ESTERLA BATTERIES LTD, MUMBAI V. DCIT CIR 2(1), MUMBAI

ITA 8142/MUM/2011

• Counselvise Citation: 814219914 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 07-05-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , . , BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO , ACC OUNTANT MEMBER . / ITA NO . 8142 / MUM./ 2011 ( / ASSESSMENT YEAR : 2008 09 ) M/S. ESTRELA BATTERIES LIMITED ROMM NO.40, YUSUF BUILDING VEER NARIMAN ROAD, FORT MUMBAI 400 023 PAN AABCE3092Q .. / APPELLA NT V/S DY . COMMISSIONER OF INCOME TAX CIRCLE 2 ( 1 ), MUMBAI .... / RESPONDENT / ASSESSEE BY : S HRI VIJAY MEHTA / REVENUE BY : SHRI NEIL PHILIP / DATE O F HEARING 07 .05 .2015 / DATE OF ORDER 22.05.2015 / ORDER . , / PER D. KARUNAKARA RAO , A .M. P TH E PRESENT APPEAL S PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 8 TH SEPTEMBER 2011, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 4, MUMBAI, FOR THE ASSESSMENT YEAR 200 8 09. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: M/S. ESTRELA BATTERIES LIMITED 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) FAILED TO AP PRECIATE THAT RULE 8D CANNOT BE MADE APPLICABLE WITHOUT FIRST REJECTING THE CLAIM OF THE APPELLANT AS ENVISAGED UNDER SUB SECTION (2) OF SECTION 14A. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LEARNED CIT(A) ERRED IN CONFIRMING TH E DISALLOWANCE OF ` 10,93,779 UNDER SECTION 14A INSTEAD OF RS. 20,015 AS DETERMINED BY THE APPELLANT. UNDER THE FACTS AND CIRCUMSTANCES OF THE MATTER, HE OUGHT TO HAVE UPHELD THE DISALLOWANCE UNDER SECTION 14A AT RS. 20,015 ONLY. 2. THE FACTS OF THE CASE A RE THAT THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS. 3,48,96,184, WHICH WAS CLAIMED EXEMPT FROM INCOME TAX AND HENCE, THE ASSESSEE OFFERED AN AMOUNT OF RS. 15,37,932 FOR DISALLOWANCE UNDER SECTION 14A, IN ITS RETURN OF INCOME ON ESTIMATE BASIS. THE ASSESSIN G OFFICER, HOWEVER, APPLIED RULE 8D OF THE I.T. RULES, 1962 AND MADE DISALLOWANCE OF RS. 5,79,00,014, AGGRIEVED BY WHICH, THE ASSESSEE CARRIED THE MATTER BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(A), AFTER CONSIDERING VARIOUS SUBMISSIONS MADE BY THE ASSESSEE, OBSERVED THAT THE ASSESSEE HAD CLAIMED THAT WHILE CALCULATING 0.5% OF AVERAGE INVESTMENTS FOR DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES, THE ASSESSING OFFICER HAS WRONGLY INCLUDED IN THE CLOSING INVESTMENT FDR WITH HDFC BANK AMOUN TING TO RS. 9,98,00,000 AND FURTHER CLAIMED THAT RS. 5,000, WHICH ARE INVESTED IN NATIONAL SAVING CERTIFICATES HAVE BEEN WRONGLY INCLUDED IN THE OPENING BALANCE AS THE CERTIFICATES WERE PERTAINING TO THE EARLIER YEAR AND THE INCOME IS ALSO TAXABLE FROM SU CH CERTIFICATES. THE LEARNED CIT(A), ACCORDINGLY, DIRECTED THE ASSESSING OFFICER TO VERIFY THE ITEMS WHICH HAVE BEEN WRONGLY INCLUDED IN THE CLOSING AND OPENING BALANCE AND RECALCULATE THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES TO THE EXTENT OF 0.5% OF AVERAGE INVESTMENT WHICH THE ASSESSEE HAS M/S. ESTRELA BATTERIES LIMITED 3 CALCULATED AT RS. 10,93,779 AND RESTRICT THE DISALLOWANCE UNDER SECTION 14A TO SUCH RECALCULATED AMOUNT. BEING AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US, THE LEARNED COUN SEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL, MUMBAI BENCH ES , IN ASSESSEES OWN CASE . A COPY OF THE SAID DECISION IS PLACED ON RECORD. 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. 6. AFTER HEARING BOTH THE PARTIES, WE FIND THAT THE PRESENT ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.7370/ MUM./2012, ORDER DATED 20 TH MARCH 2015, FOR TH E ASSESSMENT YEAR 2009 10 , WHEREIN THE CO ORDINATE BENCH, WHILE SPEAKING THROUGH ONE OF US (A.M), ALLOWED THE CLAIM OF THE ASSESSEE FOR THE REASONS AS STATED IN PARA 6 OF ITS ORDER WHICH IS REPRODUCED BELOW: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT, IT IS SEEN THAT THE ASSESSEE HAS DEBITED FOLLOWING INDIRECT EXPENSES: (I) ADMINISTRATIVE EXPENSES ` RS. 7,28,722 (II) EMPLOYEES COSTS RS 10,20,555 (III) DEPRECIATION RS. 9,64,517 (IV) FINANCE CHARGES RS. 14,596 (V) LOSS ON SALE OF INVESTMENT RS. 94,57,739 OUT OF THE AFORESAID EXPENSES, THE AMOUNT OF LOSS ON SALE OF INVESTMENT AND DEPRECIATION HAS TO BE REMOVED WHICH HAS NOTHING TO DO WITH THE INVESTMENT IN SHARES. THE BALANCE EXPENSES WHICH HAD BEEN DEBITED, WORKS OUT TO RS. M/S. ESTRELA BATTERIES LIMITED 4 17,63,873. FROM THE SCHEDULE OF INVESTMENT, IT IS SEEN THAT MOST OF THE INVESTMENT HAVE BEEN MADE IN MUTUAL FUNDS AND DEPOSITS IN THE HDFC LTD. SOME OF THE INVESTMENT HAS ALREADY BEEN DIRECTED BY THE CIT(A) TO BE EXCLUDED. IF THE NATURE OF INVESTMENT AND OVERALL INDIRECT EXPENSES IS TAKEN INTO CONSIDERATION, THEN IT CANNOT BE SAID THAT SUCH A HUGE DISALLOWANCE OF RS. 26,45,200 IS CALLED FOR AS WORKED OUT BY THE A.O. RULE 8D IS NOT A MECHANICAL PRO VISION WHICH IS TO BE RESORTED WHENEVER THERE IS DISALLOWANCE U/S 14A(1). THE SAME HAS BEEN SUBJECTED TO CONDITIONS ENUMERATED IN SUB SECTION (2) OF SECTION 14A. THE DISALLOWANCE U/S 14A(1) IS MADE, ONLY IF THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME, THAT IS, IT IS NOT FORMING PART OF THE TOTAL INCOME. IF SUCH AN EXPENDITURE IS INCURRED THEN SUB SECTION (2) PROVIDES THAT THE A.O. SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF SUCH EXEMPT INCOME. HOWEVER, SUCH A DETERMINATION CAN BE MADE ONLY WHEN THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNT OF THE ASSESSEE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM IN RESPECT OF SUCH EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME. IN O THER WORDS THE A.O. HAS TO EXAMINE THE NATURE OF EXPENDITURE VIS A VIS THE EARNING OF THE EXEMPT INCOME. HERE IN THIS CASE THE ASSESSEE HAD OFFERED RS. 2,40,000 FOR THE PURPOSE OF DISALLOWANCE. HOWEVER, THE A.O. WITHOUT EXAMINING THE SAME HAS PROCEEDED TO APPLY RULE 8D, AS IF IT IS A NATURAL COROLLARY TO SECTION 14A. THE BASIC REQUIREMENT THE LAW IS TO EXAMINE THE NATURE OF THE EXPENDITURE WHICH CAN BE SAID TO ATTRIBUTABLE FOR THE EARNING OF THE EXEMPT INCOME. IF THE ASSESSEE HAS INCURRED MAJOR EXPENDITURE FOR ITS CORE BUSINESS, THEN IT IS INCUMBENT UPON THE A.O. AND IS MANDATORY FOR HIM TO EXAMINE THE NATURE OF EXPENDITURE AND SATISFY HIMSELF ABOUT THE ASSESSEES CLAIM AS TO WHETHER ANY EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME AND THEN HE HAS TO QUANTIFY THE EXPENDITURE. HERE IN THIS CASE, ONLY CLAUSE (III) OF RULE 8D HAS BEEN INVOKED BY THE A.O. TO WORK OUT THE INDIRECT EXPENSES, WITHOUT SATISFYING HIMSELF ABOUT THE ASSESSEES CORRECTNESS OF THE CLAIM. IN ABSENCE OF SATISFYING THE MANDATORY REQUIREMENT AS GIVEN IN SUB SECTION (2) OF SECTION 14A, THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER RULE 14A, CANNOT BE TINKERED WITH AND ALSO IT APPEARS TO BE REASONABLE LOOKING TO THE OVERALL INDIRECT EXPENDITURE INCURRED BY THE ASSESSEE . M/S. ESTRELA BATTERIES LIMITED 5 7. FROM THE ABOVE, IT IS EVIDENT THAT AN AMOUNT OF RS. 2.40 LAKHS IS FOUND DISALLOWA BLE UNDER SECTION 14A OF THE ACT, FOR THE A.Y. 2009 10 . CONSIDERING THE ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE, SIMILAR DISALLOWANCE CAN BE MADE IN THE YEAR UND ER CONSIDERATION AFTER EXAMINING THE EXPENDITURE CLAIMED IN THE YEAR UNDER CONSIDERATION PROVIDED THE EXPENSES IN THIS YEAR IS COMPARABLE. BOTH THE PARTIES AGREED FOR REMANDING THIS ISSUE FOR THE LIMITED PURPOSE OF ANALYZING THE EXPENDITURE AND COMPARING T HE SAME WITH THAT OF THE ASSESSMENT YEAR 2009 10. ACCORDINGLY, FOR THE LIMITED PURPOSE, THE MATTER IS REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE DISALLOWANCE UNDER SECTION 14A AFTER GRANTING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 8. 9. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 22 ND MAY 2015 SD/ - VIJAY PAL RAO JUDICIAL MEMBER SD/ - . D. KARUNAKARA RAO ACCOUNTANT MEMBER MUMBAI, DATED : 22 ND MAY 2015 M/S. ESTRELA BATTERIES LIMITED 6 / 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. P RIVATE SECRETARY / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI