ADDL CIT 9(2), MUMBAI V. NESCO LTD, MUMBAI

ITA 9104/MUM/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75838 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 28-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: HARESH P SHAH NESCO LTD
• Keywords: Earning of tax free income; Tax effect; Revised return
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH, MUMBAI , , ! '# $ $ $ $ , % && '# ' BEFORE SHRI N.K. BILLAIYA, AM AND SHRI SANJAY GAR G, JM ./ I.T.A. NO.1/MUM/2011 ( ( ( ( ( / ASSESSMENT YEAR :2007-08 M/S. NESCO LTD., NESCO ESTATE WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI-400 063 / VS. THE ACIT 9(2), MUMBAI APPELLANT RESPONDENT ./ I.T.A. NO.9104/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR :2007-08 THE ACIT 9(2), MUMBAI / VS. M/S. NESCO LTD., NESCO ESTATE WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI-400 063 APPELLANT RESPONDENT C.O. NO. 79/MUM/2010 (ARISING OUT OF I.T.A. NO.9104/MUM/2010 ( ( ( ( ( / ASSESSMENT YEAR :2007-08 M/S. NESCO LTD., NESCO ESTATE WESTERN EXPRESS HIGHWAY, GOREGAON (E), MUMBAI-400 063 / VS. THE ACIT 9(2), MUMBAI #) ! ./ %* ./ PAN/GIR NO. : AAACN 1222E ( )+ /( CROSS OBJECTOR ) .. ( ,-)+ / RESPONDENT ) )+ . / REVENUE BY: SHRI R.K. SAHU ,-)+ / . / RESPONDENT BY: SHRI HARESH P. SHAH NESCO LTD 2 / 01! / DATE OF HEARING : 25.03.2014 23( / 01! / DATE OF PRONOUNCEMENT : 25.03.2014 '4 / O R D E R PER N.K. BILLAIYA, AM: ITA NO. 1/MUM/2011 & ITA NO. 9104/M/10 ARE CROSS AP PEALS BY THE ASSESSEE AND THE REVENUE AGAINST THE VERY SAME ORDER OF THE LD. CIT(A)-20, MUMBAI DT. 28.10.2010 AND C.O. NO. 79/M/ 2012 IS FILED BY THE ASSESSEE ARISING OUT OF ITA NO. 9104/M/2010. ITA NO. 1/MUM/2011 ASSESSEES APPEAL 2. GRIEVANCE OF THE ASSESSEE IS TWO-FOLD. FIRST GR IEVANCE RELATES TO THE DISALLOWANCE OF EXPENDITURE U/S. 14A OF THE ACT AND THE SECOND GRIEVANCE IS THE DENIAL OF THE CLAIM OF EXTRA VRS OF RS. 21,8 3,256/-. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN DIVIDEN D INCOME OF RS. 1,89,44,473/- WHICH HAS BEEN CLAIMED AS EXEMPT INCO ME. THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE U/S. 14A AS C OMPUTED UNDER RULE 8D OF THE I.T. RULES BE NOT MADE. THE ASSESSEE SUB MITTED THAT DISALLOWANCE U/S. 14A IS NOT APPLICABLE AS THE INVE STMENTS MADE BY THE ASSESSEE ARE NOT FROM BORROWED CAPITAL. 4. THE AO DID NOT ACCEPT THIS CONTENTION OF THE ASS ESSEE AND RELYING UPON THE DECISION OF THE SPECIAL BENCH OF THE TRIBU NAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD., IN ITA NO. 8057/ M/2003, THE AO NESCO LTD 3 PROCEEDED TO COMPUTE THE DISALLOWANCE AS PER RULE 8 D AND ACCORDINGLY A SUM OF RS. 12,26,731/- WAS DISALLOWED U/S. 14A OF T HE ACT. 5. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) AND REITERATED THAT IT DID NOT INCUR ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. AFTER CONSIDERING THE FACTS OF THE CASE, T HE LD. CIT(A) OBSERVED THAT APPLICATION OF RULE 8D IS W.E.F ASSESSMENT YEA R 2008-09 AS PER THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT 328 ITR 81. HOWEVE R, AT THE SAME TIME, THE LD. CIT(A) WAS OF THE FIRM BELIEF THAT TH E AO IS COMPETENT TO DETERMINE AND DISALLOW SUCH EXPENDITURE AS MAY BE R EASONABLE HAVING PROXIMATE NEXUS WITH THE EXEMPT INCOME. THE LD. CIT (A) CONFIRMED THE ADDITIONS MADE BY THE AO HOLDING THAT THERE WAS NOT HING WRONG TO MAKE A REASONABLE ESTIMATE BASED ON THE METHOD PRESCRIB ED UNDER RULE 8D. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. T HE LD. COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT COMPUTATION OF DISALLOWANCE READ WITH RULE 8D IS AGAINST THE DECISION OF THE JURISDI CTIONAL HIGH COURT AND THEREFORE THE ADDITIONS SUSTAINED BY THE LD. CIT(A) DESERVES TO BE DELETED. 7. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 8. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES. IT IS NOT IN DISPUTE THAT THE AO HAS INVOKED RULE 8D FOR COMPUTING THE DISALLOWANCE. WE FIND THAT THE LD. CIT(A) , THOUGH AGREED THAT RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION , YET CONFIRMED THE DISALLOWANCE WHICH WAS COMPUTED AS PER RULE 8D. NESCO LTD 4 9. IN OUR CONSIDERED VIEW, THIS ISSUE NEEDS TO BE D ECIDED AFRESH. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO COMPUTE THE DISALLOWANCE , IF ANY , WIT HOUT INVOKING RULE 8D AND AFTER GIVING REASONABLE AND SUFFICIENT OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. GROUND NO 1 IS ALLOWED FOR STATISTIC AL PURPOSE. 10. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS , THE AO NOTICED THAT THE ASSESSEE HAS FILED REVISED COMPUTATION OF INCOME REQUESTING FOR DEDUCTION OF RS. 21,83,256/- FROM THE INCOME RETURN ED FOR THE REASON THAT IT HAD MADE VRS PAYMENT DURING THE YEAR AT RS. 2,28 ,94,986/- WHEREAS IN THE ORIGINAL COMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME, IT CLAIMED DEDUCTION OF ONLY RS. 2,07,11,730/-. THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO. THE AO WAS OF THE OPIN ION THAT THE CLAIM SHOULD HAVE BEEN MADE BY FILING A REVISED RETURN OF INCOME. 11. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MAT TER BEFORE THE LD. CIT(A). THE LD. CIT(A) DISMISSED ASSESSEES CLAIM HOLDING THAT THE IMPUGNED CLAIM WAS MADE ONLY THROUGH A LETTER IN TH E COURSE OF THE ASSESSMENT PROCEEDINGS WHICH WAS NEITHER PRECEDED N OR FOLLOWED BY A REVISED RETURN OF INCOME. THE LD. CIT(A) FURTHER O BSERVED THAT IT IS NOT A CASE OF THE ASSESSEE THAT DENYING THE CLAIM A QUEST ION OF LAW HAS ARISEN. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO. 12. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY ARGUED THAT THE CLAIM OF THE ASSESSEE WAS MADE LAWFULLY AND IS FULLY SUPPORTED BY NECESSARY EVIDEN CE. 13. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LD. CIT(A). NESCO LTD 5 14. AFTER CAREFULLY PERUSING THE ORDERS OF THE LOWE R AUTHORITIES, WE FIND THAT THE CLAIM WAS NOT CONSIDERED BY THE AO FOR THE REASON THAT IT WAS NOT CLAIMED THROUGH A REVISED RETURN OF INCOME BUT ONLY THROUGH A REVISED COMPUTATION OF INCOME. IN OUR HUMBLE OPINION, THIS ISSUE NEEDS TO BE EXAMINED AFRESH. WE, THEREFORE, RESTORE THIS ISSUE BACK TO THE FILES OF THE AO. THE AO IS DIRECTED TO CONSIDER THE CLAIM OF TH E ASSESSEE AS PER THE PROVISIONS OF LAW , AFTER GIVING REASONABLE OPPORT UNITY OF BEING HEARD TO THE ASSESSEE. 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. ITA NO. 9104/M/10 REVENUES APPEAL 16. THE SOLE GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 6,45,637/- BEING 10% O F THE MISCELLANEOUS EXPENSES CLAIMED. 17. THIS APPEAL BY THE REVENUE IS NOT MAINTAINABLE BECAUSE THE TAX EFFECT INVOLVED IN THIS APPEAL IS LESS THAN RS.3 LA KHS AS PER THE LIMIT PRESCRIBED BY THE CBDT VIDE INSTRUCTION NO.3 OF 201 1 FOR FILING OF APPEAL BY THE REVENUE BEFORE THE TRIBUNAL. IN SUCH A SITUATION THE APPEAL FILED IN CONTRAVENTION OF SUCH LIMIT CANNOT BE SUST AINED. THIS VIEW IS DULY SUPPORTED BY THE DECISION IN THE CASE OF ACIT VS. S ATISH CHANDRA, 10 SOT 383. SIMILAR VIEW HAS BEEN TAKEN BY THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. CAMCO COLOUR CO. 254 ITR 565, WHERE IN IT HAS BEEN HELD THAT THE TAX EFFECT INVOLVED IN THE APPEAL FILED BY THE REVENUE BEING LESS THAN THE MONETARY LIMIT AS PRESCRIBED IN BOARD CIRC ULAR, THE SAME IS NOT MAINTAINABLE. NESCO LTD 6 18. ACCORDINGLY, IN VIEW OF THE CIRCULAR OF 2011 AS APPLICABLE TO THE APPEALS FILED EARLIER, THE HONBLE JURISDICTIONAL H IGH COURT HAS HELD IN THE CASE OF CIT VS MADHUKAR K INAMDAR (HUF) REPORTED IN 318 ITR 149 THAT THE APPEALS FILED BY THE REVENUE PRIOR TO THE CIRCU LAR SHALL ALSO BE GOVERNED THE MONETARY LIMIT OF THIS CIRCULAR. SIMIL AR VIEW HAS BEEN REITERATED BY THE MUMBAI BENCH OF THE TRIBUNAL VIDE ORDER DATED 29.04.2011 IN ITO VS INDIA SAFETY VAULTS LTD., IN I TA NO. 648- 651/M/2010. RESPECTFULLY FOLLOWING THE PRECEDENTS, WE HOLD THAT THE APPEAL FILED BY THE REVENUE CANNOT BE TAKEN UP FOR DECISION ON MERITS AS THE TAX EFFECT IN THIS CASE IS ADMITTEDLY LESS THAN RS. 3.00 LACS. WE, THEREFORE, DISMISS THE APPEAL FILED BY THE REVENUE AS NOT MAINTAINABLE. C.O. NO. 79/MUM/2012 19. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STA TED THAT HE IS NOT PRESSING THE CROSS OBJECTION. THE C.O IS ACCORDING LY DISMISSED AS NOT PRESSED. 20. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE AND THE CROSS APPEAL FILED BY T HE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH MARCH, 2014 . '4 / 3( ! 5 6'7 25.3.2014 3 / & SD/- SD/- (SANJAY GARG ) (N.K. BILLAIYA) '# /JUDICIAL MEMBER ! '# / ACCOUNTANT MEMBER MUMBAI; 6' DATED 25.3.2014 . . ./ RJ , SR. PS NESCO LTD 7 '4 '4 '4 '4 / // / ,0 ,0 ,0 ,0 8(0 8(0 8(0 8(0 / COPY OF THE ORDER FORWARDED TO : 1. )+ / THE APPELLANT 2. ,-)+ / THE RESPONDENT. 3. 9 ( ) / THE CIT(A)- 4. 9 / CIT 5. :& ,0 , , / DR, ITAT, MUMBAI 6. &; < / GUARD FILE. '4 '4 '4 '4 / BY ORDER, -0 ,0 //TRUE COPY// = == = / > > > > % % % % (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI