ACIT, Cir-3(2), Hyderabad V. Srinivasa Cystine Limited, Hyderabad

ITA 861/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61947 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 17-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K VISWANATHAM
• Assessee Lawyers: Y R RAO
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO.800/HYD/2011 : ASSESSMENT YEAR 2006-07 M/S. SRINIVASA C YSTINE LTD., HYDERABAD. ( PAN - AADCS 4063 R ) V/S DY. COMMISSIONER OF INCOME - TAX CIRCLE 3(2), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO.861/HYD/2011 : ASSESSMENT YEAR 2006-07 ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 3(2), HYDERABAD. V/S M/S. SRINIVASA C YSTINE LTD., HYDERABAD. ( PAN - AADCS 4063 R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI Y.R.RAO REVENUE BY : SHRI K.VISWANATHAM. DATE OF HEARING 26.6.2012 DATE OF PRONOUNCEMENT 28.6.2012 O R D E R PER D.KARUNAKARA RAO, ACCOUNTANT MEMBER: THESE ARE CROSS APPEALS FOR THE ASSESSMENT YEAR 2006-07. THEY ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) I V, HYDERABAD DATED 15.2.2011. SINCE THE IMPUGNED ORDER IS COMMON, THES E APPEALS ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. ITA NO.800 & 861/HYD/2011 M/S. SRINIVASA CYSTINE LTD., HYDERABAD 2 REVENUES APPEAL: ITA NO.861/HYD/2011 : ASSESSMENT YEAR 2006-07 2. THE ONLY EFFECTIVE GROUND OF THE REVENUE IN THI S APPEAL READS AS FOLLOWS- THE CIT(A) MIGHT HAVE UPHELD THE ORDER OF THE ASSE SSING OFFICER IN BRINGING THE ACCRUED INTEREST TO TAX. 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE, SUBMITTED THAT THE ISSUE INVOLVED IN THE ABOVE GROUND OF THE REVENUE IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06, WHEREBY THE TRIBUNAL VIDE ITS ORDER D ATED 4.10.2011 IN ITA NO.508/HYD/2009, QUA PARA 5, CONFIRMED THE ACTION OF THE CIT(A) IN DELETING THE CORRESPONDING ADDITION MADE BY THE ASS ESSING OFFICER. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE, PER CO NTRA, SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 5. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF T HE LOWER AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2005-06 . THE TRIBUNAL VIDE ITS ORDER DATED 4.10.2011, DECIDED THIS ISSUE IN FA VOUR OF THE ASSESSEE WITH THE FOLLOWING OBSERVATIONS- 5. .AS FOR THE SECOND ISSUE OF DISALLOWANCE OF B AD DEBTS, WE FIND THAT THE CIT(A) HAS DISCUSSED THE RE LEVANT DECISIONS ON THE ISSUE AND HAS RIGHTLY CONCLUDED THAT THERE W AS NO DISPUTE THAT THE TRANSACTIONS OF DEBTS/ICDS HAD ACTUALLY TA KEN PLACE AND INTEREST THEREON HAD BEEN OFFERED TO TAX OVER THE Y EARS AND ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASS ESSEE, AND AS SUCH, WRITE OFF OF SUCH DEBTS AFTER INITIATION OF L EGAL PROCEEDINGS COULD NOT BE CONSIDERED AS LACKING BONA FIDES. THE RE BEING NO MISTAKE IN THE ORDER OF THE CIT(A) IN THE FACTS OF THE CASE ON THIS ISSUE AND THE ISSUE BEING COVERED IN FAVOUR OF THE ASSESSEE WITH THE DECISION OF THE HYDERABAD BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05, WE HOLD T HAT THERE IS NO MERIT IN THE GROUNDS OF THE REVENUE ON THIS ISSU E AS WELL. WE ACCORDINGLY REJECT THE SAME. ITA NO.800 & 861/HYD/2011 M/S. SRINIVASA CYSTINE LTD., HYDERABAD 3 THE INTEREST IN QUESTION RELATES TO THE WRITTEN OFF DEBTS AND WHEN THE DEBTS ARE VALIDLY WRITTEN OFF, THE ACCRUED INTEREST ON SUCH DEBTS DOES NOT ARISE. FACTS AND CIRCUMSTANCES OF THE CASE FOR THE YEAR UNDER APPEAL BEING IDENTICAL TO THOSE INVOLVED IN THE EARLIER YE ARS, CONSISTENT WITH THE VIEW TAKEN BY THE TRIBUNAL IN ASSESSEES OWN CASE F OR THE EARLIER YEARS NOTED ABOVE, WE FIND NO INFIRMITY IN THE IMPUGNED O RDER OF THE CIT(A). THE SAME IS ACCORDINGLY UPHELD, AND THE GROUND OF T HE REVENUE IN THIS APPEAL IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ASSESSEES APPEAL: ITA NO.800/HYD/2011 : ASSESSMENT YEAR 2006-07 7. NOW COMING TO THE APPEAL OF THE ASSESSEE, THE O NLY ISSUE INVOLVED RELATES TO ADDITION OF RS.6,55,000 MADE BY THE ASSESSING OFFICER INVOKING THE PROVISIONS OF S.14A OF THE ACT, AS EXP ENDITURE RELATABLE TO THE EXEMPT INCOME. THIS ISSUE WAS NOT THERE FOR AS SESSMENT YEAR 2005- 06 8. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E HAD RECEIVED DIVIDEND FROM MUTUAL FUND OF RS.55,14,490/- AND HAD CLAIMED THE SAME AS EXEMPT UNDER S.10(33) OF THE ACT. THOUGH THE AS SESSING OFFICER CALLED FOR THE REQUISITE DETAILS FROM THE ASSESSEE, REGARD ING EXPENDITURE INCURRED BY IT FOR EARNING THE SAID INCOME, ASSESSE E FAILED TO FURNISH THE SAME. THE ASSESSING OFFICER THEREFORE, MADE AN AD- HOC DISALLOWANCE OF RS.6,55,000/- INVOKING THE PROVISIONS OF S.14A OF T HE ACT. ON APPEAL, THE CIT(A) FOLLOWING THE DECISION OF THE BOMBAY HIGH CO URT IN THE CASE OF GODREJ AND BOYCE MFG. LTD. (328 ITR 81) UPHELD THE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER. HENCE, ASSESSEE IS I N SECOND APPEAL BEFORE US ON THIS ISSUE. ITA NO.800 & 861/HYD/2011 M/S. SRINIVASA CYSTINE LTD., HYDERABAD 4 9. DURING THE PROCEEDINGS BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO EXPENDITURE INC URRED BY THE ASSESSEE FOR EARNING OF THE EXEMPT INCOME, AND THEREFORE, TH E DISALLOWANCE OF RS.6.55 LAKHS MADE BY THE ASSESSING OFFICER IS UNJU STIFIED AND UNWARRANTED. HE PLACED RELIANCE ON THE DECISIONS O F THE DELHI BENCH OF THE TRIBUNAL IN ACIT V/S. EICHER LTD. (101 TTJ 369) AND OF THE MUMBAI BENCH OF THE TRIBUNAL IN CIT V/S. WALFORT SHARE & S TOCK BROKERS P. LTD. (310 ITR 421), WHICH HAVE ALSO BEEN CITED IN THE G ROUNDS OF THIS APPEAL. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE, PER CONTRA, STRONGLY SUPPORTED THE IMPUGNED ORDER OF THE CIT(A) , AND RELIED ON THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GO DREJ AND BOYCE MFG. CO. LTD. (SUPRA), WHICH IS RENDERED SUBSEQUENT TO T HE DECISIONS OF THE TRIBUNAL RELIED UPON BY THE ASSESSEE NOTED ABOVE. 11. WE HEARD THE PARTIES AND PERUSED THE IMPUGNED ORDERS OF THE LOWER AUTHORITIES AND OTHER MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH CASE-LAW CITED BY THE PARTIES. IT IS A CAS E WHERE THE ASSESSEE EARNED DIVIDEND INCOME FROM MUTUAL FUNDS AMOUNTING TO RS.55,14,490/- AND CLAIMED EXEMPTION UNDER S.10(33) OF THE ACT. F OR FAILURE TO FILE THE DETAILS OF EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE SAID INCOME, THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.6.55 LAKHS. PARA 4 OF THE ORDER OF THE ASSESSING OFFICER, WHICH CONTAI NS THE DISCUSSION FOR THE SAID DISALLOWANCE OF RS.6.55 LAKHS, REVEALS THA T IT LACKS REASONING AND THE BASIS FOR COMING TO THE QUANTIFICATION OF D ISALLOWANCE AT RS.6.55 LAKHS. FROM THE DISCUSSION OF BOTH ASSESSING OFFICE R IN PARA 4 OF THE ASSESSMENT ORDER AND PARA 10 OF THE IMPUGNED ORDER OF THE CIT(A), IT IS NOT EVIDENT AS TO HOW THIS FIGURE OF RS.6.55 LAKHS HAS BEEN ARRIVED AT. 12. WE HAVE ALSO PERUSED THE JUDGMENT OF THE BOMB AY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD . V/S. CIT (328 ITR ITA NO.800 & 861/HYD/2011 M/S. SRINIVASA CYSTINE LTD., HYDERABAD 5 81), WHICH APPROVED THE DISALLOWANCE IN PRINCIPLE, BY HOLDING THAT THAT THE PROVISIONS OF RULE 8D SHOULD BE MADE APPLICABLE EVEN TO THE ASSESSMENT YEARS PRIOR TO THE AMENDMENT TO THE SAID RULE. IT HAS BEEN HELD BY THE HONBLE BOMBAY HIGH COURT IN THAT CASE, INTER ALIA, AS FOLLOWS- 67. EVEN IN THE ABSENCE OF SUB-SS. (2)AND (3)OF S. 14A AND OF R.8D, THE AO WAS NOT PRECLUDED FROM MAKING APPORTI ONMENT. SUCH AN APPORTIONMENT WOULD HAVE TO BE MADE IN ORDER TO GIVE EFFECT TO THE SUBSTANTIVE PROVISIONS OF SUB-S.(1) OF S.14A WH ICH PROVIDE THAT NO DEDUCTION WOULD BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED IN RELATION TO INCOM E WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. . THE SAID JUDGMENT, BEING SUBSEQUENT TO THE TWO DECI SIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, WE ARE OF THE OPINION THAT THE RATIO OF THE SAID DECISION OF THE HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ & BOYCE (SUPRA), WHICH CONSIDERED THE SPECIA L BENCH DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (117 I TD 169)(DEL.)(SB) HAS TO BE PREFERRED FOR CONSIDERATION. 13. IN THE LIGHT OF THE ABOVE DISCUSSION, WE SET A SIDE THE IMPUGNED ORDER OF THE CIT(A), AND RESTORE THE MATTE R TO THE FILE OF THE ASSESSING OFFICER, WITH A DIRECTION TO RECOMPUTE TH E DISALLOWANCE WARRANTED IN TERMS OF S.14A OF THE ACT, KEEPING IN MIND THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962, AND IN ACCOR DANCE WITH LAW AND SAID JUDGMENT OF BOMBAY HIGH COURT AND ALSO AFTER G IVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED TO FURNISH THE REQUISITE DETAILS BEFORE THE ASSESSING OFFICER TO FACILITATE PROPER QUANTIFICATION OF THE DISALLOWANCE WARRANTED IN TERMS OF S.14A OF THE ACT. THE ASSESSING OFFICER SHALL EXPRESSIVELY MENTION THE REASONS FOR ADOPTING THE SUSTAINABLE BASIS FOR SUCH QUANTIFICAT ION OF DISALLOWANCE. 14. IN THE RESULT, ASSESSEES APPEAL IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.800 & 861/HYD/2011 M/S. SRINIVASA CYSTINE LTD., HYDERABAD 6 15. TO SUM UP, WHILE REVENUES APPEAL, BEING ITA NO.860/HYD/2011 IS DISMISSED, ASSESSEES APPEAL BEI NG ITA NO.800/HYD/2011, IS TREATED AS PARTLY ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 28.6.2012 SD/- SD/- ( SAKTIJIT DEY) (D.KARUNAKARA RAO) JUDICIAL MEMBER. ACCOUNTANT MEMBER. DT/- 28 JUNE 2012 COPY FORWARDED TO: 1. 2. 3 4. 5. 6. M/S. SRINIVASA C YSTINE LTD., 6 - 3 - 658,G - 2, CONCORDE APARTMENTS, SOMAJIGUDA, HYDERABAD 500 082. DY. COMMISSIONER OF INCOME-TAX, CIRCLE 3(2), HYDERA BAD ASST. COMMISSIONER OF INCOME-TAX, CIRCLE 3(2), HYDE RABAD COMMISSIONER OF INCOME-TAX(APPEALS) IV HYDERABAD COMMISSIONER OF INCOME-TAX III, HYDERABAD DEPARTMENTAL REPRESENTATIVE, ITAT, HYDERABAD B.V.S.