Bosch Chassis Systems Ltd., Pune V. ACIT, Range-1, Pune

ITA 84/PUN/2013

• Counselvise Citation: 8424514 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 08-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P L PATHADE
• Assessee Lawyers: SUNIL PATHAK
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI R.K. PANDA, ACCOUNTANT MEMBER. ITA.NO.84/PN/2013 (ASSESSMENT YEAR 2008-09) BOSCH CHASSIS SYSTEMS LTD., 3 RD FLOOR, GODREJ MILENNIUM, 9, KOREGAON PARK, PUNE 411001 .. APPELLANT PAN NO.AAACK7312E VS. ACIT, RANGE-1, PUNE .. RESPONDENT ASSESSEE BY : SHRI SUNIL PATHAK & SHRI NIKHIL PATHAK REVENUE BY : SHRI P.L. PATHADE DATE OF HEARING : 20-02-2014 DATE OF PRONOUNCEMENT : 26-02-2014 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 02-11-2012 OF THE CIT(A)-I, PUNE RELATING TO ASSESS MENT YEAR 2008-09. 2. GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER : THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE T O EACH OTHER -ON FACTS AND IN LAW, 1.1 THE LEARNED CIT(A) ERRED IN CONFIRMING DISAL LOWANCE OF RS.16,72,870/- AS INCURRED IN RELATION TO EXEMPTED DIVIDEND INCOME U/S. 14A BY APPLYING RULE 8D WHILE ASSESSING TOTAL INCOME AS PER REGULAR PRO VISIONS OF THE INCOME TAX ACT, 1961. 1.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THE LEARNED ASSESSING OFFICER HAD NOT RECORDED ANY SATISFACTION IN THE ASSESSME NT ORDER ABOUT THE INCORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE AND HENCE , THERE WAS NO REASON TO APPLY THE PROVISIONS OF RULE 8D FOR MAKING T HE DISALLOWANCE U/S 14A AND ACCORDINGLY, THE ENTIRE ADDITION MADE OF RS. 16,72,870/- MAY KINDLY BE DELETED. 1.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THA T THE ASSESSEE COMPANY HAD NOT INCURRED ANY EXPENDITURE IN RELATION TO THE EXE MPT INCOME AND HENCE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. 2 1.4 THE LEARNED CIT(A) ERRED IN NOT APPRECIATIN G THE OBJECTIVE BEHIND ENACTMENT OF SECTION 14A WHICH IS TO DISALLOW EXPENDI TURE INCURRED IN RELATION TO ANY INCOME WHICH IS COMPLETELY EXEMPT. S HE ERRED IN NOT APPRECIATING THAT IN THE CASE OF DIVIDEND INCOME, TH E SCHEME OF THE ACT IS TO COLLECT TAX AT THE TIME OF DISTRIBUTION FROM THE COM PANY / MUTUAL FUND AND THE EXEMPTION U/S 10 TO THE INVESTOR IN RESPECT OF DIV IDEND IS GRANTED FOR ADMINISTRATIVE CONVENIENCE. 2. WITHOUT PREJUDICE TO ABOVE GROUNDS, THE ASSESSE E SUBMITS THAT THE DISALLOWANCE SUSTAINED BY THE LEARNED CIT(A) IS VERY HI GH AND MAY BE REDUCED SUBSTANTIALLY. 3. THE APPELLANT COMPANY CRAVES LEAVE TO ADD T O, ALTER, AMEND, MODIFY AND / OR DELETE ANY OR ALL OF THE ABOVE GROUNDS OF A PPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF HYDRAULIC AIR A ND AIR OVER HYDRAULIC BRAKE COMPONENTS AND TRADING IN BRAKE FLUIDS. IT F ILED ITS RETURN OF INCOME ON 30-09-2008 DECLARING TOTAL INCOME OF RS.66,21,00 ,152/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER OBSERVED THAT ASSESSEE HAS RECEIVED DIVIDEND OF RS.2,26,96,000/- AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE I.T. ACT, 1961. THE ASSES SING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY PROPORTIONATE DISALLO WANCE U/S.14A SHOULD NOT BE MADE. THE ASSESSEE SUBMITTED THAT IT IS A C ASH RICH COMPANY. THE SHARE CAPITAL AND FREE RESERVES AND SURPLUS OF THE COMPANY AS ON 31-03- 2008 STOOD AT RS.200.44 CRORES AS AGAINST INTEREST BEARING LOAN OF NIL. THE UNSECURED LOAN DISCLOSED IN THE BALANCE SHEET REPRE SENTS DEFERRED SALES TAX LIABILITY AND THERE WAS NO INTEREST BEARING LOANS W HICH WAS BORROWED BY THE COMPANY AS ON 31-03-2008. IT WAS SUBMITTED THAT AL L THE INVESTMENTS YIELDING TAX FREE AS WELL AS TAXABLE INCOME WERE OU T OF OWN FUNDS OF THE COMPANY AND THEREFORE THERE CANNOT BE ANY DISALLOWA NCE OF INTEREST COST WHICH IS VERY NEGLIGIBLE. 3 3.1 THE ASSESSEE COMPANY FURTHER SUBMITTED THAT GEN ERAL ADMINISTRATIVE EXPENSES CANNOT BE ATTRIBUTED TO EARNING OF TAX FRE E DIVIDEND INCOME. RELYING ON VARIOUS DECISIONS IT WAS ARGUED THAT NO DISALLOWANCE U/S.14A CAN BE MADE SINCE SUCH DISALLOWANCE CAN BE MADE ONL Y WHEN THERE IS DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPEN DITURE INCURRED AND INCOME NOT FORMING PART OF TOTAL INCOME. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THERE CAN BE NO DISALLOWANCE OF INTER EST COST. HOWEVER, HE DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT NO GENERAL AND ADMINISTRATIVE EXPENSES HAVE BEEN INCURRED ON THE G ROUND THAT INVESTMENT DECISIONS ARE COMPLEX DECISIONS AND THE ASSESSEE MU ST HAVE INCURRED CERTAIN ADMINISTRATIVE EXPENSES. APPLYING THE PROV ISIONS OF SECTION 14A R.W. RULE 8D THE ASSESSING OFFICER DISALLOWED AN AM OUNT OF RS.16,72,870/- WHICH WAS UPHELD BY THE CIT(A). 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET S UBMITTED THAT NO BORROWED FUND HAS BEEN UTILISED BY THE ASSESSEE FOR INVESTMENT IN TAX FREE DIVIDEND INCOME. BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS ALSO STATED THAT NO EXPENSES HAVE BEEN INCURRED. REFERRING TO THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF KALYANI STEELS LTD. VS. ADDL.CIT VIDE ITA NO.1733/PN/2012 HE SUBMITTED THAT UNDER IDENTIC AL FACTS AND CIRCUMSTANCES THE DISALLOWANCE MADE BY THE ASSESSEE SUOMOTO AT RS.5 LAKHS WAS UPHELD AND THE ORDER OF THE CIT(A) ENHANC ING THE DISALLOWANCE 4 U/S.14A R.W. RULE 8D TO RS.1,05,46,918/- AGAINST TA X FREE DIVIDEND INCOME OF RS.5.46 CRORES WAS DELETED BY THE TRIBUNAL. REF ERRING TO THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y. 2007-08, A COPY OF WHICH IS PLACED AT PAGES 40 TO 42 OF THE PAPER BOOK HE SUBMI TTED THAT THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE AT 1% OF GROSS DIVIDEND INCOME AS EXPENDITURE DISALLOWANCE U /S.14A OF THE I.T. ACT. HE ACCORDINGLY SUBMITTED THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) SHOULD BE DELETED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND SUBMITTED THAT ALTHOUGH NO INTEREST EXPENDITURE HAS BEEN INCU RRED BY THE ASSESSEE, HOWEVER, IT CANNOT BE SAID THAT NO ADMINISTRATIVE E XPENSES HAS BEEN INCURRED. HE SUBMITTED THAT IN THE IMMEDIATELY PRE CEDING ASSESSMENT YEAR THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO DISALLOW 1% OF THE DIVIDEND INCOME AS EXPENDITURE INCURRED FOR EARNING SUCH TAX FREE DIVIDEND INCOME. IN THE PRECEDING YEAR ALSO THERE WAS NO IN TEREST EXPENDITURE. HE ACCORDINGLY SUBMITTED THAT SOME REASONABLE DISALLOW ANCE SHOULD BE MADE. 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND IN THE INSTANT CASE THE ASSESSEE HAS EARNED TAX FREE DIVIDEND INCOME OF RS.2,26,96,000/- AND CLAIMED THE SAME AS EXEMPT U/S.10(34). WE FIND THE ASSESSING OFFICE R FOLLOWING THE PROVISIONS OF SECTION 14A R.W. RULE 8D DISALLOWED A N AMOUNT OF RS.16,72,870/- AS EXPENDITURE ATTRIBUTABLE TO EARNI NG SUCH EXEMPT DIVIDEND INCOME WHICH HAS BEEN UPHELD BY THE CIT(A). 5 8.1 IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IT HAS NOT INCURRED ANY INTEREST EXPENDITURE AND THE ENTIRE IN VESTMENT IS OUT OF OWN CAPITAL AND FREE RESERVES AND SURPLUS. IT IS ALSO THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT NO ADMINISTRATIVE EXP ENSES HAS BEEN INCURRED SINCE INVESTMENT IN MUTUAL FUNDS ARE MADE ON THE BA SIS OF ADVICE GIVEN BY THE VARIOUS MUTUAL FUNDS AND MOST OF THE OTHER INVE STMENTS ARE FROM OLD INVESTMENTS. FURTHER, ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, NO DISALLOWANCE OF EXPENDITURE U/S.14A CAN BE MADE SIN CE THERE IS NO DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPEN DITURE INCURRED AND INCOME NOT FORMING PART OF TOTAL INCOME AND THEREFO RE THERE CANNOT BE ANY ADHOC DISALLOWANCE OUT OF GENERAL EXPENSES. 8.2 FROM THE ORDER OF THE TRIBUNAL IN ASSESSEES OW N CASE FOR A.Y. 2007- 08 WE FIND THE TRIBUNAL FOLLOWING THE ORDER FOR A.Y . 2006-07 IN ASSESSEES OWN CASE HAS DIRECTED THE ASSESSING OFFICER TO DISA LLOW 1% OF THE DIVIDEND INCOME OF RS.2,70,39814/- AS EXPENDITURE FOR EARNIN G SUCH TAX FREE DIVIDEND INCOME. IN THE PRECEDING YEAR ALSO THERE WAS NO INTEREST EXPENDITURE AND THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO DISALLOW 1% OF THE DIVIDEND INCOME. SIMILAR WAS THE CASE IN A. Y. 2006-07. WE FIND THE TRIBUNAL HAS DIRECTED THE ASSESSING OFFICER TO DISALLOW 1% OF THE DIVIDEND INCOME OF RS.2,06,96,973/-. FACTS BEING S IMILAR FOR THE IMPUGNED ASSESSMENT YEAR, THEREFORE, FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE IMMEDIATELY 2 PRECEDING ASSESSMENT YEARS, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 1% OF THE DIVIDEND IN COME OF RS.2,26,96,000/- AS EXPENDITURE ATTRIBUTABLE FOR EA RNING DIVIDEND INCOME. THUS, THE DISALLOWANCE WORKS OUT TO RS.2,26,960/- A S AGAINST 6 RS.16,72,870/- DISALLOWED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A). WE HOLD AND DIRECT ACCORDINGLY. 8.3 SO FAR AS THE DECISION OF THE TRIBUNAL IN THE C ASE OF KALYANI STEELS LTD. (SUPRA) IS CONCERNED, WE FIND IN THAT CASE THE ASSESSEE HAS SUOMOTO DISALLOWED AN AMOUNT OF RS.5 LAKHS OUT OF THE DIVID END INCOME OF RS.5.46 CRORES TOWARDS PRINCIPAL ADMINISTRATIVE EXPENSES. HOWEVER, IN THE INSTANT CASE THE ASSESSEE HAS NOT DISALLOWED ANY SUCH EXPEN DITURE. FURTHER, THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING 2 ASSESSMENT YEARS HAS HELD THAT 1% OF THE DIVIDEND INCOME CAN REASONABLY BE DISALLOWED TOWARDS PRINCIPAL ADMINISTRATIVE EXPENSES. IN THIS VIEW OF THE MATTER, THE DECISION RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE CANN OT BE ACCEPTED. THE GROUNDS RAISED BY THE ASSESSEE ARE ACCORDINGLY PART LY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED PRONOUNCED IN THE OPEN COURT ON 26-02-2014. SD/- SD/- (SHAILENDRA KUMAR YADAV ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER SATISH PUNE, DATED 26 TH FEBRUARY 2014 COPY OF THE ORDER IS FORWARDED TO: 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-I, PUNE 4. THE CIT-I, PUNE 5. THE DR A BENCH, PUNE. 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE