DCIT 2(3), MUMBAI V. SHEBA PROPERTIES LTD, MUMBAI

ITA 8386/MUM/2010

• Counselvise Citation: 838619914 RSA 2010
• Duration Of Justice: 3 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 18-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 02-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PITAMBER DAS
• Assessee Lawyers: P J PARDIWALLA
• Keywords: Business income; Depreciation; Opportunity of being heard; Earning of tax free income; Cost of acquisition
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI RAJENDRA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 M/S. SHEBA PROPERTIES LTD. C/O. TATA MOTORS LTD. 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMI MODY STREET, FORT, MUMBAI- 400 001 VS. DCIT-2(3) ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 ASSESSMENT YEARS: 1998-99 & 2006-07 DCIT-2(3) ROOM NO. 555, AAYAKAR BHAVAN, MUMBAI VS. M/S. SHEBA PROPERTIES LTD. C/O. TATA MOTORS LTD. 3 RD FLOOR, NANAVATI MAHALAYA, 18, HOMI MODY STREET, FORT, MUMBAI- 400 001 (APPELLANT) (RESPONDENT) PERMANENT ACCOUNT NO. :- AAECS 0591 F ASSESSEE BY : SHRI P.J. PARDIWALLA REVENUE BY : SHRI PITAMBER DAS DATE OF HEARING : 15.04.2014 DATE OF PRONOUNCEMENT : 25.06.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THESE ARE FIVE APPEALS, TWO FILED BY THE REVENUE AN D THREE FILED BY THE ASSESSEE, THE DETAILS OF WHICH ARE AS AFOREMENTIONE D IN THE SHORT CAUSE TITLE. ALL THE APPEALS ARE HEARD TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER. ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 2 REVENUES APPEALITA NO. 1954/MUM/2003 FOR THE A.Y. 1998-99 2. IN THIS APPEAL, THE REVENUE HAS AGITATED THE ACT ION OF THE LD.CIT(A) DELETING THE DISALLOWANCE OF RS.65,19,510/- MADE BY THE AO, BEING THE CLAIM OF DEPRECIATION ON LEASED ASSETS. 2.1 BRIEFLY STATED, DURING THE YEAR UNDER CONSIDERA TION, THE ASSESEE COMPANY PURCHASED ENERGY METERS COSTING IN AGGREGATE OF RS. 65,19,510/- FROM ANDHRA PRADESH STATE ELECTRICITY BOARD [APSEB]. THESE ASSE TS WERE SUBSEQUENTLY LEASED OUT TO ABSEB VIDE LEASE AGREEMENT DATED 30.09.1997. THE ASSESSEE HAD CLAIMED DEPRECIATION @ 100%, ASSETS BEING ENERGY SAVING DEV ICE ELIGIBLE FOR 100% DEPRECIATION. HOWEVER, THE AO HAD DISALLOWED THE DE PRECIATION ON THE GROUND THAT THIS WAS MERELY A FINANCIAL ARRANGEMENT AND THE INT ENTION BEHIND THE LEASE AGREEMENT WAS NEVER TO OWN THE ASSETS BUT TO LEND M ONEY ON THE SECURITY OF THE ASSETS. ON APPEAL, THE LD.CIT(A) DELETED THE IMPUGN ED DISALLOWANCE ON THE BASIS OF THE EARLIER ORDER OF THE LD.CIT(A) PROVIDING RELIEF TO THE ASSESSEE ON SIMILAR ISSUE FOR THE ASSESSMENT YEAR 1996-97. AGGRIEVED BY THE IMPUG NED DECISION, THE REVENUE IS IN APPEAL BEFORE US. 2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT IT IS THE CONTENTION OF T HE REVENUE THAT ACCORDING TO THE DECISION OF THE SPECIAL BENCH IN THE CASE OF INDUSIND BANK LTD. VS. ACIT (2012) 135 ITD 165 (MUM) (SB) , THE TRANSACTION IS MERELY A FINANCIAL TRANSACTION AND HENCE THE ASSESSEE IS NOT THE OWNER OF THE ASSET AND THEREFOR E DEPRECIATION CANNOT BE AVAILED BY THE ASSESSEE. ON THE OTHER HAND, IT IS THE CONTE NTION OF THE LD.SENIOR COUNSEL FOR THE ASSESSEE THAT AT THE TIME OF RENDERING THE DECI SION IN THE CASE OF INDUSIND BANK LTD (SUPRA) , THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. COSMO FILMS LTD. (2011) 338 ITR 266 (DEL) HAS NOT BEEN POINTED OUT BEFORE THE SPECIAL BENCH OF THE TRIBUNAL AND THEREFORE ACCORDING TO THE SAID DE CISION OF THE DELHI HIGH COURT, THE ASSESSEE IS ENTITLED FOR THE CLAIM OF DEPRECIATION. THE LD.SENIOR COUNSEL HAS FURTHER RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF M/S. ICDS LTD. VS. ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 3 CIT, MYSORE (2013), 350 ITR 527(SC), THE DECISIONS OF THE CO-ORDINATE BENCHES OF THE TRIBUNAL IN THE CASES OF DEVELOPMENT CREDIT BANK VS. DCIT (ITA NO. 3006/MUM/2011), M/S. LARSEN AND TURBO LTD. VS. JCIT (ITA NO. 2200/MUM/2000) AND SIMCOM LTD. VS. JCIT (ITA NO. 7901/MUM/2003) IN SUPPORT OF THE CLAIM OF THE ASSESSEE. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE SIDES, IT IS RELEVANT TO MENTION THAT THE ISSUE RELATING TO THE CLAIM OF DEP RECIATION VIS--VIS SALE AND LEASE BACK OF ASSETS HAS BEEN CONSIDERED BY THE SPECIAL B ENCH OF THE TRIBUNAL IN THE CASE OF INDUSIND BANK LTD. (SUPRA). HOWEVER, THE ENTIRE CONTROVERSY HAS BEEN SET AT REST BY THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF ICDS LTD. (SUPRA), WHEREIN THE APEX COURT HAS ALLOWED THE DEPRECIATION IN THE CASE OF SALE AND LEASE BACK TRANSACTION. THIS DECISION OF THE APEX COURT HAS BE EN FOLLOWED BY THE TRIBUNAL IN THE CASE OF DEVELOPMENT CREDIT BANK LTD (SUPRA). CONSIDERING THE FACT OF THE CASE IN THE LIGHT OF THE JUDICIAL DECISIONS, WE FIND THAT THE I SSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND ACCORDINGLY THE ASSESSEE IS ENTITL ED TO CLAIM THE DEPRECIATION ON SALE AND LEASED BACK ASSETS. THEREFORE, THE ORDER O F THE LD.CIT(A) IN ALLOWING THE CLAIM OF DEPRECIATION IS UPHELD. RESULTANTLY, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. ASSESSEES APPEAL (ITA NO. 2228/MUM/2003) FOR THE A .Y. 1998-99 3. IN GROUND NO. 1, THE ASSESSEE HAS AGITATED THE A CTION OF THE LD.CIT(A) IN NOT FULLY ALLOWING THE INTEREST OF RS.2,33,32,920/- PAI D ON BORROWED FUNDS. 3.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPAN Y HAD CLAIMED AN AMOUNT OF RS.2,33,32,920/- TOWARDS INTEREST ON BORROWED FUNDS DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAD CLAIMED THE SAME WA S UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, NAMELY, PU RCHASE OF SHARE SINCE THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF PUR CHASE AND SALE OF SHARES. HOWEVER, THE AO CONCLUDED THAT THE ASSESSEE COMPANY WAS NOT DEALER IN SHARES AND ACCORDINGLY THE INTEREST PAID DURING THE YEAR WAS T REATED AS COST OF ACQUISITION OF SHARES, THEREBY THE DEDUCTION CLAIMED BY THE ASSESS EE WAS DENIED BY THE AO. ON APPEAL, THE LD.CIT(A) DIRECTED THE AO TO ALLOCATE T HE EXPENDITURE U/S 14A, ON ACCOUNT OF INTEREST ON BORROWED FUNDS AGAINST THE T AX FREE DIVIDEND INCOME EARNED ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 4 BY THE ASSESSEE. ACCORDING TO THE LD.CIT(A), THE AS SESSEE COMPANY HAD BORROWED FUNDS AMOUNTING TO RS.50.04 CRORES AND THE ENTIRE F UNDS WERE INVESTED FOR PURCHASING SHARES OF OTHER COMPANIES OUT OF WHICH I T HAD EARNED TAX FREE DIVIDEND INCOME. THE LD.CIT(A), WHILE NOTING THAT THE ASSESS EE HAD EARNED TAX FREE DIVIDEND INCOME OF RS.1,41,79,460/-, HAD OBSERVED THAT ON TH E ONE HAND THE ASSESSEE CLAIMED THAT THE DIVIDEND INCOME WAS EXEMPT HENCE N O INTEREST EXPENDITURE SHOULD BE ALLOCATED AGAINST IT AND ON THE OTHER HAND IT AL SO CLAIM THE EXPENDITURE ON ACCOUNT OF INTEREST ON BORROWED FUNDS U/S 36(1)(III ) OF THE ACT. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE IS IN APPEAL BEFORE US. 3.2 BEFORE US, THE LD.SENIOR COUNSEL FOR THE ASSESS EE HAS ARGUED THAT THE INTEREST EXPENDITURE IS ALLOWABLE U/S 36(1)(III) AND NO DISA LLOWANCE U/S 14A CAN BE MADE FOR PURCHASE OF SHARES FOR CONTROLLING THE INTEREST. TH E LD.SENIOR COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THE MONEY WAS BORROWED TO CONTROL THE COMPANIES AND AS REGARDS THE AMOUNT OF 1.41 CRORES EARNED AS DIVI DEND INCOME, THERE IS NO BIFURCATION OF THE INVESTMENT AND HENCE IT HAS TO B E TREATED AS THE ASSESSEE HAS ENGAGED IN THE BUSINESS OF MAKING INVESTMENT. FURTH ER, THE LD.CIT(A) IS NOT EMPOWERED TO DIRECT THE AO TO ALLOCATE THE EXPENDIT URE U/S 14A, ON ACCOUNT OF INTEREST ON BORROWED FUNDS AGAINST THE TAX FREE DIV IDEND INCOME EARNED BY THE ASSESSEE ACCORDING TO THE DECISION OF THE KERALA HI GH COURT IN THE CASE OF CIT, TRICHUR VS SHRI PAUL JOHN, DELICIOUS CASHEW CO., (2 011) 200 TAXMAN 154 . ON THE OTHER HAND, IT IS THE CONTENTION OF THE REVENUE THA T IN PURSUANCE OF THE DIRECTION GIVEN BY THE LD.CIT(A), THE AO HAS PASSED THE ORDER GIVING EFFECT TO THE DIRECTION WHICH IS NOT BEING CONTESTED BY THE ASSESSEE AND H ENCE THIS GROUNDS BEFORE THE TRIBUNAL DOES NOT SURVIVE. THE LD.DR BY POINTING OU T TO THE ASSESSMENT ORDER HAS STATED THAT THE ASSESSEE ALL THE TIME SHOWED THE TR ANSACTION OF DEALING IN SHARES ONLY AS A CAPITAL GAIN AND THE DURING THE ASSESSMEN T YEARS 1994-95 TO 1998-99, THE ASSESSEE HAS NOT SHOWN ANY BUSINESS INCOME AND HENC E IT CAN BE PRESUMED THAT THE ASSESSEE HAS NOT BEEN IN ANY BUSINESS ACTIVITY. THE REFORE, THE SAID EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT ELIGIBLE U/S 36(1)(I II) OF THE ACT. MOREOVER, WHEN THERE IS A DIVERSION OF FUNDS FOR NON BUSINESS PURPOSE, T HE SAID EXPENDITURE IS NOT ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 5 ALLOWABLE UNDER THE PROVISIONS OF THE INCOME TAX AC T. AS REGARDS THE DIRECTION OF THE LD.CIT(A) FOR MAKING THE PROPER DISALLOWANCE U/S 14 A THE LD.DR HAS CONTENDED THAT THE DIRECTION OF THE LD.CIT(A) IS LEGALLY PERMISSIB LE. 3.3 WE HAVE HEARD BOTH THE SIDES AND PERUSED THE M ATERIAL ON RECORD. FIRSTLY, ON THE ISSUE OF THE CORRECTNESS OF THE DIRECTION GI VEN BY THE LD.CIT(A) TO ALLOCATE THE EXPENDITURE U/S 14A, ON ACCOUNT OF INTEREST ON BORR OWED FUNDS AGAINST THE TAX FREE DIVIDEND INCOME EARNED BY THE ASSESSEE, IT IS PERT INENT TO MENTION THAT ACCORDING TO THE DECISION OF THE HIGH COURT OF KERALA IN THE CAS E OF CIT, TRICHUR VS SHRI PAUL JOHN, DELICIOUS CASHEW CO .,(SUPRA), THE PROVISO TO SECTION 14A OF THE INCOME TAX ACT PROHIBITS ALL SITUATIONS WHERE THE OFFICER IS OTHER WISE ENTITLED OR REQUIRED TO REVISE AN ASSESSMENT WHICH INCLUDES ORDER OF ENHANCEMENT ISSU ED BY THE CIT(A) IN EXERCISE OF HIS POWERS. THE ASSESSMENT YEAR UNDER CONSIDERATION BEING 1998-99, WE ARE OF THE CONSIDERED VIEW THAT THE SAID BAR IN THE PROVISO TO SECTION 14A, ACCORDING TO THE DECISION OF THE HIGH COURT OF KERALA, IS APPLICABLE IN RELATION TO THE EXERCISE OF APPELLATE POWER BY THE CIT(A) ALSO. THEREFORE, THE LD.CIT(A) IS NOT WITHIN HIS POWERS TO DIRECT THE AO TO ALLOCATE THE EXPENDITURE U/S 14A, ON ACCOUNT OF INTEREST ON BORROWED FUNDS AGAINST THE TAX FREE DIVIDEND INC OME EARNED BY THE ASSESSEE. THUS, THE SAID DIRECTION IS NOT LEGALLY TENABLE. SECONDLY, AS REGARDS THE CORRECTNESS OF DISALLOWING THE INTEREST ON BORROWED FUNDS, THE PERUSAL OF THE FINDINGS OF THE LD.CIT(A) CONTAINED IN PARA 4.5 OF THE IMPUGNED ORD ER INDICATES THAT THE LD.CIT(A) HAS COMPLETELY IGNORED THE CONTENTIONS OF THE ASSES SEE AGAINST THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AO AS THE LD.CIT(A ) HAS ALTOGETHER PROCEEDED TO DECIDE THE ISSUE IN THE LIGHT OF SECTION 14A, WHICH WE HAVE ALREADY HELD AS NOT LEGALLY TENABLE IN VIEW OF THE PROVISO TO SECTION 1 4A. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT IT IS JUST AND PROPER TO SET A SIDE THIS ISSUE BACK TO THE FILE OF THE LD.CIT(A) FOR RE ADJUDICATION OF THE ISSUE AFTE R PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE DIRECT AND ORDER ACCORDINGLY. RESULTANTLY, GROUND NO. 1 ALLOWED FOR STATISTICAL PURPOSE. 4. GROUND NO. 2 IS NOT PRESSED BY THE ASSESSEE AND HENCE ADJUDICATION OF THE SAID GROUND IS NOT REQUIRED. ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 6 5. IN GROUND NO. 3, THE ASSESSEE HAS AGITATED THE A CTION OF THE LD.CIT(A) IN UPHOLDING THE DECISION OF THE AO DISALLOWING THE IN TEREST PAID ON LATE PAYMENT OF DIVIDEND TAX IN TERMS OF SECTION 115(O) OF THE INCO ME-TAX ACT. 5.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE COMPAN Y PAID DIVIDEND FOR THE FINANCIAL YEAR 1996-97 AND TAX ON DIVIDEND WAS NOT DEPOSITED WITHIN THE STIPULATED TIME FOR WHICH THE TAX ON SUCH DIVIDEND OUGHT TO HA VE BEEN PAID. ACCORDINGLY, THE TAX ON DIVIDEND DEPOSITED ALONG WITH THE INTEREST O F RS.23,400/- WAS DISALLOWED BY THE AO. ON APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE AO THAT THE INTEREST PAID FOR DELAYED PAYMENT OF DIVIDEND TAX COULD NOT BE CO NSIDERED AS AN EXPENDITURE FOR THE PURPOSE OF EARNING ANY INCOME OR PROFIT. AGGRIE VED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN THE APPEAL B EFORE US. 5.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE INTEREST PAID U/S 115 (P) OF THE ACT IS TO RE-COMPENSATE THE GOVERNMENT ON ACCOUNT OF LOSS OF INTEREST DUE T O DELAYED PAYMENT OF THE TAX, WHICH IN OUR VIEW, IS NOT PENAL IN NATURE AND HENCE THE SAME HAS TO BE ALLOWED AS AN EXPENDITURE. ACCORDINGLY, THE DISALLOWANCE/ADDIT ION MADE/CONFIRMED BY THE AO/LD.CIT(A) ON THIS COUNT STANDS DELETED. GROUND NO 3 IS ALLOWED. 6. GROUND NO. 4 IS NOT PRESSED BY THE ASSESSEE AND HENCE ADJUDICATION OF THE SAME IS NOT REQUIRED. 7. IN THE RESULT THIS APPEAL FILED BY THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. REVENUES APPEALITA NO. 8386/MUM/2010 & ASSESSEES APPEAL (ITA NO. 1434/MUM/2013) FOR THE A.Y. 2006-07 8. GROUND NO 1 OF THE REVENUES APPEAL IS GENERAL I N NATURE AND HENCE DOES NOT REQUIRE ANY ADJUDICATION. 9. THE ISSUE RAISED IN GROUND NO. 2 OF THE REVENUE S APPEAL PERTAINS TO DELETION OF THE DISALLOWANCE OF STAMPING EXPENSES OF RS.27,5 9,976/-. THE RELEVANT FACTS ARE THAT THE ASSESSEE, HAD INCURRED STAMPING EXPENSES O F RS.27,59,976/- WHICH WAS ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 7 CLAIMED AS INCURRED IN THE NORMAL COURSE OF ITS FIN ANCING BUSINESS, I.E., BUSINESS OF GIVING LOANS TO THE CUSTOMERS. THE COMPANY, BEING A NON BANKING FINANCIAL COMPANY, GIVES LOAN FOR PURCHASE OF VEHICLE AND IND USTRIAL EQUIPMENT. THE SAID STAMPING EXPENSES REPRESENTED A STATUTORY OBLIGATIO N PAYABLE ON THE LOANS AGREEMENTS. THE STAMP DUTY WAS REQUIRED TO THE PAID ON EACH LOAN AGREEMENT DEPENDING ON THE PREVAILING RATES OF STAMP DUTY IN EACH STATE WHERE THE VEHICLE IS FINANCED BY THE ASSESSEE COMPANY. AS THE ASSESSEE W AS NOT IN A POSITION TO RECONCILE THE EXPENSES AND THE RECEIPTS BILL WISE D URING THE ASSESSMENT PROCEEDING, THE AO WAS NOT IN A POSITION TO VERIFY THE SAME AND THEREBY DISALLOWED THE CLAIM OF THE ASSESSEE. ON APPEAL, THE LD.CIT(A) OBSERVED THA T THE IMPUGNED EXPENSES ON ACCOUNT OF STAMP DUTY CHARGES WERE LEGITIMATE BUSIN ESS EXPENSES IN RESPECT OF VEHICLE FINANCE CONTRACT. FURTHER, SINCE THE INCOM E FROM WHICH HAD BEEN ASSESSED TO TAX AND THE BOOKS OF THE ACCOUNTS OF THE ASSESSE E COMPANY WERE AUDITED, THE LD. CIT(A) HELD THAT STAMP DUTY CHARGES WERE INCURRED F OR THE PURPOSE OF BUSINESS AND THEREBY ALLOWED THE DEDUCTION CLAIMED BY THE ASSESS EE. AGGRIEVED BY THE IMPUGNED DECISION, THE REVENUE IS IN APPEAL BEFORE US. 9.1 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD IT IS NOTED THAT THE AO HAS DISPUTED ONLY THE CORRECTNESS OF TH E DETAILS AS REGARDS THE EXPENSES CLAIMED BY THE ASSESSEE ON ACCOUNT OF STAMP CHARGES IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT RECONCILED THE EXPENSES CLAIMED. H OWEVER, IT IS NOTED THAT THE LD.CIT(A), WITHOUT GIVING ANY OPPORTUNITY TO THE AO IN THE APPELLATE PROCEEDINGS, HAS SIMPLY ACCEPTED THE CONTENTION OF THE ASSESSEE. NO DOUBT THE STAMP DUTY CHARGES ARE TO BE TREATED BE INCURRED FOR THE PURPO SE OF THE BUSINESS OF THE ASSESSEE. HOWEVER, THE DETAILS OF THE EXPENDITURE C LAIMED HAS NOT BEEN VERIFIED BY THE LD.CIT(A) FOR THE PURPOSE OF QUANTIFYING THE CL AIM OF EXPENSES. CONSIDERING THE ENTIRETY OF FACTS, WE ARE OF THE CONSIDERED VIEW TH AT IT IS JUST AND PROPER TO SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO VERIFY THE DETA ILS OF THE CLAIM MADE BY THE ASSESSEE AND ACCORDINGLY QUANTIFY THE ELIGIBLE AMOUNT AS ALL OWABLE DEDUCTION. WE ORDER AND DIRECT ACCORDINGLY. RESULTANTLY, GROUND NO 2 IS ALLOWED FOR STATISTICAL PURPOSE. ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 8 10. GROUND NO. 3 OF THE REVENUES APPEAL AND THE IS SUE RAISED IN THE ASSESSEES APPEAL RELATE TO THE COMMON ISSUE OF DISALLOWANCE M ADE U/S 14A OF THE ACT. 10.1 THE RELEVANT FACTS ARE THAT THE AO HAD EARLIER MADE A DISALLOWANCE AS PER RULE 8D AMOUNTING TO RS.95,62,777/- U/S 14A. AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2006-07, WHERE RULE 8D OF THE INCO ME-TAX ACT RULES IS NOT APPLICABLE THE LD.CIT(A) DIRECTED THE AO TO MAKE A REASONABLE DISALLOWANCE BY FOLLOWING THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF GODREJ BOYCE MANUFACTURING COMPANY LTD . THE AO HAS NOW RESTRICTED THE DISALLOWANCE @ 5% O F DIVIDEND INCOME. THE REVENUE HAS AGITATED THE ACTIO N OF THE LD.CIT(A) IN DIRECTING THE AO TO MAKE REASONABLE DISALLOWANCE AND NOT TO A PPLY RULE 8D. THE ASSESSEE HAS AGITATED THE ACTION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE AO ON AD HOC BASIS OF 5% OF EXEMPT INCOME IN PURSUANCE OF THE EARLIER DIRECTION. 10.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, AS THE ASSESSMENT YEAR UNDER CONSIDERATION IS 2006-07 WHER E RULE 8D OF THE INCOME-TAX ACT RULES IS NOT APPLICABLE, THE LD. CIT(A) DIRECTE D THE AO TO MAKE THE REASONABLE EXPENDITURE BY FOLLOWING THE DECISION OF THE HONBL E BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MANUFACTURING COMPANY LTD. AS THE I SSUE IS NO MORE A RES INTEGRA, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION OF TH E LD.CIT(A) SINCE RULE 8D OF THE INCOME TAX RULES IS NOT APPLICABLE FOR THE ASSESSME NT YEAR UNDER CONSIDERATION. THEREFORE, GROUND NO. 3 OF THE REVENUES APPEAL IS DISMISSED. 10.2.1 AS REGARDS THE ISSUE OF DISALLOWANCE ON AD HOC BASIS @ 5% OF EXEMPT INCOME, IT IS THE CONTENTION OF THE ASSESSEE THAT N O EXPENDITURE IS ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME AND THEREFORE, NO DISA LLOWANCE HAS TO BE MADE. IN THIS CONNECTION, IT IS PERTINENT TO MENTION THAT TH E DIVIDEND INCOME OF THE ASSESSEE WAS AT RS.5.11 CRORES AND THE AVERAGE VALUE OF THE INVESTMENT WAS AROUND RS.67.42 CRORES. IT HAS BEEN SETTLED NOW THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN TH E YEARS EARLIER TO THE A.Y.2008- 09. DEPENDING ON THE FACTS IN EACH CASE, SUCH DISAL LOWANCE RANGES BETWEEN 2 TO 5 PERCENTAGE OF THE DIVIDEND INCOME. AFTER CONSIDERIN G THE ENTIRETY OF FACTS AND CONTENTION OF BOTH SIDES, WE ARE OF THE CONSIDERED VIEW THAT IT WOULD BE JUST AND ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 9 REASONABLE THAT 2% OF THE EXEMPT INCOME WOULD CONST ITUTE A REASONABLE DISALLOWANCE ON ACCOUNT OF INDIRECT EXPENSES FOR EA RNING THE EXEMPT INCOME U/S 14A OF THE ACT. WE DIRECT AND ORDER ACCORDINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND TH AT OF THE ASSESSEE IS PARTLY ALLOWED. ASSESSEES APPEAL (ITA NO. 254/MUM/2012) FOR THE A. Y. 2008-09 [ 13. IN GROUND NO. 1, THE ASSESSEE HAS AGITATED THE DECISION OF THE LD. CIT(A) CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT READ WITH RULE 8D OF THE ACT. 13.1 THE RELEVANT FACTS ARE THAT DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE WAS IN RECEIPT OF DIVIDEND INCOME OF RS.4,98,42,498 /- AND CAPITAL GAINS INCOME OF RS.9,28,03,125/- FROM SALE OF SHARES OF TATA STEEL LTD. TO ITS HOLDING COMPANY TATA MOTORS LTD AND THEREBY CLAIMED THE SAID INCOME AS E XEMPT. IN THE ASSESSMENT FRAMED, THE AO APPLIED RULE 8D AND COMPUTED THE DIS ALLOWANCE @ 0.5% OF AVERAGE VALUE OF TAX FREE INVESTMENT WHICH WAS WORKED OUT A T RS.38,42,156/-. ON APPEAL, THE LD.CIT(A) UPHELD THE IMPUGNED DISALLOWANCE AS T HE AO HAD CORRECTLY POINTED OUT THAT SUCH SUBSTANTIAL INCOME WAS A RESULT OF CONSCI OUS DECISION OF THE MANAGEMENT AND EXPENSES LIKE FINANCIAL, MAN POWER, ESTABLISHME NT WERE DEFINITELY INCURRED. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HA S RAISED THIS GROUND IN THE APPEAL BEFORE US. 13.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MA TERIAL ON RECORD, IT IS RELEVANT TO STATE THAT IT IS THE CLAIM OF THE ASSESEE THAT N O EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME AND THE DISALLOWANCE MADE /CONFIRMED BY THE LOWER AUTHORITIES IS MORE THAN THE ACTUAL EXPENDITURE CLA IMED AS DEDUCTION BY THE ASSESSEE. HOWEVER, CONSIDERING THE FACT THAT THE AS SESSEE WAS IN RECEIPT OF HUGE DIVIDEND INCOME OF RS.4,98,42,498/- AND CAPITAL GAI NS INCOME OF RS.9,28,03,125/-, WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE REV ENUE THAT SUCH SUBSTANTIAL INCOME IS A RESULT OF CONSCIOUS DECISION OF THE MANAGEMENT AND EXPENSES LIKE FINANCIAL, MAN ITA NOS. 2228/MUM/2003, 1434/MUM/2013 &254/MUM/2012 ITA NOS. 1954/MUM/2003, & 8386 /MUM/2010 M/S. SHEBA PROPERTIES LTD. ASSESSMENT YEARS: 1998-99, 2006-07 & 2008-09 10 POWER, ESTABLISHMENT, WHICH ARE PRESUMABLY INCURRED BY THE ASSESSEE. AT THE SAME TIME, WHILE DISALLOWING THE INDIRECT ADMINISTRATIVE EXPENSES BY INVOKING SECTION 14A READ WITH RULE 8D, THE SAID DISALLOWANCE CANNOT EXC EED THE ACTUAL TOTAL EXPENDITURE CLAIMED AS DEDUCTION BY THE ASSESSEE. IN VIEW OF TH AT MATTER, THE AO IS DIRECTED TO VERIFY THE FACT WHETHER THE IMPUGNED DISALLOWANCE I S MORE THAN THE ACTUAL TOTAL EXPENDITURE CLAIMED AS DEDUCTION BY THE ASSESSEE AN D ACCORDINGLY RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT OF THE DEDUCTION OF EXPENDITURE CLAIMED BY THE ASSESSEE. WE ORDER AND DIRECT ACCORDINGLY. RESULTAN TLY, GROUND NO 1 IS ALLOWED FOR STATISTICAL PURPOSE. 14. IN GROUNDS NO 2 &3 THE ASSESSEE HAS AGITATED T HE DECISION OF THE LD.CIT(A) IN NOT DELETING THE LEVY OF INTEREST UNDER SECTION 234C OF THE ACT AND NOT DIRECTING THE AO TO RECOMPUTED THE INTEREST U/S 234D RESPECTI VELY. THE PERUSAL OF THE ORDER OF THE LD.CIT(A) INDICATES THAT THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD DURING THE FIRST APPELLATE PROCEEDING HAVE NOT BEEN ADJUDICATED BY THE LD.CIT(A) AS THE SAME ARE CONSEQUENTIAL. THEREFORE, IT IS JUST A ND PROPER TO SET ASIDE THESE GROUNDS BACK TO THE LD.CIT(A) FOR DECIDING THE SAME IN ACCORDANCE WITH LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER AND DIRECT ACCORDINGLY. GROUNDS NO 2 &3 ARE ALLOWED FOR STATISTICAL PURPOSE . 15. IN THE RESULT, THIS APPEAL FILED BY THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 25 TH DAY OF JUNE 2014. //SD// //SD// (RAJENDRA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 25.06.2014. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR H BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.