N. BHAU (JEWELLERS ) P. LTD, MUMBAI V. ITO 5(2)(1), MUMBAI

ITA 8853/MUM/2010

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3632 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-04-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 20-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI . , !' #$ #$ #$ #$ %& ', () %*+ ( %' BEFORE SHRI D. MANMOHAN, V. P. AND SHRI SANJAY ARO RA, A. M. %./ I.T.A. NO.8853/MUM/2010 ( - $.- - $.- - $.- - $.- / / / / ASSESSMENT YEAR: 2007-08) N. BHAU (JEWELLERS) PVT. LTD. BHASKAR MANSION, 437, DR. DADASAHEB BHADKAMKAR MARG, LAMINGTON ROAD, OPERA HOUSE, MUMBAI-400 004 / VS. THE INCOME-TAX OFFICER 5(2)(1), AAYAKAR BHAVAN, M. K. ROAD, MUMBAIR-400 020 +/ () % ./ &0 % ./ PAN : AAACN 1168 P ( /1 / APPELLANT ) : ( 23/1 / RESPONDENT ) /1 4 %( / APPELLANT BY : SHRI HITESH TRIVEDI 23/1 5 4 %( / RESPONDENT BY : SHRI MOHIT JAIN %$ 5 6 ) / // / DATE OF HEARING : 24.01.2013 7. 5 6) / DATE OF PRONOUNCEMENT : 19.04.2013 *(8 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-9, MUMBAI (CIT(A) FOR SHO RT) DATED 08.10.2010, DISMISSING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2007-08 VIDE ORDER DATED 24.12.2009. 2 ITA NO.8853/MUM/2010 (A.Y. 2007-08) N. BHAU (JEWELLERS) PVT. LTD. VS. ITO 2. THE APPEAL RAISES A SINGLE ISSUE, I.E., THE VALI DITY IN LAW OF THE DISALLOWANCE U/S.14A IN THE SUM OF RS.1,08,843/- IN RESPECT OF THE DIVIDEND INCOME OF RS.63.05 LAKH S , CLAIMED TAX-EXEMPT U/S.10(34) OF THE ACT. 3.1 THE ASSESSEE PLEADS ITS CASE ON THE BASIS THAT THE DISALLOWANCE IS EFFECTED UNDER RULE 8D OF THE INCOME TAX RULES, 1962, I.E., QUA INDIRECT EXPENSES, WHILE THE SAID RULE BECOMES MANDATORY ONLY W.E.F. A.Y. 2008-09. FURTHER , EVEN AS REGARDS INDIRECT EXPENSES, IT HAD ACTUALLY NOT INCURRED ANY EXPENDITURE IN RES PECT OF THE TAX-FREE DIVIDEND INCOME, WHICH STANDS EARNED ONLY ON INVESTMENT IN FIVE (5) MUTUAL FUNDS (MFS) PER EIGHT (8) DIVIDEND VOUCHERS. FURTHER, THERE HAS BEEN NO PURCH ASE AND SALE OF INVESTMENT DURING THE RELEVANT YEAR. THE ASSESSING OFFICER (AO) HAS NOT R ECORDED ANY FINDING IN RELATION TO THE ASSESSEES SAID CLAIM U/S. 14A(2) AND, ACCORDINGLY, NO DISALLOWANCE U/S. 14A(1) COULD BE MADE BY HIM. 3.2 THE REVENUE'S CASE, ON THE OTHER HAND, IS THAT EVEN THOUGH RULE 8D IS NOT APPLICABLE FOR THE CURRENT YEAR, THE DISALLOWANCE I S QUINTESSENTIALLY U/S.14A, WHICH IS WITHOUT DOUBT APPLICABLE. IN FACT, EVEN THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. [2010] 328 ITR 81 (BOM) HAS CONFIRMED THE LEGAL PO SITION THAT THE DISALLOWANCE THERE-UNDER ON SOME REASONABL E BASIS, I.E., FOR YEARS PRIOR TO A.Y. 2008-09, WOULD ARISE. THE ASSESSEE HAS MAINTAINED A N AVERAGE INVESTMENT IN MFS AT RS.217.69 LAKHS FOR THE CURRENT YEAR, SO THAT THE D ISALLOWANCE, IMPUTED AT 0.5% THEREOF, CANNOT BE SAID TO BE NOT REASONABLE, I.E., ON FACTS . 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEE IS IN THE BUSINESS OF MANUFACTURE OF JEWELLERY AND, AS AP PEARS TO BE THE ADMITTED POSITION, HAS INVESTED IN MFS OUT OF INTEREST-FREE LOANS FROM THE DIRECTORS. IF, AS CONTENDED, THERE HAS BEEN NO PURCHASE AND SALE OF SHARES/UNITS DURING TH E YEAR, THE ENTIRE INVESTMENT (APPROXIMATING TO RS.218 LAKHS) IS CARRIED OVER FRO M AN EARLIER YEAR. ACCORDINGLY, NO DISALLOWANCE IN RESPECT OF INTEREST (FINANCING COMP ONENT) OF THE SAID INVESTMENT HAS BEEN MADE, WHICH, THOUGH, HAS BEEN IN THE IMPUGNED SUM QUA ADMINISTRATIVE EXPENSES ONLY. 3 ITA NO.8853/MUM/2010 (A.Y. 2007-08) N. BHAU (JEWELLERS) PVT. LTD. VS. ITO THE ASSESSEE, AS APPARENT FROM THE ASSESSMENT ORDER , HAS MADE NO DISALLOWANCE OF ITS OWN WHATSOEVER; THE WORKING OF THE DISALLOWANCE AT RS. 86/- TOWARD ADMINISTRATIVE EXPENSES HAVING BEEN FURNISHED ONLY BEFORE THE FIRS T APPELLATE AUTHORITY AT HIS INSTANCE. THE SAME TAKES INTO ACCOUNT THE SALARY OF THE ACCOU NTANT AND PEON ONLY. THE SAME STOOD REJECTED BY THE LD. CIT(A), AND IN OUR VIEW NOT INC ORRECTLY. THE DECISION OF INVESTING IN MFS, IDENTIFYING THE SAME, AND ITS PERIODIC REVIEW, WHICH MAY OR MAY NOT RESULT IN A CHANGE IN THE COMPOSITION OF THE INVESTMENT, IS MAD E BY THE TOP MANAGEMENT. TO SAY, THEREFORE, THAT MAINTAINING THE INVESTMENT INVOLVES NO COST, OR IS A COSTLESS EXERCISE, IS IN DISREGARD OF REALITY AND MISCONCEIVED. THIS IS PREC ISELY WHAT THE LD. CIT(A) SEEKS TO EMPHASIZE WHEN HE REFERS TO THE SALARY OF THE DIREC TORS FOR THE YEAR AT RS.9.80 LAKHS. TRUE, IT IS INCUMBENT ON THE A.O. TO RECORD THE DISSATISFACTION WITH THE CORRECTNESS OF THE ASSESSEE'S CLAIM IN RESPECT OF THE EXPENSES IN RELATION TO A TAX-EXEMPT INCOME U/S.14A(2), BEFORE HE COULD AFFECT A DISALLOWANCE U /S.14A(1). HOWEVER, THE PRIMARY ONUS FOR MAKING THE CLAIM IS ON THE ASSESSEE. THE ASSESS EE IS NOT MAINTAINING ITS ACCOUNTS ON A UNIT-WISE BASIS. MERELY STATING THAT NO EXPENDITURE STANDS INCURRED, DE HORS THE OBTAINING FACTS, WOULD NOT AMOUNT TO MAKING A VALID CLAIM. IT IS TOWARD SUCH A PLEA, SO THAT THE A.O. MAY YET PROCEED TO ESTIMATE THE EXPENSES INCURRED I N RELATION TO SUCH INCOME U/S. 14A(2), THAT SECTION 14A(3) STANDS PROVIDED FOR IN THE SECT ION. IN ANY CASE, THE RECORDING OF THE DISSATISFACTION BY THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE, BEFORE WHOM THE WORKING AFORESAID WAS GIVEN BY THE ASSESSEE, EFFECT IVELY MEETS THE MANDATE OF S. 14A(2). BEFORE US, THE ASSESSEE HAS MADE OUT NO CASE IN RELATION TO THE DISALLOWANCE, AT 1.72% OF THE DIVIDEND INCOME, AS BEING NOT REASONAB LE. WE, ACCORDINGLY, CONFIRM THE IMPUGNED ORDER, FINDING NO INFIRMITY THEREIN. WE AR E AWARE THAT THE TRIBUNAL FOR THE IMMEDIATELY PRECEDING YEAR, I.E., A.Y. 2006-07 (IN ITA NO.2249/MUM/2010 DATED 28.02.2011), HAS RESTORED THE MATTER BACK TO THE FI LE OF THE A.O. FOR AN EXAMINATION IN THE LIGHT OF THE DECISION IN THE CASE OF GODREJ BOYCE MFG. CO. LTD. (SUPRA). HOWEVER, FOR THE CURRENT YEAR, THAT IS EXACTLY WHAT THE AUTHORITIES BELOW HAVE SOUGHT TO DO, SO THAT THIS IS PRECISELY WHAT WE WERE CALLED UPON TO ADJUDICATE. I N FACT, THE REASONABLENESS OF THE DISALLOWANCE, WHICH IS AT LESS THAN 2% IN THE INSTA NT CASE (AS AGAINST AT 5.60% FOR THAT 4 ITA NO.8853/MUM/2010 (A.Y. 2007-08) N. BHAU (JEWELLERS) PVT. LTD. VS. ITO YEAR) WAS, AS AFORE-NOTED, NOT IN ISSUE, WHILE THAT IS PRECISELY THE GROUND ON WHICH THE REMAND TO THE ASSESSING AUTHORITY STANDS MADE BY TH E TRIBUNAL FOR THAT YEAR. THE ASSESSEE'S CASE, AS WOULD BE APPARENT FROM THE FOREGOING, AS W ELL AS THE GROUNDS RAISED, IS BASED ON THE LEGAL PLEA OF NON-RECORDING OF DISSATISFACTION U/S.14A(2), AND WHICH HAS BEEN MET BY US. THE ORDER BY THE TRIBUNAL FOR A.Y. 2006-07, THE REFORE, SHALL, IN OUR CONSIDERED VIEW, NOT GOVERN THE ASSESSEE'S CASE FOR THE CURRENT YEAR . WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE ASSESSEE'S APPEAL IS DISMISSE D. 9 6: -96 5 )9& 5 &6 ; ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH APRIL, 2013 *(8 5 7. )( <*: 19 TH APRIL, 2013 5 = SD/- SD/- (D. MANMOHAN) ( SANJAY ARORA ) !' / VICE PRESIDENT () %*+ / ACCOUNTANT MEMBER MUMBAI; <* DATED : 19.04.2013 $..%./ ROSHANI , SR. PS *(8 5 26> ?(>.6 *(8 5 26> ?(>.6 *(8 5 26> ?(>.6 *(8 5 26> ?(>.6/ COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT . 3. @ ( ) / THE CIT(A) 4. @ / CIT - CONCERNED 5. >$C= 26 , , / DR, ITAT, MUMBAI 6. =- D / GUARD FILE. *(8% *(8% *(8% *(8% / BY ORDER, / // /% & % & % & % & (DY./ASSTT. 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