ACIT CIR 6(3), MUMBAI V. HATHIBHAI BULAKHIDAS P.LTD, MUMBAI

ITA 905/MUM/2013

• Counselvise Citation: 90519914 RSA 2013
• Duration Of Justice: 1 year(s) 8 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 09-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N PADMANABAN
• Assessee Lawyers: R V SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, ,, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI , !' , # $% & BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER . / ITA NO.905/MUM/2013 ' ' ' ' / ASSESSMENT YEAR: 2007-08 ACIT, CIR-6(3), ROOM NO.522, 5 TH FLOOR, AAYKAR BHAVAN, M.K.ROAD, MUMBAI-400020 VS. M/S HATHIBHAI BULAKHIDAS PVT. LTD. 86, MASJID BUNDER ROAD, MASJIT BUNDER, MUMBAI-400003 (REVENUE) (ASSESSEE) PAN : AAAFW0040N REVENUE BY : SHRI N.PADMANABAN, DR ASSESSEE BY : SHRI R.V.SHAH DATE OF HEARING : 09/10/2014 DATE OF PRONOUNCEMENT : 14/10/2014 O R D E R PER JOGINDER SINGH: JM THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATE D 21/12/2009 OF THE LD. FIRST APPELLATE AUTHORITY, MU MBAI. THE ASSESSEE RAISED THE FOLLOWING GROUNDS- 1. ON THE FACTS AND CIRCUMSTANCES OF CASE AN IN LAW, TH E LD CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.13,1 6,783/- MADE U/S 14A OF THE INCOME-TAX ACT,1961. 2 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT DISALLOWANCE U/S 14A CANNOT BE COMPUTED BY APPLYING RULE 8D RELYING ON DEC ISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & BO YCE MFG. LTD. VS DCIT [2010] 328 ITR 81 (BOM) WITHOUT APPRECI ATING FACT THAT THE REVENUE HAS CHALLENGED THE SAID DECISIO N AND FILED SLP. 3. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE REV ENUE SHRI PADMANABAN SUPPORTED THE ASSESSMENT ORDER ADVANCING THE ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED. IT WAS ALSO CONTENDED THAT THE DECISION OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING LTD. (328 ITR 81) (BOM) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT APPE AL. 3.1. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE, SHRI R.V. SHAH, DEFENDED THE CONCLUSION DRAWN IN THE IMPUGNED ORDER BY SUBMITTING THAT A WELL REASONED ORDER HAS BEEN PASS ED BY THE LD. CIT(A) BY FURTHER CONTENDING THAT RULE 8D OF THE IN COME-TAX RULES IS NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEA L FOR CALCULATING THE DISALLOWANCE. ALTERNATIVELY, IT WAS CONTENDED THAT AT BEST THE DISALLOWANCE COULD HAVE BEEN MADE ON A REASONABLE B ASIS. 3.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND P ERUSED THE MATERIAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSION WE 3 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . ARE REPRODUCING HEAD UNDER THE RELEVANT PORTION FRO M THE IMPUGNED ORDER;- 3.5. IT WOULD ALSO NEED TO BE ACCEPTED THAT IN THE CURRENT YEAR, THE FINANCIAL ACCOUNTS OF THE APPELLA NT- COMPANY CLEARLY SHOW THAT THE INVESTMENTS HAVE GONE DOWN AS STATED AND THAT THE APPELLANT COMPANY HAD ENOUGH FUNDS OF ITS OWN TO COVER OF THE INVESTMENTS THAT HAVE BEEN MADE. PLACING RELIANCE ON THE CASE O F MUNJAL SALES CORPORATION (298 ITR 298) (SC) AND OTH ER JUDICIAL PRONOUNCEMENTS, IT CAN BE STATED THAT AS T HE APPELLANT COMPANY HAD SUFFICIENT NON-INTEREST-BEARI NG FUNDS AVAILABLE WITH IT FOR MAKING THE INVESTMENTS THAT HAVE BEEN MADE, NO DISALLOWANCE REGARDING INTEREST PAYMENT CAN BE MADE BY HOLDING THAT BORROWED FUNDS HAVE BEEN USED FOR MAKING THE INVESTMENT UNLESS IT CAN BE ESTABLISHED SO. AS THIS HAS NOT BEEN DONE BY THE AO, THE CONTENTION OF THE APPELLANT REGARDING T HE FACT THAT NO DISALLOWANCE OF INTEREST EXPENDITURE C AN BE MADE WOULD NEED TO BE ACCEPTED. SIMILARLY, IT WOULD NEED TO BE ACCEPTED THAT A MAJOR PART OF THE INVEST MENT MADE YIELDS TAXABLE INCOME AND THEREFORE CANNOT BE CONSIDERED AS INVESTMENTS MADE GIVING RISE TO EXEMP T INCOME TO BE CONSIDERED UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 3.6. HOWEVER, THE FACT THAT THE APPELLANT HAS EXEMP T 4 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . INCOME IN THE FORM OF DIVIDEND CANNOT BE DISPUTED. UNDER SECTION 14A, IT IS NOT THE QUANTUM OF EXEMPT INCOME THAT NEEDS TO BE CONSIDERED. THE PRINCIPLE BEHIND THE SECTION IS THAT NO EXPENDITURE IN RELATI ON TO EARNING OF EXEMPT INCOME CAN BE ALLOWED AS A DEDUCTION FROM THE TAXABLE INCOME OF THE APPELLANT. SECTION 14A AUTHORIZES THE AO TO MAKE DISALLOWANCE OF EXPENDITURE SO AS TO ENSURE THAT NO DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE INCURRED BY AN APPELLANT IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE IN COME TAX ACT, WHICH THE BASIC OBJECT OF SECTION. THE HON'BLE COURTS IN MULTITUDES OF CASES INCLUDING THAT OF CHEM. INVEST LTD VIS. ITO (124 ITR 577) (DELHI- SPECIAL BENCH) HAVE CLEARLY HELD THAT WHENEVER INVESTMENT HAS BEEN MADE AND THIS INVESTMENT IS LIKELY TO GIVE RISE TO EXEMPT INCOME, SECTION 14A W OULD CLEARLY BE ATTRACTED IN THE CASE OF AN APPELLANT. RELIANCE IS ALSO PLACED UPON THE DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF TATA PROJECTS LTD. ( ITA NO.5862IMUML2006), WHEREIN THE HON'BLE TRIBUNAL HAD HELD THAT A DISALLOWANCE WOULD NEED TO BE MADE IN RESPECT OF ADMINISTRATIVE EXPENSES DEBITED TO THE P &L ALC., WHEREIN THE APPELLANT HAS NOT APPORTIONED ANY EXPENSE IN RELATION TO EARNING OF EXEMPT INCOME, TO SAY 5 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . THAT AT BEST A TOKEN ADMINISTRATIVE EXPENSE WOULD NEED TO BE DISALLOWED. IT IS ALSO SEEN THAT BY THE RATIO OF THE DECISIONS IN THE FOLLOWING CASES: (I) GODREJ AGROVET LTD. VS. ACIT IN ITA NO. 1629/MUM/2009 (ITAT, MUMBAI BY ORDER DATED 17/09/2010) (II) DUPEN LABORATORIES PVT. LTD. [ITA NO.3859/MUM/2002 (ITAT-'C BENCH, MUMBAI) IN ORDER DATED 2011 0/2009] (III) CHEMNIVEST LTD. VIS ITO (124 IT] 577) DELHI SPECIAL BENCH (IV) MAGANLAL CHAGGANLAL PVT. LTD. (236 I TR 456, BOMBAY) (V) GHERZI EASTERN LTD. (ITA NO.6562/BOM/1994 DATED 23/09/2002 - ITAT MUMBAI.) WHEREIN THE HON'BLE COURTS HAVE CLEARLY HELD THAT I T CANNOT BE DENIED THAT SOME ADMINISTRATIVE EXPENDITU RE WAS DEFINITELY ATTRIBUTABLE TOWARDS EARNING OF THE DIVIDEND INCOME AND EVEN IF IN A YEAR THERE IS NO EXEMPT INCOME AND IF THE APPELLANT HAS INVESTMENTS THAT GIVE RISE TO EXEMPT INCOME, SECTION 14A IS APPLICABLE. THEREFORE, THE ACTION OF THE AO IN INVO KING SECTION 14A IN THE CURRENT YEAR IN THE CASE OF THE APPELLANT, IT IS SEEN, IS TO BE UPHELD. THE HON'BLE COURTS IN THE ABOVE MENTIONED DECISIONS HAVE CLEARL Y STATED THAT FOR EARNING EXEMPT INCOME AND FOR 6 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . MANAGING INVESTMENTS THAT EARN EXEMPT INCOME THE APPELLANT WOULD HAVE CLEARLY INCURRED CERTAIN EXPENDITURE AND UNDER THE SCHEME OF THINGS AS ENVISAGED IN SECTION 14A, A CERTAIN AMOUNT OF DIREC T & INDIRECT EXPENSES WOULD NEED TO BE DISALLOWED AS BEING ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. AS STATED EARLIER ON IN THIS ORDER IN THE CURRENT YEAR THE AO WAS REQUIRED TO TAKE INTO CONSIDERATION THE TOTA LITY OF THE CASE AND DECIDE THE APPORTIONMENT OF DIRECT EXPENDITURE DEBITED TO THE P&L A/C. BETWEEN THE TAXABLE & THE EXEMPT INCOME AND NOT INVOKE RULE 8D AS SHE HAS DONE. TAKING INTO CONSIDERATION THE PRINCIPLES STATED IN THE DECISIONS OF THE HON'BLE C OURTS MENTIONED ABOVE AND IN FACTS OF THE CASE, IT IS HER EBY HELD THAT AN AMOUNT EQUAL TO THE DIVIDEND EARNED DURING THE YEAR BY THE APPELLANT SHOULD BE CONSIDER ED AS REASONABLE EXPENDITURE TO BE DISALLOWED U/S.14A OF THE IT ACT HOLDING IT TO BE THE AMOUNT EXPENDED BY THE APPELLANT FOR EARNING OF EXEMPT INCOME. THE ACTION OF THE AO IN MAKING THE DISALLOWANCE IS, THEREFORE, UPHELD AND CONFIRMED ACCORDINGLY. THE ADDITION IS CONFIRMED UP TO AN AMOUNT OF RS.4,195/- RECEIVED AS DIVIDEND BY THE APPELLANT THE BALANCE AMOUNT IS DELETED. THIS GROUND OF APPEAL IS, THEREFORE, PARTL Y ALLOWED. 7 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . 3.3. IF THE OBSERVATION MADE IN THE ASSESSMENT ORD ER, CONCLUSION DRAWN IN THE IMPUGNED ORDER, ASSERTIONS MADE BY THE LD. RESPECTIVE COUNSEL AND THE FACTS AVAILABLE ON RECORD, IF, KEPT IN JUXTAPOSITION AND ANALYSED, WE FIND THAT RULE 8D OF THE INCOME-TA X RULES IS NOT APPLICABLE TO THE FACTS OF THE PRESENT APPEAL FOR W HICH WE FIND SUPPORT FROM THE DECISION IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. (SUPRA) FROM THE HONBLE JURISDICTIONAL HIGH COURT AND THE DISALLOWANCE, IF ANY, HAS TO BE MADE U/S 14 A OF THE ACT ON REASONABLE BASIS UNDER THE FACTS AVAILABLE ON RECOR D. WE FURTHER NOTE THAT THE ASSESSEE COMPANY HAD ENOUGH FUNDS OF ITS OWN TO COVER UP THE INVESTMENT WHICH HAS BEEN MADE BY THE ASSESSEE. OUR VIEW FIND FURTHER SUPPORT FROM THE RATIO LAID D OWN BY THE HONBLE APEX COURT IN MUNJAL SALES CORPORATION 298 ITR 298 (SC) . THE ASSESSEE COMPANY IS HAVING SUFFICIENT NON-IN TEREST BEARING FUNDS FOR MAKING THE INVESTMENT AND IT HAS NOT BEEN ESTABLISHED BY THE REVENUE THAT BORROWED FUNDS WERE USED BY THE ASSESSEE FOR SUCH INVESTMENTS. THE PRINCIPLE ENSHR INED IN THE SECTION IS THAT NO EXPENDITURE IN RELATION TO EARNI NG OF EXEMPT INCOME CAN BE ALLOWED AS DEDUCTION FROM THE TAXABLE INCOME OF THE ASSESSEE. AT THE SAME TIME, ADMINISTRATIVE EXPENSE S NEEDS TO BE DISALLOWED WHICH ARE ATTRIBUTABLE TOWARDS EARNING O F DIVIDEND INCOME. THUS, TO THIS EXTENT INVOKING SECTION 14A BY THE ASSESSING OFFICER NEEDS TO BE UPHELD AS CERTAIN EXPENDITURE D IRECT AND INDIRECT NEEDS TO BE DISALLOWED, BEING, ATTRIBUTABL E TO EARNING OF EXEMPT INCOME TO ENSURE THAT NO DEDUCTION IS ALLOWE D IN RESPECT OF 8 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. THE LD. CIT(A) HAS ALSO DISCUSSED THE DECISION IN THE CASE OF CHEM INVEST LTD. V/S ITO (124 TTJ 577)(DEL)(SB) AND VARIOUS OTH ER DECISIONS LIKE MAGANLAL CHHAGANLAL PVT. LTD. (236 ITR 456)(BO M) ETC. THE LD. CIT(A) HAS ALREADY TAKEN CARE BY AFFIRMING THE ADDI TION TO THE EXTENT OF RS.4,195/- RECEIVED AS DIVIDEND BY THE AS SESSEE AND THE BALANCE AMOUNT WAS DELETED THUS WE FIND NO INFIRMIT Y IN THE CONCLUSION DRAWN BY THE CIT(A), CONSEQUENTLY, WE FI ND NO MERIT IN THE APPEAL OF THE ASSESSEE. 4. FINALLY THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF LD. REPRESENTATIVES FROM BOTH SIDES AT THE CONCL USION OF HEARING ON 14 TH OCTOBER,2014. SD/- SD/- N.K.BILLAIYA JOGINDER SIN GH ACCOUNTANT MEMBER JUD ICIAL MEMBER MUMBAI, DATED - 14/10/2014 F{X~{T? P.S. / . . $) $) $) $) * ** * +, +, +, +, -', -', -', -', / COPY OF THE ORDER FORWARDED TO : 1. ./ / THE APPELLANT 2. +0./ / THE RESPONDENT. 3. 1 ( ) / THE CIT(A)- 4. 1 / CIT 5. 23 +, , , / DR, ITAT, MUMBAI 9 M/S HATHIBHAI BULAKHIDAS PVT. LTD. . 6. 34 5 / GUARD FILE. $) $) $) $) / BY ORDER, 0, +, //TRUE COPY// 6 66 6 / 7 7 7 7 8 8 8 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI