UNIVERSAL MEDICARE P.LTD, MUMBAI V. ASST CUT LTU, MUMBAI

ITA 839/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4007 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 08-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 08-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BABAN D PATIL
• Assessee Lawyers: D V LAKHANI
• Keywords: Earning of tax free income; Revised return
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 839/MUM/2012 ASSESSMENT YEAR: 2007-08 UNIVERSAL MEDICARE P. LTD CAPSULATION PREMISES, SION TROMBAY ROAD, DEONAR, MUMBAI 400 088 VS. ACIT LTU MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : MR. D.V. LAKHANI REVENUE BY : MR. BABAN D. PATIL DATE OF HEARING : 08.07.2013 DATE OF PRONOUNCEMENT : 24.07.2013 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEALS FILED BY THE ASSESSEE IS DIRECTED AGA INST THE ORDER OF THE LD.CIT(A) -22, MUMBAI DATED 27.12.2011 FOR THE ASS ESSMENT YEAR 2007-08. 2. GROUNDS NO. 1, 2 & 3 RELATE TO THE DISALLOWANCE OF RS.48,66,304/- MADE BY THE AO U/S 14A READ WITH RULE 8D AND THE DIRECTION GIVEN BY THE LD.CIT(A) TO THE AO TO TREAT THE EXPENDITURE DIRECTLY ATTRIBUTABLE T O THE INCOME THEERBY DETERMINE THE DISALLOWANCE U/S 14A AND A FURTHER DIRECTION TO MAK E THE DISALLOWANCE @ 0.5% OF THE AVERAGE VALUE IN SHARES & MUTUAL FUNDS. 2.1 BRIEFLY STATED, THE ASSESSEE, A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING, TRADING AND SALE OF ENCAPSULATION OF SOFT GELATIN CAPSULES, WHILE FILING A REVISED RETURN DECLARING TOTAL INCOME OF RS.14,53 ,32,012/- HAD SHOWN A DIVIDEND INCOME OF RS.1,35,96,026/- AND A LONG TERM CAPITAL GAINS OF RS.6,29,325/- AS EXEMPT INCOME. ACCORDING TO THE ASSESSEE, THE SAID INVESTM ENTS WERE NOT OUT OF ANY BORROWED FUNDS AND HENCE NO EXPENSES WERE REQUIRED TO BE ATTRIBUTED FOR EARNING THE EXEMPT INCOME. HOWEVER, IN THE ASSESSMENT FRAME D U/S 143(3), THE AO MADE THE DISALLOWANCE OF RS.48,66,304/- BY INVOKING SECT ION 14A READ WITH RULE 8D. ITA NO. 839/MUM/2012 UNIVERSAL MEDICARE P. LTD ASSESSMENT YEAR: 2007-08 2 2.2 ON APPEAL, THE LD.CIT(A) WHILE UPHOLDING THE D ISALLOWANCE MADE BY THE AO, HAS DIRECTED THE AO THAT FOR CARRYING OUT THE WORKI NG OF DISALLOWANCE, THE AO SHALL TAKE EXPENDITURE DIRECTLY ATTRIBUTABLE TO THE INCOM E AND DISALLOW U/S 14A. IN ADDITION, FOR MAKING THE DISALLOWANCE OF INTEREST, THE AO SHALL FIND OUT THE RATIO OF AVERAGE VALUE OF INVESTMENT IN SHARES AND MUTUAL FU ND TO THE AVERAGE OF TOTAL ASSETS AS PER BALANCE SHEET AND APPLY THIS RATIO TO THE IN TEREST DEBITED TO THE P & L ACCOUNT. FURTHER, AO SHALL ALSO DISALLOW 0.5% OF TH E AVERAGE VALUE OF INVESTMENT IN SHARES AND MUTUAL FUND EXEMPT, BEING ADMINISTRATIVE COST. THE AO HAS TO SUM UP ALL THESE THREE WHICH WILL GIVE THE CORRECT FIGURE OF D ISALLOWANCE U/S 14A. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THES E GROUNDS IN THE APPEAL BEFORE US. 2.3 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS NOTED THAT THE QUESTION OF MAKING DISALLOWANCE U/S 14A IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN GO DREJ & BOYCE LTD. MFG. CO. VS. DCIT [(2010)] 328 ITR 81 (BOM)] HOLDING THAT THE P ROVISIONS OF SECTION 14A ARE APPLICABLE IN CIRCUMSTANCES AS ARE PREVAILING PRESE NTLY AND THE DISALLOWANCE HAS TO BE WORKED OUT BY THE AO ON SOME REASONABLE BASIS AND NOT UNDER RULE 8D IN SO FAR AS THE ASSESSMENT YEARS PRIOR TO 2008-09 ARE CONCER NED. PRESENTLY WE ARE DEALING WITH THE A.Y. 2007-08. IN SUCH YEAR, OBVIOUSLY RULE 8D CANNOT BE APPLIED, BUT THE DISALLOWANCE IS REQUIRED TO BE WORKED OUT ON SOME R EASONABLE BASIS. AS THE AO HAS COMPUTED THE DISALLOWABLE AMOUNT AS PER RULE 8D, SU CH COMPUTATION CANNOT BE UPHELD BY THE LD.CIT(A). UNDER SUCH CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED DECISION ON THIS ISSUE AND RESTORE THE MATTER TO TH E FILE OF THE AO FOR DECIDING THE QUANTUM OF DISALLOWANCE, AS PER THE AFORE-NOTED JUD GMENT, AFTER ALLOWING A REASONABLE OPPORTUNITY OF BEING HERD TO THE ASSESSE E. 3. GROUNDS NO. 4 & 5 ARE NOT PRESSED BY THE LD. AR OF THE ASSESSEE AND HENCE DO NOT REQUIRE ANY ADJUDICATION. 4. GROUND NO. 6 RELATE TO LEVYING SURCHARGE AND EDU CATIONAL CESS BEFORE ADJUSTING MAT CREDIT. IT IS PERTINENT TO MENTION TH AT THIS ISSUE HAS NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER. HOWEVER, THE SAM E HAS BEEN RAISED BEFORE THE LD.CIT(A). THE CLAIM OF THE ASSESSEE IS THAT MAT CR EDIT SHOULD FIRST BE REDUCED FROM ITA NO. 839/MUM/2012 UNIVERSAL MEDICARE P. LTD ASSESSMENT YEAR: 2007-08 3 THE TAX PAYABLE AND THEREAFTER ON THE RESIDUAL AMOU NT THE SURCHARGE AND EDUCATIONAL CESS BE LEVIED. IT IS RELEVANT TO NOTE THAT IN THE INCOME TAX RETURN FORM- ITR-6, COLUMN NO. 4, THE ASSESSEE IS REQUIRED TO FI LL THE CREDIT U/S 115JAA OF TAX PAID IN EARLIER YEARS AND AFTER WHICH ON THE BALANCE TAX PAYABLE, THE ASSESSEE HAS TO FILL THE SURCHARGE AND EDUCATIONAL CESS AT COLUMN NO. 8 AND 10 FOR THE PURPOSE OF ARRIVING AT THE GROSS TAX LIABILITY. ALSO, THE ITAT IN THE CASE OF RICHA GLOBAL EXPORTS (P) LTD V ACIT IN ITA NO. 2303/DEL/2012 HAS HELD TH ERE IS NO NEED TO GIVE SEPARATE CREDIT OF EDUCATION CESS AND SURCHARGE WHILE GIVING CREDIT OF MAT. WHAT IS REQUIRED IS THAT IN THE YEAR WHEN SUCH CREDIT IS GIVEN, EDUC ATION CESS AND SURCHARGE SHOULD BE COMPUTED AFTER GIVING CREDIT OF MAT TO THE TAX COMP UTED ON THE ASSESSED INCOME IN THE SAME WAY AS IN THE CASE OF INTEREST UNDER SECTI ONS 234B AND 234C. THE NATURE OF MAT IS LIKE PRE-PAID TAXES AND, THEREFORE, IT SH OULD BE TREATED ALIKE FOR THE PURPOSES OF COMPUTING EDUCATION CESS AND SURCHARGE ALSO. IN VIEW OF THAT MATTER, WE FIND MERITS IN THE CONTE NTION OF THE ASSESSEE THAT MAT CREDIT SHOULD FIRST BE REDUCED FROM THE TAX PAYABLE AND THEREAFTER ON THE RESIDUAL AMOUNT THE SURCHARGE AND EDUCATIONAL CESS BE LEVIED . WE ORDER AND DIRECT ACCORDINGLY. GROUND NO. 6 IS ALLOWED. 5. IN THE RESULT THE APPEALS FILED BY THE ASSESSEE IS TREATED AS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF JULY, 2013. SD/- SD/- (RAJENDRA SINGH) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 24.07.2013. *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR F BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.