SPEED TEX P.LTD, MUMBAI V. DCIT 2(3), MUMBAI

ITA 825/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0123 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 17-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JUSTIN
• Assessee Lawyers: NITESH JAIN
• Keywords: Opportunity of being heard; Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

P A G E | 1 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, M UMBAI BEFORE SHRI RAVISH SOOD , J M AND SHRI N.K.PRADHAN, A M ITA NO. 825/MUM/2016 ( / ASSESSMENT YEAR: 2011 - 12 ) M/S SPEED TAX PRIVATE LTD. 418, COMMERCE HOUSE, 140, NAGINDAS MASTER ROAD, FORT, MUMBAI - 400023 / VS. DCIT - 2(3) MUMBAI ./ ./ PAN NO. AAACS6314G ( / APPELLANT ) : ( / RESPONDENT ) / APPELLANT BY : SHRI NITESH JAIN , A.R / RESPONDENT BY : SHRI V. JUSTIN, D.R / DATE OF HEARING : 22.02 .201 8 / DATE OF PRONOUNCEMENT : 09 .03 .2018 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER: THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 6, MUMBAI , DATED 11.12.2015, WHICH IN ITSELF ARISES FROM THE ASSESSMENT ORDER PASSED BY THE A.O UNDER SEC. 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) FOR AY 2011 - 12. P A G E | 2 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) THE ASSESSEE ASSAILING THE ORDER OF THE CIT(A) HAD RAISED BEFORE US T HE FOLLOWING GROUNDS OF APP EAL: EACH OF THE GROUND OF APPEAL IS INDEPENDENT OF AND WITHOUT PREJUDICE TO EACH OTHER. 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN PASSING THE ORDER WITHOUT PROVIDING SUFFICIENT OPPORTUNITY OF BEING HEARD WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. 2. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN MAKING DISALLOWANCE OF' 8,98,299/ - U/ S. 14A R.W. RULE 8D AS AGAINST 1,89,883/ - AS COMPUTED BY THE APPELLANT AND THE REASONS ASSIGNED FOR DOING SO ARE WRONG AND CONTRARY TO THE FACTS AND THE PROVISIONS OF THE LAW. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, MODIFY OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WHICH IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, SECURITIES ACTIVITIES AND COMMODITY TRADING HAD FILED ITS RETURN OF INCOME FOR A . Y 2011 - 12 ON 27.09.2011, DECLARING TOTAL LOSS OF RS. 31,89,430/ - . THE RETURN OF INCOME FILED BY THE ASSESSEE WAS PROCESSED AS SUCH UNDER SEC. 143(1) OF THE ACT. THE CASE OF THE ASSESSEE WAS THEREAFTER SELECTED FOR SCRUTINY ASSESSMENT UNDER SEC. 143(2). 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS INTER ALIA OBSERVED BY THE A.O THAT THE ASSESSEE COMPANY HAD DURING THE YEAR UNDER CONSIDERATION EARNED DIVIDEND INCOME OF RS.85,528/ - WHICH WAS CLAIMED AS EXEMPT. THE A.O TAKING COGNIZANCE OF THE FACT THAT THOUGH THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF RS.28,32,659/ - , HOWEVER, IT HAD DISALLOWED ONLY AN AMOUNT OF RS.1,89,883/ - UNDER SEC. 14A. THE A.O NOT PERSUADED TO ACCEPT THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SEC. 14A, THEREFORE, RE WORKED THE EXPENSES WHICH WERE ATTRIBUTABLE TO THE EARNING OF THE AFORESAID EXEMPT DIVIDEND INCOME OF RS.86,528/ - AS PER THE P A G E | 3 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) METHODOLOGY CONTEMPLATED UNDER RULE 8D OF THE INCOME TAX ACT, 1962 , AS UNDER: - SR. NO. PARTICULAR AMOUNT 1. AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME NOT FORMING PART OF THE TOTAL INCOME AS PER RULE 8D(2)(I). NIL 2. INTEREST EXPENDITURE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS AS PER RULE 8D(2)(II). RS.8,61,466/ - 3. HALF PERCENT OF AVERAGE OF THE VALUE OF INVESTMENT APPEARING IN THE BALANCE SHEET IN THE FIRST AND LAST DAY OF THE PREVIOUS YEAR AS IT RULE 8D(2)(III). RS.33,833/ - TOTAL RS.8,98,299/ - . THE A.O ON THE BASIS OF HIS AFORESAID CALCULATIONS WORKED OUT THE DISALLOWANCE UNDER SEC. 14A IN THE HANDS OF THE ASSESSEE AT RS. 8,98,299/ - . 4. AGGRIEVED, THE ASSESSEE ASSAILED THE ASSESSMENT FRAMED BY THE A.O BEFORE THE CIT(A). THE CIT(A) AFTER DELIBERATING ON THE CONTENTIONS OF THE ASSESSEE IN THE BACKDROP OF THE FACTS OF THE CASE OBSERVED THAT THE DISALLOWANCE WORKED OUT BY THE A.O UNDER SEC. 14A R.W. RULE 8D OF RS.8,98,299/ - WAS IN CONFORMITY WITH THE METHODOLOGY OF COMPUTING THE SAID DISALLOWANCE AS PROVIDED UNDER THE LAW. THE CIT(A) IN ORDER TO FO RTIFY HIS AFORESAID VIEW PLACED RELIANCE ON THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE M FG. CO . LTD. VS. DCIT (2010) 3 28 ITR 8 1 (BOM) . THUS, THE CIT(A) IN THE BACKDROP OF HIS AFORESAID CONVICTION THAT NO INFIRMITY DID EMERGE FROM THE WORKING OF THE DISALLOWANCE BY THE A.O UNDER SEC. 14A R.W. RULE P A G E | 4 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) 8D AT RS.8,98,299/ - THEREFORE, AFFIRMED THE ORDER OF THE A.O AND DISMISS ED THE APPEAL OF THE ASSESSE E . 5. THE ASSESSEE BEING AGGRIEVED WITH THE ORDER OF THE CIT(A) HAD CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE SH. NITESH JAIN AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED THAT THE CIT(A) HAD ERRED IN MECHANICALLY SUSTAINING THE DISALLOWANCE OF RS.8,98,299/ - MADE BY THE A.O UNDER SEC. 14A R.W. R ULE 8D . IT WAS THE CONTENTION OF THE LD. A.R THAT AS THE DIVIDEND INCOME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS RS.86,528/ - , THEREFORE, NO DISALLOWANCE IN EXCESS OF THE SAID EXEMPT INCOME WAS CALLED FOR IN THE HANDS OF THE ASSESSEE. THE LD. A.R IN THE BACKDROP OF HIS AFORESAID SUBMISSIONS AVERRED THAT THE DISALLOW ANCE UNDER SEC. 14A R.W. RULE 8D IN THE HANDS OF THE ASSESSEE COULD NOT HAVE EXCEEDED THE AMOUNT OF THE DIVIDEND INCOME OF RS.86,528/ - WHICH WAS CLAIMED AS EXEMPT BY THE ASSESSEE. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDER S OF THE LOWER AUTHORIT IES. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE DISALLOWANCE UNDER SEC. 14A WAS WORKED OUT BY THE A.O AS PER THE METHODOLOGY CONTEMPLATED UNDER RULE 8D, THEREFORE, NO INFIRMITY AS REGARDS THE QUANTIFICATION OF THE DISALLOWANCE UNDER SEC. 14A DID EMERGE FR OM HIS ORDER. IT WAS SUBMITTED BY THE LD. D.R THAT AS THE CIT(A) HAD RIGHTLY UPHELD THE DISALLOWANCE MADE BY THE A.O UNDER SEC. 14A R.W. RULE 8D, THEREFORE, THE APPEAL FILED BY THE ASSESSEE WAS DEVOID OF ANY FORCE AND AS SUCH WAS LIABLE TO BE DISMISSED. 6. WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES , PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT OUR INDULGENCE IN THE PRESENT APPEAL HAS BEEN SOUGHT FOR ADJUDICATING AS TO WHETHER THE QUANT IFICATION OF P A G E | 5 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) THE DISALLOWANCE UNDER SEC. 14A MADE BY THE A.O , WHICH THEREAFTER HAD BEEN SUSTAINED BY THE CIT(A) IS RIGHT IN LAW, OR NOT. WE FIND THAT IT REMAINS AS A MATTER OF FACT THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD EARNED EXEMPT DIVIDEND INCOME OF RS.86,528/. THE A.O WHILE FRAMING ASSESSMENT HAD RE - WORKED OUT THE DISALLOWANCE UNDER SEC. 14A AT AN AMOUNT OF RS.8,98,299/ - BY RESORTING TO THE MACHINERY PROVISIONS CONTEMPLATED UNDER RULE 8D FOR COMPUTING THE DISALLOWANCE . WE HAVE DELI BERATED ON THE CONTENTIONS OF THE ASSESSEE IN THE BACKDROP OF THE FACTS OF THE CASE AND FIND SUBSTANTIAL FORCE IN THE SAME. WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE THAT THE DISALLOWANCE OF EXPENDITURE UNDER SEC. 14A OF THE ACT HAS TO BE WORKED OUT IN THE BACKDROP OF THE EXEMPT INCOME EARNED BY THE ASSESSEE AND CANNOT BE ALLOWED TO EXCEED THE SAME HAD BEEN DELIBERATED UPON BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT (2015) 372 ITR 0694 (DELHI). THE HONBLE HIGH C OURT BEING OF THE VIEW THAT THE DISALLOWANCE OF EXPENDITURE UNDER SEC. 14A OF THE ACT HAS TO BE WORKED OUT IN THE BACKDROP OF THE EXEMPT INCOME OF THE ASSESSEE HAD HELD AS UNDER: - THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS RS.48,90,000/ - , THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/ - . BY NO STRETCH OF IMAGINATION CAN SEC TION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. WE THUS FINDING OURSELVES TO BE IN AGREEMENT WITH THE AFORESAID VIEW SO TAKEN BY THE HON'BLE HIGH COURT, THEREFORE, DIRECT THE A.O TO RESTRICT THE DISALLOWANCE UNDER SEC. 14A UPTO THE AMOUNT OF TH E EXEMPT DIVIDEND INCOME OF RS.86,528/ - EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . THE P A G E | 6 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3) GROUND OF APPEAL NO. 1 AND 2 RAISED BY THE ASSESSEE IS ALLOWED. THE GROUND OF APPEAL NO. 3 BEING GENERAL IN NATURE IS DISMISSED AS NOT PRESSED. 7. THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PRONO UNCED IN THE OPEN COURT ON 09 .03 .2018 SD/ - SD/ - (N.K. PRADHAN) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 09 .03 .2018 PS. ROHIT KUMAR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI P A G E | 7 ITA NO. 825/MUM/2016 A.Y 2011 - 12 M/S SPEED TAX PRIVATE LTD. VS. DCIT - 2(3)