TO THE MANUFACTURER B UT MERELY PROVIDED SPECIFICATIONS. SUCH A TRANSACTION WOULD NOT CONSTI TUTE CONTRACT FOR WORK AND THUS THE SAME IS NOT LIABLE FOR TDS. CONSEQUENT LY DISALLOWANCE UNDER SECTION 40(A)(IA) IS NOT WARRANTED. 8. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. THE LEARNED D.R. SUBMITTED THAT THE CONTRACT BE TWEEN THE ASSESSEE AND M/S. ASHIT PACKAGING PVT. LTD. AND M/S. LIBA ENTERP RISE IS IN THE NATURE OF JOB CONTRACT SINCE THE MATERIAL SUPPLIED BY THE ABO VE MENTIONED TWO PARTIES WERE AS PER THE SPECIFIC REQUIREMENTS OF THE ASSESS EE AND IT WAS CUSTOM MADE. THEREFORE THE AO WAS JUSTIFIED IN INVOKING PR OVISIONS OF SECTION 194C AND CONSEQUENTLY DISALLOWING THE PAYMENT UNDER SECT ION 40(A)(IA) OF THE ACT. 9. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ASSESSEE SUPPLIED ANY RAW MATERIAL TO THE MANUFACTURERS. MERELY BECAUSE T HE PRODUCTS SUPPLIED BY THE ABOVE MENTIONED TWO PARTIES WERE AS PER THE SPE CIFICATIONS OF THE ASSESSEE IT CANNOT BE CONSIDERED AS WORKS CONTRACT SINCE THE TRANSACTION BETWEEN THE ASSESSEE AND THE OTHER PARTIES IS ON PR INCIPAL TO PRINCIPAL BASIS. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED UPON TH E DECISION OF THE HON'BLE ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 5 BOMBAY HIGH COURT IN THE CASE OF M/S. GLENMARK PHAR MACEUTICALS LTD. (INCOME TAX APPEAL NO. 2256 OF 2009 DATED 12.03.201 0) IN SUPPORT OF HIS CONTENTION THAT UNDER IDENTICAL CIRCUMSTANCES THE H ON'BLE JURISDICTIONAL HIGH COURT HELD THAT PROVISIONS OF SECTION 194C ARE NOT ATTRACTED MERELY BECAUSE A PRODUCT OR THING IS MANUFACTURED ACCORDIN G TO THE SPECIFICATIONS OF A CUSTOMER UNLESS RAW MATERIAL HAS BEEN PURCHASE D FROM THE CUSTOMER WHO ORDERED THE PRODUCT. THE COURT HAD TAKEN INTO C ONSIDERATION THE AMENDED PROVISIONS OF SECTION 194C OF THE ACT TO HO LD THAT THE AMENDMENT WAS CLARIFICATORY IN NATURE OR DECLARATORY OF THE L AW AS IT HAD ALWAYS STOOD IN THE PAST. THE HON'BLE COURT FURTHER OBSERVED THAT S O LONG AS THE AGREEMENT IS ON PRINCIPAL TO PRINCIPAL BASIS AND THE MANUFACT URER HAS OWN ESTABLISHMENT WHERE THE PRODUCT IS MANUFACTURED, AN D OBTAINED MATERIAL FROM ITS OWN SOURCE FOR MANUFACTURING THE PRODUCT, WITHOUT DEPENDING ON THE ULTIMATE PURCHASER, MERELY BECAUSE THE PURCHASE R DESIRED TO GET THE PRODUCT WITH CERTAIN SPECIFICATIONS, IT CANNOT BE S AID THAT THERE IS A CONTRACT OF JOB WORK BETWEEN THE PURCHASER AND THE MANUFACTU RER. THE LEARNED COUNSEL STRONGLY SUBMITTED THAT IN THE INSTANT CASE THE FACTS ARE IDENTICAL. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT SUPPLY ANY MATERIAL TO THE MANUFACTURER AND THE SUPPLY OF FINAL PRODUCT WAS ON PRINCIPAL TO PRINCIPAL BASIS IN WHICH EVENT PROVISIONS OF SECTION 194C ARE NOT APPLICABLE AND PAYMENTS MADE TO THE ABOVE MENTIONED TWO CONCERNS A RE NOT ATTRACTED BY PROVISIONS OF SECTION OF 40(A)(IA). 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IT IS NOT IN DISPUTE THAT THE MATERIAL FOR MANUFACTURING THE END PRODUCT WAS NOT SUPPLIED BY THE ASSESSEE TO M/S. AS HIT PACKAGING PVT. LTD. OR TO M/S. LIBA ENTERPRISE. IN FACT, EXCISE DUTY WA S CHARGED ON THE GOODS SOLD BY THE ABOVE MENTIONED PARTIES. THE CLAIM THAT THE AGREEMENT OF SALE WAS ON PRINCIPAL TO PRINCIPAL BASIS IS NOT CONTROVE RTED BY THE REVENUE. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE WE A RE OF THE VIEW THAT THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IS SQUARE LY APPLICABLE TO THE FACTS OF THE CASE. UNDER THE CIRCUMSTANCES WE DO NO T FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A). THEREFORE THE GROUN D URGED BY THE REVENUE IS DISMISSED. ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 6 11. IN THE CROSS OBJECTIONS THE ASSESSEE STRONGLY SUPPO RTED THE ORDER PASSED BY THE LEARNED CIT(A) WITH REGARD TO DELETIO N OF DISALLOWANCE MADE BY THE AO UNDER SECTION 40(A)(IA) OF THE ACT. SINCE TH E APPEAL FILED BY THE REVENUE IS DISMISSED, GROUND NO. 1 URGED BY THE ASS ESSEE IN THE CROSS OBJECTIONS DOES NOT SURVIVE. 12. VIDE GROUND NO. 2 THE ASSESSEE COMPANY CONTENDS THA T THE ASSESSEE HAVING EARNED DIVIDEND INCOME OF ` 1,448/- ONLY THE AO WAS NOT JUSTIFIED IN COMPUTING THE AMOUNT DISALLOWABLE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D AND AT BEST THE DISALLOWANCE SHOULD BE REST RICTED TO ` 1,448/- ONLY. IT MAY BE NOTICED THAT THE AO COMPUTED THE AMOUNT D ISALLOWABLE UNDER RULE 8D AT ` 3,87,319/-. BEFORE THE FIRST APPELLATE AUTHORITY TH E ASSESSEE CONTENDED THAT INTEREST BEARING FUNDS WERE NOT UTIL ISED FOR MAKING INVESTMENTS TO EARN DIVIDEND INCOME AND HENCE THE C OMPUTATION OF DISALLOWANCE UNDER RULE 8D IS NOT IN ACCORDANCE WIT H LAW. IT WAS FURTHER CONTENDED THAT EVEN OTHERWISE CORRECT FIGURES WERE NOT TAKEN INTO CONSIDERATION WHILE APPLYING THE FORMULA UNDER RULE 8D. IF THE MISTAKE IN CALCULATING THE AVERAGE VALUE OF INVESTMENTS IS TAK EN INTO CONSIDERATION THE DISALLOWANCE WOULD WORK OUT TO ` 1,22,340/- ONLY. IT WAS ALSO CONTENDED THAT CERTAIN LOANS WERE TAKEN FOR SPECIFIC PURPOSES SUCH AS CAR LOAN, ETC. AND HENCE INTEREST DIRECTLY RELATED TO CAR LOANS, TERM LOANS, ETC. SHOULD NOT BE TAKEN AS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. 13. THE LEARNED CIT(A) OBSERVED THAT MERELY BECAUSE THE SHARE CAPITAL AND RESERVES ARE MORE THAN THE INVESTMENTS IN VARIOUS Y EARS IT CANNOT BE ASSUMED THAT THERE IS NO INDIRECT COST ASSOCIATED W ITH THE INVESTMENTS. IN FACT THE INVESTMENTS ARE MADE AT DIFFERENT POINTS O F TIME AND IT IS FOR THE ASSESSEE TO ESTABLISH THAT NO INTEREST BEARING FUND S/OD LIMITS WERE UTILISED FOR MAKING INVESTMENTS. THIS COULD BE ONLY POSSIBLE IF APPELLANT HAD PRODUCED THE DAY-TO-DAY CASH FLOW STATEMENT OF NOT ONLY THE PREVIOUS YEAR BUT ALSO OF THE PAST YEARS, WHEN THE INVESTMENTS WE RE MADE. FOR EXAMPLE, THE ASSESSEE MAY HAVE ` 10 CRORES OF SHARE CAPITAL AND RESERVES BUT MAY NOT HAVE CASH BALANCE TO INVEST SINCE ALL THESE FUNDS M UST HAVE BEEN UTILISED FOR PURCHASE OF PLANT AND MACHINERY, ETC. AND ASSESSEE COMPANY MIGHT UTILISE OD ACCOUNT FOR MAKING INVESTMENT. THUS, THE COMPARI SON OF SHARE CAPITAL ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 7 VIS--VIS INVESTMENT CANNOT LEAD TO A CONCLUSION TH AT INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS. IN FACT, TO OVERCO ME SUCH COMPLICATIONS AND DIFFERENCES RULE 8D WAS BROUGHT INTO THE STATUTE AN D UNLESS THE ASSESSEE ESTABLISHES WITH CASH FLOW STATEMENTS THAT NO INTER EST BEARING FUNDS WERE EMPLOYED FOR MAKING THE INVESTMENTS AND THERE IS NO INDIRECT EXPENSES RELATABLE TO SUCH INVESTMENTS, APPLICATION OF RULE 8D CANNOT BE QUESTIONED. HOWEVER, HAVING REGARD TO THE FACT THAT THE ASSESSE E PAID INTEREST ON CAR LOAN, ETC. WHICH ARE NOT EITHER DIRECTLY OR INDIREC TLY ATTRIBUTABLE TO EXEMPT INCOME, WHILE WORKING OUT THE DISALLOWANCE UNDER RU LE 8D THE AO NEEDS TO TAKE THOSE FACTS INTO CONSIDERATION. IN OTHER WORDS , THE LEARNED CIT(A) WAS OF THE OPINION THAT THERE IS A MISTAKE IN CALCULATING THE VALUE OF AVERAGE INVESTMENT AND ACCORDINGLY THE AO WAS DIRECTED TO C ORRECT THE FIGURE OF AVERAGE INVESTMENT FOR CALCULATING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. IT MAY BE NOTICED THAT THE ASSESSEE STRONGLY R ELIED UPON THE DECISION OF THE ITAT MUMBAI BENCH IN THE CASE OF YATISH TRADING CO. (P.) LTD. VS. ACIT 9 TAXMANN.COM 164 (MUM) WHICH PERTAINS TO A.Y. 2004-0 5 WHEREIN IT WAS HELD THE RULE 8D WAS NOT APPLICABLE. THE LEARNED CI T(A) OBSERVED THAT THE AFOREMENTIONED DECISION IS DISTINGUISHABLE SINCE RU LE 8D IS APPLICABLE FOR A.Y. 2008-09 AND THE ASSESSEE FAILED TO ESTABLISH T HAT NO BORROWED FUNDS WERE UTILISED IN ANY OF THE INVESTMENTS. 14. THOUGH INITIALLY THE ASSESSEE DID NOT FILE APPEAL A GAINST THE ORDER OF THE LEARNED CIT(A), BY TAKING THE BENEFIT OF THE AP PEAL FILED BY THE REVENUE, THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D WAS C HALLENGED BEFORE US BY WAY OF CROSS OBJECTION. THE LEARNED COUNSEL STRONGL Y SUBMITTED THAT WHEN THE DIVIDEND INCOME ITSELF IS ` 1,448/- DISALLOWANCE OF MORE THAN ` 1,00,000/- IS HIGHLY ARBITRARY. HE ALSO SUBMITTED THAT INTERES T BEARING FUNDS WERE NOT UTILISED FOR MAKING INVESTMENTS. HE ALSO CONTENDED THAT THERE ARE NUMBER OF DECISIONS OF COORDINATE BENCHES OF ITAT WHEREIN THE DISALLOWANCE WAS LIMITED TO THE INCOME EARNED BY THE ASSESSEE. 15. ON THE OTHER HAND, THE LEARNED D.R. SUBMITTED THAT THE EXPENDITURE NEED NOT BE PROPORTIONATE TO THE INCOME AND IT IS F OR THE ASSESSEE TO PROVE THAT INTEREST BEARING FUNDS WERE NOT UTILISED FOR M AKING INVESTMENTS. IN THE ABSENCE OF SUFFICIENT MATERIAL ON RECORD THE AO IS ENTITLED TO INVOKE ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 8 PROVISIONS OF SECTION 14A READ WITH RULE 8D FOR COM PUTING THE AMOUNT DISALLOWABLE. 16. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. IT IS WELL SETTLED THAT THE INCOME NEED NOT BE PROPORTIONATE TO THE EXPENDITURE AND VICE-VERSA. IN CERTAIN CASES THERE MAY NOT BE ANY INCOME IN THE INITIAL YEARS THOUGH THE ASSESSEE HAD INCURRED EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING IN COME ON A PARTICULAR HEAD. IN THE CASE OF CIT VS. RAJENDRA PRASAD MODY 1 15 ITR 519 THE HON'BLE SUPREME COURT OBSERVED THAT MERELY BECAUSE AN ASSES SEE HAS NOT RECEIVED DIVIDEND INCOME IN A PARTICULAR YEAR THE EXPENDITUR E LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH INCOME SHOULD NOT BE DISALLOWED. BY APPLYING THE SAME LOGI C, IN THE INSTANT CASE ALSO THE ASSESSEE HAVING MADE HUGE INVESTMENT IT CA NNOT BE SAID THAT THERE IS NO EXPENDITURE INDIRECTLY ATTRIBUTABLE TO THE IN VESTMENT AND FOR EARNING THE DIVIDEND INCOME. IN FACT THE LEGISLATURE HAVING NOTICED THAT IT IS DIFFICULT TO DETERMINE THE EXACT AMOUNT OF EXPENDITURE, WHICH IS INDIRECTLY ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME, THE FOR MULA WAS DISCUSSED UNDER SECTION 14A READ WITH RULE 8D OF IT RULES. SINCE TH E LEARNED CIT(A) HAS TAKEN THE FACTS OF THE CASE TO DIRECT THE AO TO REC OMPUTE THE AMOUNT DISALLOWABLE UNDER RULE 8D, WE DO NOT FIND ANY INFI RMITY IN THE ORDER PASSED BY THE CIT(A). THEREFORE GROUND NO. 2 OF THE ASSESS EE IN ITS CROSS OBJECTIONS IS HEREBY REJECTED. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AS W ELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2013. SD/- SD/- (SANJAY ARORA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 19 TH APRIL, 2013 ITA NO. 8042/MUM/2011 M/S. ALLIED INSTRUMENT PVT. LTD. 9 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 19, MUMBAI 4. THE CIT V, MUMBAI CITY 5. THE DR, A BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.