REKHA OVERSEAS P.LTD, MUMBAI V. ITO 4(3)(2), MUMBAI

ITA 934/MUM/2017

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9945 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 09-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V JANARDHANAN
• Assessee Lawyers: BIREN C GABHAWALA
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, SMC , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES SMC, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NO.934/MUM/2017 : ASST.YEAR 2012-2013 M/S.REKHA OVERSEAS PRIVATE LIMITED 205, JOLLY BHAVAN NO.2 7 NEW MARINE LINES MUMBAI 400 020. PAN : AAACR7618G. / VS. THE INCOME TAX OFFICER WARD 4(3)(2) MUMBAI. ( / APPELLANT) ( / RESPONDENT) /APPELLANT BY : SHRI BIREN C. GABHAWALA /RESPONDENT BY : SHRI V.JANARDHANAN / DATE OF HEARING : 06.07.2017 / DATE OF PRONOUNCEMENT : 01.09.2017 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A) DATED 18.11.2016 AND PERTAINS TO ASSESSMENT YEAR 2012-2013 2. THE GROUNDS OF APPEAL READ AS UNDER:- 1. A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. C1T (APPEAL) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE U/S. 14A TO RS.1,43,586/-. B) THE LD. CIT (APPEAL) OUGHT TO HAVE APPRECIATED THAT AS INVESTMENT IS MADE OUT OF OWNED FUNDS I.E., CAPITAL AND RESERVES AND SURPLUS AND NOT BORROWED FUNDS. FURTHER, THERE IS NO DIRECT OR INDIRECT EXPENSE DEBITED TO PROFIT & LOSS ACCOUNT RELATING TO EXEMPT INCOME. HENCE, LD. CIT(APPEAL) ERRED IN CONFIRMING THE DISALLOWANCE AMOUNTING TO RS.1,43,586/-. C) THE ABOVE STAND TAKEN BY THE APPELLANT IS SUPPORTED BY THE FOLLOWING CASE LAWS: ITA NO.934/MUM/2017. M/S.REKHA OVERSEAS PRIVATE LIMITED. 2 COMMISSIONER OF INCOME TAX V/S. HDFC BANK LTD. HIGH COURT OF MUMBAI - ITXA330/12 COMMISSIONER OF INCOME-TAX-1 V.UTL BANK LTD. - [2013] 32 TAXMANN.COM 370 (GUJARAT) HIGH COURT OF GUJARAT D) WITHOUT PREJUDICE TO ABOVE, EVEN IF THE LD. CIT(APPEAL) WAS OF THE OPINION THAT SEC 14A IS APPLICABLE, HE OUGHT TO HAVE DISALLOWED RS.34,104/- WHICH IS THE TOTAL EXPENDITURE DEBITED TO PROFIT & LOSS ACCOUNT. E) THE LD. CIT(APPEAL) OUGHT TO HAVE APPRECIATED THAT WHAT IS NOT DEBITED TO PROFIT & LOSS CANNOT BE DISALLOWED. HENCE, THE LD. AO ERRED IN DISALLOWING AN AMOUNT OF RS.1,43,586/- WHICH IS GREATER THAN THE TOTAL EXPENDITURE OF RS.34,104/- DEBITED TO PROFIT & LOSS ACCOUNT CLAIMED BY THE ASSESSEE. F) THE LD. CIT(APPEAL) FAILED TO CONSIDER THE JUDGMENT PRONOUNCED SUPPORTING THE STAND TAKEN BY THE APPELLANT IN THE CASE OF M/S GILLETTE GROUP INDIA PVT.LTD., (NOW KNOWN AS WELLA HAIRCOSMETICS INDIA PVT.LTD.) V/S. ACIT( ITAT, DELHI) ITA NO.267/DEL/2012 - A.Y. 2008-09 SUBMITTED AT THE TIME OF APPELLATE PROCEEDINGS. YOUR APPELLANT CRAVES LEAVE TO ADD, TO ALTER, TO AMEND, MODIFY AND DELETE ANY OF THE GROUNDS OF APPEAL. 2. IN THIS CASE THE ASSESSING OFFICER NOTED THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS DECLARED DIVIDEND INCOME OF RS.5,96,875 ON ITS INVESTMENT IN UNQUOTED SHARES AND MUTUAL FUND. THE ASSESSEE COMPANY HAS CLAIMED THAT WHOLE DIVIDEND INCOME EXEMPT ON GROSS BASIS WITHOUT DISALLOWING ANY EXPENSES U/S 14A. 3. THE ASSESSING OFFICER ENQUIRED THE REASON FOR NOT MAKING ANY DISALLOWANCE U/S 14A. THE ASSESSEES RESPONSE THAT NO EXPENDITURE WAS ACTUALLY INCURRED, WAS NOT ACCEPTED BY THE ASSESSING OFFICER. HE MADE A DISALLOWANCE U/S 14A R.W.RULE 8D(2) AMOUNTING TO RS.1,43,586. ITA NO.934/MUM/2017. M/S.REKHA OVERSEAS PRIVATE LIMITED. 3 4. UPON ASSESSEES APPEAL, THE LEARNED CIT(A), INTER ALIA, NOTED THE FOLLOWING SUBMISSIONS:- I HAVE CONSIDERED THE STAND OF THE A.O. IN THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. IT IS SEEN THAT THE A.O. HAS NOT MADE ANY DISALLOWANCE U/S 14A R.W.R. 8(D)(2)(II) . IN FACT, THE AO HAS MADE DISALLOWANCE UNDER RULE 8(D)(2)(III) OF THE I.T. RULE 1962. THEREFORE, THERE IS NO MERIT IN THE CONTENTION OF THE LD.AR THAT JUST BECAUSE THERE WAS SUFFICIENT OWN FUNDS NO DISALLOWANCE CAN BE MADE. IT IS ALSO NOT THE CASE OF THE LD.AR THAT THE SAID SHARES WERE HELD AS STOCK IN TRADE, SO THAT THE ADVANTAGE OF DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF INDIA ADVANTAGE SECURITIES CAN BE GIVEN. 5. HOWEVER, THE LEARNED CIT(A) PLACED RELIANCE UPON HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DCIT [(2010) 194 TAXMANN 203 (BOM.). HE ALSO REFERRED TO KOLKATA TRIBUNAL DECISION IN CASE OF COAL INDIA LTD. (ITA NO.1032/KOL/2012 DATED 13.05.205) AND PROCEEDED TO AFFIRM THE ACTION OF THE ASSESSING OFFICER. HOWEVER, THE LEARNED CIT(A) GRANTED SOME DIRECTIONS TO EXCLUDE INVESTMENTS ON WHICH NO DIVIDEND HAS BEEN EARNED. THE CONCLUSION OF LEARNED CIT(A) IS REPRODUCED HEREUNDER:- 5.8. THE ID. AR SUBMITTED WITHOUT PREJUDICE TO THE AFORESAID GROUNDS THAT THERE IS A COMPUTATIONAL ERROR IN CALCULATION UNDER RULE 8D(III) AND THE AO HAS INCLUDED THE INVESTMENTS OF THE SUBSIDIARIES, WHICH HAVE NOT PAID DIVIDENDS TO THE ASSESSEE. IN VIEW OF SUBMISSION MADE, THE SAID ISSUE IS REMANDED TO THE FILE OF AO TO MAKE A CORRECT COMPUTATION WITHOUT INCLUDING THE INVESTMENTS OF COMPANIES WHICH HAVE NOT PAID ANY DIVIDEND TO THE ASSESSEE COMPANY. THE AFORESAID GROUNDS ARE, THEREFORE, HELD TO BE AGAINST THE ASSESSEE ON MERITS AND ON THE ISSUE OF COMPUTATION UNDER RULE 8D(III), THE MATTER IS REMANDED BACK TO THE FILE OF AO. ACCORDINGLY GROUNDS L(A), L(B), L(C), 2(B) AND 2{C) OF THE ASSESSEE ARE DISMISSED.' ITA NO.934/MUM/2017. M/S.REKHA OVERSEAS PRIVATE LIMITED. 4 THEREFORE, I FIND THAT THE DECISION OF HON'BLE BOMBAY HIGH COURT TO BE ON BETTER AND SOUND FOOTING. FOLLOWING THE JUDGEMENT OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD., AS WELL AS DECISION OF THE ITAT KOLKATTA IN THE CASE OF COAL INDIA LTD., THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III) IS UPHELD. 6. AGAINST THE ABOVE ORDER, THE ASSESSEE IS IN APPEAL BEFORE THE ITAT. 7. I HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. I FIND THAT ASSESSEE HAS PLACED RELIANCE UPON HONBLE JURISDICTIONAL HIGH COURT DECISIONS FOR THE PROPOSITION THAT WHEN ADEQUATE SURPLUS FUNDS ARE AVAILABLE, NO DISALLOWANCE U/S 14A QUA INTEREST EXPENDITURE IS TO BE MADE. FURTHERMORE, FAVOURABLE HIGH COURT DECISION ARE ALSO THERE THAT WHEN THE SHARES ARE HELD IN STOCK-IN-TRADE, NO DISALLOWANCE U/S 14A SHOULD BE DONE. I FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. IN NO WAY OVERRULES THE ABOVE TWO PROPOSITIONS. HENCE, IN MY CONSIDERED OPINION, THE LEARNED CIT(A) HAS ERRED IN DISTINGUISHING THE SAME. I FIND THAT THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. HDFC BANK LIMITED HAS EXPOUNDED THE PROPOSITION THAT WHEN ADEQUATE SURPLUS FUNDS ARE AVAILABLE, NO DISALLOWANCE U/S 14A FOR INTEREST IS TO BE DONE. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CCI LTD V. JCIT 250 CTR 291 HAS HELD THAT WHEN SHARES ARE HELD IN STOCK-IN-TRADE, NO DISALLOWANCE U/S 14A SHOULD BE DONE. NO CONTRARY JURISDICTIONAL HIGH COURT DECISION ON THE ISSUE HAS BEEN BROUGHT TO MY NOTICE. HOWEVER, I NOTE THAT NECESSARY FACTS TO ADJUDICATE ON THIS ASPECT ARE NOT ON RECORD. IN MY CONSIDERED OPINION, THE INTEREST OF JUSTICE MANDATES THAT THE ISSUE BE REMITTED TO THE FILE OF THE ASSESSING OFFICER. ACCORDINGLY, THE ISSUE RAISED IS REMITTED TO THE FILE OF A.O., WHO IS DIRECTED TO CONSIDER THE ISSUE AFRESH ITA NO.934/MUM/2017. M/S.REKHA OVERSEAS PRIVATE LIMITED. 5 KEEPING IN MIND THE AFORESAID DISCUSSION. NEEDLESS TO ADD ASSESSEE SHOULD BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 01 ST DAY OF SEPTEMBER, 2017. SD/- ( SHAMIM YAHYA ) ACCOUNTANT MEMBER MUMBAI; DATED : 01 ST SEPTEMBER, 2017. DEVDAS* / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT, MUMBAI. 4. / CIT(A), MUMBAI 5. , , / DR, ITAT, MUMBAI 6. [ / GUARD FILE.