PRINCE PIPES & FITTINGS P.LTD, MUMBAI V. ACIT 7(1), MUMBAI

ITA 8622/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71351 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRUGAKSHI JOSHI IZRFKHZ DH LS
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

PRINCE PIPE & FITTING PVT LTD - 1 - VK;DJ VIHYH; VF/KDJ.K LH U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI JH ,P- ,Y- DKJOK] V/;{K ,OA JH JKTSUNZ FLAG YS[KK L NL; DS LE{K BEFORE HONBLE PRESIDENT SHRI H.L. KARWA AND SHRI R AJENDRA SINGH ACCOUNTANT MEMBER VK;DJ VIHY LA[;K /ITA NO.8622/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR: - 2008-09 PRINCE PIPE & FITTING PVT LTD 4 TH FLOOR, B WING, RUBY HOUSE, J.K. SAWANT MARG, DADAR (W) MUMBAI 400 028. CUKE@ VS. ACIT 7(1) MUMBAI. PAN:- AAACP2319J VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ APPELLANT BY MS. MRUGAKSHI JOSHI IZR;FKHZ DH VKSJ LS @ RESPONDENT BY SHRI UDAY BHASKAR JAKKE VKNS'K@ VKNS'K@ VKNS'K@ VKNS'K@ ORDER PER RAJENDRA SINGH THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 9.11.2011 OF CIT(A) FOR THE ASSESSMENT YEARS 2008-0 9. THE ONLY DISPUTE RAISED IN THIS APPEAL IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME U/S 14A OF THE INCOME TAX ACT. 2. FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE RELE VANT YEAR HAD RECEIVED DIVIDEND INCOME OF RS. 28,582/-. THE AO, THEREFORE, MADE DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME AS PER RULE 8D. IN COMPUTING THE DISALLOWANCE AS PER RULE 8D, THE AO DISALLOWED ONLY THE EXPENSES OTHER LQUOKBZ DH RKJH[K @ DATE OF HEARING 27-08-2013 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 30-08-2013 PRINCE PIPE & FITTING PVT LTD - 2 - THAN INTEREST AT THE RATE OF .5% OF AVERAGE INVESTM ENT OF RS. 74,08,80,64/- AT RS. 3,70,440/-. 3. THE ASSESSEE DISPUTED THE DECISION OF AO AND SUB MITTED BEFORE CIT(A) THAT THE INVESTMENTS HAD BEEN MADE OUT OF OW N FUNDS AND THEREFORE, NO DISALLOWANCE WAS REQUIRED TO BE MADE. ALTERNATIV ELY IT WAS ALSO SUBMITTED THAT THE DISALLOWANCE MAY BE RESTRICTED T O DIVIDEND INCOME ONLY. CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS RAISE D. IT WAS OBSERVED BY HIM THAT THE ASSESSEE WAS HAVING MULTIPLE SOURCE OF INCOME WHICH WAS INTERMIXED AND IT HAD INCURRED SUBSTANTIAL EXPENSES ON ESTABLISHMENT. THEREFORE, DISALLOWANCE OF EXPENSES AS PER RULE 8D MADE BY AO WAS JUSTIFIED. HE ACCORDINGLY UPHELD THE ORDER OF AO, A GGRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE TRIBUNAL. 4. BEFORE US THE LEARNED AR FOR THE ASSESSEE SUBMI TTED THAT THE AO DURING THE ASSESSMENT PROCEEDINGS HAD NOT GIVEN ANY OPPORTUNITY TO THE ASSESSEE TO EXPLAIN AS TO WHY THE ASSESSEE HAD NOT SHOWN ANY EXPENSES RELATING TO EXEMPT INCOME NOR DID THE AO RECORD ANY SATISFACTION REGARDING CORRECTNESS OF CLAIM MADE BY ASSESSEE WHICH WAS REQ UIRED TO BE DONE BY HIM U/S 14A(2). THEREFORE, DISALLOWANCE MADE WAS NO T JUSTIFIED. IT WAS ALSO SUBMITTED THAT RULE 8D COULD NOT BE APPLIED AUTOMAT ICALLY AND IT WAS REQUIRED TO BE SEEN WHETHER THE ASSESSEE HAD INCURR ED ANY EXPENSES RELATING TO EXEMPT INCOME. THE LEARNED DR ON THE OT HER HAND SUBMITTED THAT RULE 8D WAS APPLICABLE FROM ASSESSMENT YEAR 20 08-09 AND, THEREFORE, THE DISALLOWANCE MADE BY AUTHORITIES BELOW AS PER R ULE 8D WAS LEGALLY CORRECT. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED MATTE R CAREFULLY. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES U/S 1 4A. UNDER THE PROVISIONS OF SECTION 14A, DISALLOWANCE OF EXPENSES RELATING TO EXEMPT INCOME HAS TO BE COMPUTED AS PER THE METHOD PRESCRI BED BY THE GOVERNMENT. THE GOVERNMENT HAVE SINCE PRESCRIBED TH E METHOD IN THE FORM OF RULE 8D. HONBLE HIGH COURT OF BOMBAY IN CA SE OF GODREJ BOYCE MFG CO LTD. (328 ITR 81) HAVE HELD THAT RULE 8D IS APPLICABLE FROM PRINCE PIPE & FITTING PVT LTD - 3 - ASSESSMENT YEAR 2008-09. FURTHER AS PROVIDED IN SEC TION 14A(2) THE AO IS REQUIRED TO RECORD SATISFACTION REGARDING CORRECTNE SS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE RELATING TO EXEM PT INCOME. THE AO IN THIS CASE HAS NEITHER RECORDED ANY SATISFACTION NOR HAS GIVEN ANY OPPORTUNITY TO THE ASSESSEE BEFORE MAKING SUCH DISA LLOWANCE. IN CASE THE ASSESSEE MAKES THE CLAIM THAT IT HAD NOT INCURRED A NY EXPENDITURE RELATING TO EXEMPT INCOME OR THAT EXPENDITURE INCURRED WAS L ESS THAN AS PRESCRIBED IN RULE 8D, THE AO IS REQUIRED TO EXAMINE THE CLAIM AND RECORD THE SATISFACTION IN AN OBJECTIVE MANNER BEFORE PROCEEDI NG TO MAKE ANY DISALLOWANCE U/S 14A, WHICH HAS NOT BEEN DONE BY TH E AO IN THIS CASE. THEREFORE, THE ORDER OF CIT(A) UPHOLDING THE ACTION OF AO CANNOT BE SUSTAINED. WE ACCORDINGLY, SET ASIDE THE ORDER OF C IT(A) AND RESTORE THE MATTER TO THE FILE OF AO FOR PASSING A FRESH ORDER AFTER NECESSARY EXAMINATION IN THE LIGHT OF OBSERVATIONS MADE IN TH IS ORDER AND AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. 6. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 30-8-2013 SD/- SD/- (H.L. KARWA) (RAJENDRA SINGH) HONBLE PRESIDENT ACCOUNTANT MEMBER SKS SR. P.S, MUMBAI DATED 30.8.2013 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI