MAHANAGAR GAS LTD, MUMBAI V. DCIT 10(1), MUMBAI

ITA 958/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71917 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 05-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 02-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PETAMBAR DAS
• Assessee Lawyers: P P JAYARAMAN
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

G IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI . . , . , BEFORE SHRI KARUNAKARA RAO, AM AND DR. S.T.M. PAVALAN, JM ./I.T.A. NO.958/M/2011 ( / ASSESSMENT YEAR: 2007 - 2008) MAHANAGAR GAS LTD., MGL HOUSE, G - 33, BANDRA KURLA COMPLEX, OPP. ICICI TOWERS, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI. / VS. DCIT - 10(1), 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI. ./I.T.A. NO.402/M/2011 ( / ASSESSMENT YEAR: 2007 - 2008) DCIT - 10(1), 4 TH FLOOR, AAYAKAR BHAVAN, MUMBAI. / VS. MAHANAGAR GAS LTD., MGL HOUSE, G - 33, BANDRA KURLA COMPLEX, OPP. ICICI TOWERS, BANDRA KURLA COMPLEX, BANDRA EAST, MUMBAI. ./ PAN : AABCM 4640 G ( / APPELLANT) .. ( / RESPONDENT ) / ASSESSEE BY : SHRI P.P. JAYARAMAN / REVENUE BY : SHRI PETAMBAR DAS , DR / DATE OF HEARING : 05.12.2013 / DATE OF PRONOUNCEMENT : 11 .12.2013 / O R D E R PER D. KARUNAKARA RAO, AM: THERE ARE TWO APPEALS UNDER CONSIDERATION AND THEY ARE CROSS APPEALS. ITA NO. 958/M/2011 IS FILED BY THE ASSESSEE AND ITA NO. 402/M/2011 IS FILED BY THE REVENUE AGAINST THE ORDER OF CIT (A) - 21, MUMBAI DATED 10.11.2010 FOR THE AY 2007 - 2008. SINCE, THE ISS UES RAISED IN BOTH THESE APPEALS ARE IDENTICAL, THEREFORE, FOR THE SAKE OF CONVENIENCE, T HESE TWO APPEALS ARE CLUBBED, HEARD COMBINEDLY AND 2 BEING DISPOSED IN THIS CONSOLIDATED ORDER. APPEAL WISE ADJUDICATION IS GIVEN IN THE SUCCEEDING PARAGRAPHS. 2. AT THE OUTSET, REFERRING TO THE GROUNDS RAISED IN BOTH THE APPEALS UNDER CONSIDERATION, SHRI P.P. JAYARAMAN , LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THE ISSUE RELATING TO DISALLOWANCE U/S 14A OF THE ACT IS COMMON IN BOTH THE APPEALS. THE OTHER ISSUE RA ISED BY THE REVENUE AT GROUND NO.1 RELATES TO THE DELETION OF ADDITION OF RS. 30,00,000/ - MADE ON ACCOUNT OF COMPENSATION FROM CUSTOMERS NEEDS TO BE REMANDED TO THE FILES OF THE AO AS AN IDENTICAL ISSUE WAS ACCORDINGLY REMANDED FOR THE SUBSEQUENT ASSESSMEN T YEAR 2008 - 2009 VIDE ITA NO.6832/M/2011 (AY 2008 - 2009) DATED 27.2.2013. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO PARA 3 OF THE SAID ORDER OF THE TRIBUNAL AND PRAYED FOR REMANDING THE GROUND NO.1 OF THE REVENUES APPEAL TO THE FILES OF T HE AO W ITH IDENTICAL DIRECTIONS. 3. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE ORDER OF THE TRIBUNAL (SUPRA) DATED 27.2.2013. ON PERUSAL OF PARA 3, GIVEN IN PAGE 2 TO 4 OF THE SAID TRIBUNALS ORDER (SUPRA), WE ARE OF THE OPINION THAT THE PRAYER OF THE ASSESSEE SHOULD BE CONSIDERED FAVOURABLY. ACCORDINGLY, GROUND NO.1 OF THE REVENUES APPEALS IS REMANDED TO THE FILES OF THE AO, AFTE R SETTING ASIDE THE ORDERS OF THE AO / CIT (A), WITH IDENTICAL DIRECTIONS TO DECIDE THE MATTER AFRESH AFTER AFFORDING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO.1 RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE S. 5. REFERRING TO THE OTHER ISSUE RELATING TO ATTRACTING THE PROVISIONS OF SECTION 14A OF THE ACT, LD COUNSEL MENTIONED THAT IN VIOLATION OF THE RATIO OF THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE MFG. CO. LTD VS. CIT, 234 CTR 1 , AO AS WELL AS THE CIT (A) QUANTIFIED THE DISALLOWANCE INDIRECTLY APPLYING THE PROVISIONS OF RULE - 8D OF IT RULES, 1962. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT JUDGMENT IN THE CASE OF CIT VS. M/S . GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 AND MENTIONED THAT AN IDENTICAL DISALLOWANCE SHOULD MEET BOTH THE ENDS OF JUSTICE. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDERS OF THE AO AND THE CIT (A). 3 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED JUDGMENTS OF THE HONBLE BOMBAY HIGH COURT (SUPRA) ON THE ISSUE UNDER CONSIDERATION. ON PERUSAL OF THE SAID JUDGMENTS OF THE BOMBAY HIGH COURT, WE FIND THAT THE PROVISIONS OF RULE - 8D SHOULD NOT BE APPLIED INDIRECTLY AS WELL AND THE DISALLOWANCE, IF ANY, SHOULD BE MADE ONLY AFTER HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND AFTER CONSIDERING THE ISSUES RELATING TO THE REASONABLENESS OF THE DISALLOWANCE. WHAT C ANNOT BE DONE DIRECTLY, SHOULD NOT BE DONE INDIRECTLY ALSO, THEREFORE, WE DO NOT APPROVE METHOD AND MANNER OF THE CIT (A) IN CONFIRMING THE AOS DECISION OF INVOKING THE SAID PROVISIONS OF RULE - 8D. IN THIS REGARD, WE HAVE ALSO PERUSED THE SAID JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD (SUPRA), WHICH WE HAVE APPLIED IN OTHER CASES. FOR EXAMPLE, IN THE CASE OF SHAKUNTALADEVI TRADE & INVESTMENTS PVT LTD, VIDE ITA NO. 8006/M/2010 (AY: 2007 - 2008), DATED 6.12.2013 THE SI MILAR ISSUE WAS ADJUDICATED AND THE PARA 5 OF THE SAID ORDER OF THE TRIBUNAL IS RELEVANT IN THIS REGARD AND THE SAME READS AS UNDER: 5. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE. IT IS A FACT THAT THE RELEVANT ASSESSMENT YEAR IS 2007 - 08 UNDER CONSIDERATION IS OUTSIDE THE SCOPE OF PROVISIONS OF RULE 8D. THE SAID PROVISIONS CANNOT BE TREATED AS APPLICABLE TO THE A.Y.200 7 - 08 UNDER CONSIDERATION INDIRECTLY WHEN THE SAME IS PRECLUDED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT, REPORTED IN (2010) 328 ITR 81(BOM) . THE HONBLE BOMBAY HIGH COURT ALSO IN THE CASE OF CIT VS. M/S. GODREJ AGROVET LTD VIDE INCOME TAX APPEAL NO. 934 OF 2011, DATED 8.1.2013 , HAS HELD THAT PERCENTAGE OF THE EXEMPT INCOME CAN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE IN THE YEARS EARLIER TO THE ASSESSMENT YEAR 2008 - 09. THE RELEVANT PORTION OF THE SAID JUDGMENT OF THE BOMBAY HIGH COURT (SUPRA) READS AS UNDER: '4. SO FAR AS QUESTION (B) IS CONCERNED, THE TRIBUNAL IN ITS IMPUGNED ORDER DATED 17.9.2010 WHILE APPLYING THE DECISION OF THIS COURT IN THE MATTER OF GODREJ (SUPRA) HAS DISALLOWED THE EXPEND ITURE ONLY TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE RESPONDENT - ASSESSEE ON THE BASIS ITS ORDER DATED 27.2.2009 FOR THE ASSESSMENT YEAR 2002 - 2003 AND ORDER DATED 10.9.2009 FOR THE ASSESSMENT YEARS 2003 - 2004 AND 2004 - 2005 WHEREIN DISALLOW ANCE WAS RESTRICTED TO 2% OF THE EXEMPT INCOME. FURTHER; THE TRIBUNAL HAS REMANDED THE MATTER TO THE AO TO VERIFY THE DISALLOWANCE CLAIMED AND RESTRICT THE DISALLOWANCE ONLY TO THE EXTENT TO 2% OF THE TOTAL EXEMPT INCOME. WE FIND NO FAULT WITH THE ORDER OF THE TRIBUNAL. ' CONSIDERING THE BINDING NATURE OF THE JUDGMENT, WE DIRECT THE AO TO QUANTIFY THE DISALLOWANCE IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HONBLE HIGH COURT. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPO SES. 8. CONSIDERING THE ABOVE, WE ARE OF THE OPINION THAT THE AO SHOULD BE DIRECTED TO RESTRICT THE DISALLOWANCE TO 2% OF THE TOTAL EXEMPT INCOME IN THE LINES OF THE DISCUSSED BY THE HONBLE HIGH COURT IN THE 4 ABOVE REFERRED CASES. AO SHOULD GRANT A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE QUANTIFYING THE DISALLOWANCE AND APPLYING THE SAID JUDGMENT IN THE CASE OF M/S. GODREJ AGROVET LTD (SUPRA). ACCORDINGLY , GROUND NO.2 OF THE REVENUE AND GR OUND NO.1 OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE AND THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED IN THE OPEN COURT O N 1 1 T H DECEMBER, 2013. S D / - S D / - ( DR. S.T.M. PAVALAN ) (D. KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; 1 1 .12.2013 . . ./ OKK , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI