DCIT CEN CIR 37, MUMBAI V. MIRC ELECTRONICS LT, MUMBAI

ITA 835/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5023 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 10-09-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 31-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DIVYA BAJPAI IZRFKHZ DH LS
• Keywords: Earning of tax free income; Revenue expenditure; Capital expenditure
• Section: 14A

Judgement Text

M.S. MIRC ELECTRONICS LTD - 1 - VK;DJ VIHYH; VF/KDJ.K TH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUM BAI JH JKTSUNZ FLAG YS[KK LNL; ,OA JH FOT; IKY JKO] YS[ KK LNL; DS LE{K BEFORE SHRI RAJENDRA SINGH ACCOUNTANT MEMBER AND SH RI VIJAY PAL RAO JUDICIAL MEMBER VK;DJ VIHY LA[;K /ITA NO. 835/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2007-08 DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 37, ROOM NO.11, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI 400 020. CUKE@ VS. M.S. MIRC ELECTRONICS LTD., G-1, MIDC, ONIDA HOUSE, MAHAKALI CAVES ROAD, ANDHERI (E) MUMBAI 400093. PAN:- AAACM8055A VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY MS. DIVYA BAJPAI IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI BHAVIN SHAH VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 29.11.2010 OF CIT(A) FOR THE ASSESSMENT YEARS 2007- 08. THE REVENUE IN THIS APPEAL HAS RAISED DISPUTES ON TWO DIFFERENT GROUNDS . 2. THE FIRST DISPUTE RAISED BY THE REVENUE IS REGAR DING ALLOWABILITY OF EXPENDITURE ON ACCOUNT OF MARKET RESEARCH. THE AO N OTED THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 2255151 ON ACCOUNT OF EXPENDITURE ON MARKET RESEARCH. THE ASSESSEE EXPLAINED THAT THE EXPENDITU RE INCURRED ON MARKET LQUOKBZ DH RKJH[K @ DATE OF HEARING 10-09-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 13-09-2013 M.S. MIRC ELECTRONICS LTD - 2 - RESEARCH WAS TO TEST AND GAUGE THE CONSUMERS PERCEP TION, PREFERENCE AND AWARENESS ETC., TO HELP THE ASSESSEE TO FORMULATE I TS MARKETING STRATEGY PRODUCT DEVELOPMENT AND RECONFIGURATION OF THE DESIGNS AND SPECIFICATIONS OF ELECTRONIC PRODUCTS. THE EXPENDITURE INCURRED WAS FOR THE PURP OSE OF BUSINESS AND, THEREFORE WAS ALLOWABLE AS DEDUCTION. AO HOWEVER OB SERVED THAT EXPENDITURE INCURRED WAS AIMED AT LONG TERM GROWTH PLANNING AND FOR SUSTAINED INCREASE IN THE BUSINESS TURN OVER OF THE ASSESSEE. SIMILAR EXP ENDITURE HAD BEEN DISALLOWED IN ASSESSMENT YEAR 2006-07. AO, THEREFOR E, DISALLOWED THE CLAIM OF EXPENDITURE. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT THE ASSESSEE WAS ENGAGED IN THE FIELD OF MANUF ACTURE AND SALE OF TV SETS AND VCRS, AUDIO/VIDEO CASSETTES, AND CD PLAYERS. TH E ASSESSEE WAS, THEREFORE, REQUIRED TO BE UPDATED WITH THE DATA IN RELATION TO PERCEPTION REQUIREMENT AND PREFERENCE OF THE CUSTOMER TOWARDS THE PRODUCTS OFFERED TO THEM. THE EXPENDITURE INCURRED WAS, THEREFORE, FOR THE PURPOSE OF CARRYING ON THE BUSINESS AND WAS ALLOWABLE. THE ASSESSEE PLACED RELIANCE ON SEVERAL JUDGMENTS. CIT(A) OBSERVED THAT THE SAME ISSUE HAD COME UP FOR CONSIDERATION IN ASSESSMENT YEAR 2006-07 IN WHICH THE CLAIM HAS BEEN ALLOWED BY CIT(A) AND THEREFORE, FOLLOWING THE DECISION, CIT(A) DIRECTED THE AO TO DELETE THE ADDITION, AGGRIEVED BY WHICH THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 4 WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECOR DS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING ALLOWABI LITY OF EXPENDITURE INCURRED BY THE ASSESSEE ON THE MARKET RESEARCH. THE EXPENDI TURE HAD BEEN INCURRED IN CONNECTION WITH EXISTING BUSINESS. THE AO HAD DISAL LOWED THE EXPENDITURE AS CAPITAL EXPENDITURE HAVING LONG TERM BENEFITS. CIT( A) FOLLOWING THE DECISION TAKEN IN ASSESSMENT YEAR 2006-07 HAS DELETED THE AD DITION MADE BY AO. WE FIND THAT THIS ISSUE HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2006-07 IN ITA NO.1652/ MUM/2010 IN WHICH THE TRIBUNAL OBSERVED THAT EVEN THE AO HAD ADMITTED THA T THE EXPENDITURE WAS ONLY FOR FORMULATING MARKETING STRATEGIES IN THE PREVAIL ING MARKET WHICH INDICATED THAT THE EXPENDITURE WAS FOR ON GOING BUSINESS FOR INCREASING THE SALES OF EXISTING PRODUCT. TRIBUNAL, THEREFORE HELD THAT THE EXPENDITURE WAS ALLOWABLE AS M.S. MIRC ELECTRONICS LTD - 3 - REVENUE EXPENDITURE. FACTS IN THIS YEAR ARE IDENTIC AL. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF TRIBUNAL IN ASSESSMENT Y EAR 2006-07 (SUPRA) WE CONFIRM THE ORDER OF CIT(A) ALLOWING THE CLAIM OF T HE ASSESSEE. 5. THE SECOND DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES U/S 14A IN RELATION TO EXEMPT INCOME. THE AO NOTED THAT THE AS SESSEE HAD EARNED DIVIDEND INCOME OF RS. 16,50,249/- WHICH WAS EXEMPT FROM TAX BUT THE ASSESSEE HAD NOT MADE ANY DISALLOWANCE OF EXPENSES RELATING TO EXEMP T INCOME. THE ASSESSEE EXPLAINED THAT INVESTMENT HAD BEEN MADE OUT OF OWN FUNDS AND NOT BORROWINGS AND THERE WAS NO OTHER EXPENDITURE INCURRED FOR EAR NING THE DIVIDEND INCOME. THE AO HOWEVER DID NOT ACCEPT THE EXPLANATION GIVEN . HE REFERRED TO THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN CASE OF DA GA CAPITAL MANAGEMENT PVT. LTD. IN ITA NO. (8057/MUM/2003) IN WHICH IT WAS HEL D THAT THE EXPENSES HAD TO BE DISALLOWED AS PER RULE 8D WHICH HAD RETROSPEC TIVE APPLICATION. HE, THEREFORE, COMPUTED THE DISALLOWANCE UNDER RULE 8D AT RS. 13,04,097/- CONSISTING OF INTEREST DISALLOWANCE OF RS. 1,25,773 /- AND DISALLOWANCE OF OTHER EXPENSES OF RS. 11,78,324/-. IN APPEAL CIT(A) FOLLO WING THE JUDGMENT OF HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ BOYCE MANUFA CTURING CO. LTD. HELD THAT RULE 8D WAS APPLICABLE ONLY FROM ASSESSMENT YEAR 20 08-09 AND FOR THE EARLIER YEARS DISALLOWANCE HAD TO BE MADE ON A REASONABLE B ASIS AS HELD BY THE HIGH COURT. CIT(A), THEREFORE, DIRECTED THE AO TO RECOMP UTED THE DISALLOWANCE ON A REASONABLE BASIS IN TERMS OF THE JUDGMENT OF HONBL E HIGH COURT IN CASE OF GODREJ BOYCE MANUFACTURING CO. LTD. (SUPRA). AGGRIE VED BY THE DECISION OF CIT(A), THE REVENUE IS IN APPEAL BEFORE TRIBUNAL. 6. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE RECO RDS AND CONSIDERED THE MATTER CAREFULLY. THE DISPUTE IS REGARDING DISALLOW ANCE OF EXPENSES U/S 14A IN RELATION TO EXEMPT INCOME. THE DISALLOWANCE U/S 14A IS REQUIRED TO BE COMPUTED AS PER METHOD PRESCRIBED BY THE GOVERNMENT WHO HAVE SINCE NOTIFIED THE RULE 8D FOR THE PURPOSE OF COMPUTATION OF DISAL LOWANCE. HONBLE HIGH COURT OF BOMBAY IN CASE OF GODREJ BOYCE MANUFACTURING CO. (SUPRA) HAVE HELD THAT RULE 8D IS APPLICABLE ONLY FROM ASSESSMENT YEAR 200 8-09 AND IN RESPECT OF PRIOR YEARS DISALLOWANCE HAS TO BE MADE AT REASONAB LE BASIS AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. CIT(A) IS, THEREFORE, RIGHT IN NOT M.S. MIRC ELECTRONICS LTD - 4 - UPHOLDING THE DISALLOWANCE COMPUTED BY AO AS PER RU LE 8D. HE HAS DIRECTED THE AO TO RE-COMPUTE THE DISALLOWANCE ON A REASONAB LE BASIS. HOWEVER THE ASSESSEE IS REQUIRED TO BE GIVEN OPPORTUNITY OF HEA RING. WE, THEREFORE, MODIFY THE DIRECTION OF CIT(A) AND DIRECT THE AO TO PASS F RESH ORDER REGARDING DISALLOWANCE OF EXPENSES U/S 14A AFTER NECESSARY E XAMINATION IN THE LIGHT OF JUDGMENT OF BOMBAY HIGH COURT (SUPRA) AND AFTER ALL OWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 7. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED ON 13 -9-2013 SD/- SD/- (VIJAY PAL RAO) (RAJENDRA SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 13.9.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI