SANGAM SPINFAB LTD., MUMBAI V. I.T.O. WARD 8(3)(1), MUMBAI

ITA 807/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0345 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Assessee Lawyers: R C JAIN
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 807 / MUM . /2018 ( ASSESSMENT YEAR : 20 1 2 1 3 ) SANGAM SPINFAB LTD. SHOP NO.704 711, MAZANNIE FLOOR GAUTAM TEXTILE MARKET RING ROAD, SURAT 395002 PAN AAFCS7905N . APPELLANT V/S INCOME TAX OFFICER WARD 8 (3)(1), MUMBAI . RESPONDENT ASSESSEE BY : SHRI R.C. JAIN REVENUE BY : SHRI S.K. BEPARI DATE OF HEARING 11 .09.2018 DATE OF ORDER 12.09.2018 O R D E R A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 20 TH SEPTEMBER 2017 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 18 , MUMBAI, FOR ASSESSMENT YEAR 20 1 2 13 . 2 . THE ISSUE IN DISPUTE IN THE PRESENT APPEAL IS CONFINED TO DISALLOWANCE OF ` 12,62,933, MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) R/W RULE 8D OF THE INCOME TAX RULES, 1962. 2 SANGAM SPINFAB LTD. 3 . BRIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF FABRICS. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 29 TH JANUARY 2012, DECLARING TOTAL INCOME OF ` 28,74,440. IN COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICE R NOTICED THAT IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 1,68,082. WHEREAS , THE ASSESSEE HAS DISALLOWED AN AMOUNT OF ` 43,632, TOWARDS EXPENDITURE ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME. ON E XAMINING THE BALANCE SHEET OF THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT THE OPENING AND CLOSING INVESTMENT IN SHARES AMOUNTED TO ` 1,97,47,939 AND ` 2,69,02,785 RESPECTIVELY. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY EXPENDITURE UNDER SECT ION 14A OF THE ACT SHOULD NOT BE DISALLOWED. IN RESPONSE, THOUGH, THE ASSESSE E SUBMITTED THAT THE VOLUNTARY DIS ALLOWANCE MADE BY IT IS THE ACTUAL EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME, HOWEVER, THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE PROCEEDED TO DISALLOW AN AMOUNT OF ` 12,62,933, COMPRISING OF INTEREST EXPENDITURE OF ` 11,44,745 UNDER RULE 8D(2)(II) AND ADMINISTRATIVE EXPENDITURE OF ` 1,16,627, UNDER RULE 8D(2)(III). BEING AGGRIEVED OF SUCH DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. THE LEARNED COMMISSIONER (APPEALS) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DIRECTED THE ASSESSING OFFICER TO REDUCE INTEREST ON CAR LOAN 3 SANGAM SPINFAB LTD. AMOUNTING ` 51,824 FROM THE GROSS INTEREST EXPENSE FOR COMPUTING DISALLOWANCE UNDER RULE 8D(2)(II). FURTHER, HE DIRECTED THE ASSESSING OFFICER TO REDUCE THE AMOUNT OF ` 43,632, ALREADY DISALLOWED BY THE ASSESSEE. 4 . THE LEARNED AUTHORISED REPRESENTATIVE, THOUGH, CONTE STED THE DISALLOWANCE SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS) ON VARIOUS GROUNDS INCLUDING NON RECORDING OF SATISFACTION BY THE ASSESSING OFFICER, HOWEVER, HE ULTIMATELY SUBMITTED , IF THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D IS RESTRICTED TO THE EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR , ASSESSEE WILL HAVE NO GRIEVANCE . 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 6 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATER IALS ON RECORD. UNDISPUTEDLY, IN THE RELEVANT PREVIOUS YEAR, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 1,68,082. IT IS ALSO A FACT THAT THE ASSESSEE HAS VOLUNTARILY DISALLOWED AN AMOUNT OF ` 43,632 UNDER SECTION 14A OF THE ACT . WHEREAS, THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF ` 12, 62,933 UNDER SECTION 14A R/W RULE 8D WHICH IS MORE THAN THE EXEMPT INCOME EARNED DURING THE YEAR . IN MY VIEW AND AS PER THE SETTLED LEGAL PRINCIPLE, DISALLOWANCE UNDER SECTION 14A R/W RULE 8 D CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME 4 SANGAM SPINFAB LTD. EARNED DURING THE RELEVANT PREVIOUS YEAR. THAT BEING THE CASE, CONSIDERING THE FACT THAT THE ASSESSEE HAS VOLUNTARILY DISALLOWED AN AMOUNT OF ` 43,632, TOWARDS EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME , THE DISALLOWANCE UNDER SECTIO N 14A SHOULD BE RESTRICTED TO A FURTHER AMOUNT OF ` 1,24,450. THE BALANCE ADDITION SUSTAINED BY THE LEARNED COMMISSIONER (APPEALS) SHOULD BE DELETED. GROUNDS RAISED ARE PARTLY ALLOWED. 7 . IN THE RESULT, ASSESSEES APPEAL IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12.09.2018 SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 12.09.2018 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI