TWINKLE ENVIRO TECH P.LTD, MUMBAI V. DCIT CEN CIR 2(4), MUMBAI

ITA 944/MUM/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0670 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 10-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJGURU; CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA NO. 944 /MUM/201 7 (A.Y: 2012 - 13) M/S. TWINKLE ENVIRO TECH (P.) LTD. 317/318 PARVATI INDUSTRIAL ESTATE SUN MILL COMPOUND, LOWER PAREL (W), MUMBAI 400 013 PAN: AAACT 4038 N V. D .C.I.T. CENTRAL CIRCLE 2(4 ) MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI RAJGURU & SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 26 .10.2018 DATE OF PRONOUNCEMENT : 14 .11 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) 48, MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 29.11.16 FOR THE ASSESSMENT YEAR 2012 - 13. 2. THE ONLY ISSUE IN THE APPEAL OF THE ASSESSEE IS IN RESPECT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D OF THE ACT. 2 ITA NO.944/MUM/2017 (A.Y: 2012 - 13) M/S. TWINKLE ENVIRO TECH (P.) LTD. 3. THE NOTICE ISSUED BY REGISTERED POST TO THE ASSESSEE IS RETURNED UNSERVED WITH AN ENDORSEMENT BY POSTAL AUTHORITIES THAT ASSESSEE HAS LEFT. WE DISPOSE OF THIS APPEAL ON HEARING THE LD. DR. 4. LD. DR SUBMITTED THAT, THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT MADE DISALLOWANCE U/S. 14A R.W. RULE 8D (2)(II) & (2)(III) OF THE ACT AT .39,99,582 / - AND .62,77,582/ - RESPECTIVELY. LD. DR SUBMITTED THAT THE ASSESSEE CONTENDED BEFORE THE LD. CIT(A) THAT ASSESSEE MADE STRATEGIC INVESTMENTS IN GROUP CONCERNS AND THEREFORE NO DISALLOWANCE IS REQUIRED TO BE MADE. IT WAS ALSO CONTENDED THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. THIS CONTENTION OF THE ASSESSEE WAS NOT ACCEPTED BY THE LD.CIT(A) AND SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. LD. DR STRONGLY SUPPORTED AND PLACED RELIANCE ON THE ORDERS OF THE AUTHORITIES B ELOW. 5. WE HAVE HEARD THE LD. DR AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ASSESSMENT ORDER, WE FIND THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE EARNED EXEMPT INCOME BY WAY OF DIVIDEND AT .24,15,757/ - AND THI S WAS CLAIMED AS EXEMPT. THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D DISALLOWED .1,02,77,164/ - . THE CONTENTION OF THE ASSESSEE WAS THAT ASSESSEE MADE STRATEGIC INVESTMENTS IN THE GROUP CONCERNS AND THEREFORE, NO DISALLOW ANCE IS REQUIRED TO BE MADE. THIS CONTENTION OF THE 3 ITA NO.944/MUM/2017 (A.Y: 2012 - 13) M/S. TWINKLE ENVIRO TECH (P.) LTD. ASSESSEE IS NOT ACCEPTED BY THE LD. CIT(A). RECENTLY HON'BLE SUPREME COURT HELD IN THE CASE OF MAXOPP INVESTMENT LTD. V . CIT [402 ITR 640] HELD THAT EVEN ON STRATEGIC INVESTMENTS IF THE ASSESSEE EARNS DIVIDEND INCOME THE SAME WILL FALL UNDER THE PURVIEW OF DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE ACT. IN THE CIRCUMSTANCE, WE UPHOLD THE ORDER OF THE LD. CIT(A) TO THAT EXTENT . 6. HOWEVER, WE FIND THAT THE ASSESSEE EARNED EXEMPT INCOME ONLY TO THE EXTENT OF .24,15,757/ - THE DISALLOWANCE U/S. 14A SHOULD NOT EXCEED THE EXEMPT INCOME. IT HAS BEEN HELD IN VARIOUS CASES THAT THE DISALLOWANCE U/S.14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX - I V. M/S EMPIRE PACKAGE PVT. LTD IN ITA.NO. 415 OF 2015 DATED 12.01.2016, DISMISSED THE APPEAL OF THE REVENUE HOLDING THAT THERE IS NO SUBSTANTIAL QUESTION OF LAW ARISE IN THE APPEAL ON THE FOLLOWING QUESTION RAISED BY THE REVEN UE: - 'WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE ITAT IS JUSTIFIED IN LAW TO HOLD THAT THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME, IN THE ABSENCE OF ANY SUCH RESTRICTION BEING THERE IN TH E RELEVANT SECTION OR RULE?' THE HON'BLE HIGH COURT AFFIRMED THE ORDER OF THE ITAT IN HOLDING THAT THE DISALLOWANCE U/S. 14A R.W. RULE 8D AS WORKED OUT BY THE ASSESSING OFFICER IS NOT IN ACCORDANCE WITH LAW FOR THE REASON THAT ASSESSING OFFICER HAS DISAL LOWED ENTIRE TAX EXEMPT INCOME AND THIS IS NOT PERMISSIBLE IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT. 4 ITA NO.944/MUM/2017 (A.Y: 2012 - 13) M/S. TWINKLE ENVIRO TECH (P.) LTD. 7. THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 HELD THAT BY NO STRETCH OF I MAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. 8. FURTHER , WE FIND THAT CONSIDERING THE ABOVE TWO DECISIONS THE COORDINATE BENCH IN THE CASE OF SANGHAVI EXPORTS INTERNATIONAL P. LTD V. ACIT IN ITA.NO.3405/MUM/2015 DATED 10.07.2017 HELD THAT DISALLOWANCE SHOULD NOT BE MORE THAN THE DIVIDEND INCOME BY OBSERVING AS UNDER: - 4. WE HAVE PERUSED THE ASSESSMENT ORDER AND FIND THAT THE ASSESSEE EARNED EXEMPT INCOME OF RS. 1,70,000/ - ONLY DURIN G THIS ASSESSMENT YEAR AND THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 14A MADE DISALLOWANCE AT RS.54,66,813/ - . THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED IN ITA.NO. 117/15 DATED 25.02.2015 HELD THAT BY NO STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. SIMILARLY, PUNJAB AND HARYANA HIGH COURT IN THE CASE OF PCIT V. EMPIRE PACKAGE PRIVATE LIMITED IN ITA.NO. 415/2015 HELD THAT D ISALLOWANCE SHOULD NOT EXCEED EXEMPT INCOME. IN THE CASE ON HAND SINCE THE ASSESSEE RECEIVED DIVIDEND INCOME OF RS.1,70,000/ - AS RECORDED IN THE ASSESSMENT ORDER THE DISALLOWANCE SHOULD NOT BE MORE THAN RS.1,70,000/ - . THUS WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF DIVIDEND INCOME I.E. RS.1,70,000/ - AND DELETE THE BALANCE AMOUNT AND COMPUTE THE INCOMES ACCORDINGLY. 9. THUS, RESPECTIVELY FOLLOWING THE SAID DECISIONS, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWA NCE U/S. 14A R.W. RULE 8D TO THE EXTENT OF DIVIDEND INCOME OF .24,15,757/ - RECEIVED FOR THE ASSESSMENT YEAR 2012 - 13 AND COMPUTE THE INCOME ACCORDINGLY. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 14 TH NOVEMBER , 2018 SD/ - SD/ - ( R AJESH KUMAR) ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 14 / 11 / 2018 GIRIDHAR , SR. PS 5 ITA NO.944/MUM/2017 (A.Y: 2012 - 13) M/S. TWINKLE ENVIRO TECH (P.) LTD. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM