CHIMANLAL U. SHAH, MUMBAI V. ACIT 12(1), MUMBAI

ITA 999/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3750 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2006-2007
• Appeal Filed On: 08-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P M DEVDASAN
• Assessee Lawyers: H S PARIKH
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER I.T.A.NO. 999/MUM/2010 ASSESSMENT YEAR : 2006-07 CHIMANLAL U. SHAH, RAITAN PVT. LTD., LST FLOOR, HAGUE BLDG., SPROTT ROAD, BALLARD ESTATE, MUMBAI 400 001. PAN: AADPS 7505 D VS. THE ASST. COMMISSIONER OF INCOME- TAX-12(1), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.S. PARIKH RESPONDENT BY : SHRI P.M. DEVDASAN O R D E R PER N.V. VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 04.12.2009 OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XXIII, MUMBAI, RELATING TO THE ASSESSMENT YEAR 2006-07. 2. THE GROUNDS OF APPEAL OF THE ASSESSEE READ AS FOLLO WS: 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALL OWANCE OF RS. 2,23,274/- U/S.14A WITHOUT APPRECIATING THE FACT TH AT YOUR APPELLANT HAS NOT INCURRED ANY EXPENDITURE AND HAS NOT SHOWN ANY EXPENDITURE FOR EARNING THE SAID EXEMPT INCOME OF RS. 2,29,57,840/-. 1.1 YOUR APPELLANT SUBMITS THAT SINCE YOUR APPELLANT HA S NOT CLAIMED ANY EXPENSES, THE QUESTION OF DISALLOWING THE SAME U/S.14-A DOES NOT ARISE. 1.2 YOUR APPELLANT, THEREFORE, SUBMITS THAT THE DISALLO WANCE OF RS. 2,23,274/- U/S.14A BE DELETED. 3. THE ASSESSEE IS AN INDIVIDUAL AND IS ENGAGED IN THE BUSINESS OF IMPORT AND TRADING IN WATTLE EXTRACTS. THE ASSESSEE IS ALS O ENGAGED IN THE BUSINESS OF FINANCE, BILL DISCOUNTING AND FREIGHT BROKERAGE. D URING THE PREVIOUS YEAR THE ASSESSEE EARNED DIVIDEND INCOME OF RS. 2,29,27,840/ - ON SHARES AND RS.30,000/- ITA NO.999/M/2010 SHRI CHIMANLAL U. SHAH 2 ON MUTUAL FUNDS. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE DID NOT SHOW ANY EXPENDITURE AS HAVING BEEN INCURRED FOR EARNING THE SAID EXEMPT INCOME. THE ASSESSEE SUBMITTED BEFORE THE AO THAT HE DID NOT IN CUR ANY EXPENSES TO EARN THE INCOME WHICH WAS EXEMPT. THE AO DID NOT ACCEPT THIS STAND OF THE ASSESSEE. INVOKING THE PROVISIONS OF RULE 8D OF THE INCOME-TA X RULES, THE AO QUANTIFIED A SUM OF RS. 2,23,274/- AS EXPENDITURE INCURRED IN EA RNING THE INCOME WHICH IS EXEMPT AND ADDED THE SAID SUM TO THE TOTAL INCOME OF THE ASSESSEE. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) CONFIRMED THE ORDER OF THE A.O., GIVING RISE TO THE PRESENT APPEAL BY THE ASSESSEE B EFORE THE TRIBUNAL. 5. WE HAVE HEARD THE RIVAL CONTENTIONS. THE DISPUTE IS REGARDING DISALLOWANCE OF EXPENSES RELATING TO THE INCOME WHI CH WAS EXEMPT FROM TAX. THERE IS NO DISPUTE THAT THE ASSESSEE HAD EARNED DI VIDEND INCOME FROM INVESTMENTS WHICH WAS EXEMPT FROM TAX AND THAT THE EXPENDITURE RELATABLE TO THE INCOME EXEMPT IS REQUIRED TO BE DISALLOWED UNDER SE CTION 14A OF THE INCOME-TAX ACT. ACCORDING TO THE ASSESSEE THERE WAS NO EXPEND ITURE INCURRED IN EARNING THE DIVIDEND INCOME WHICH DID NOT FORM PART OF THE TOTA L INCOME OF THE ASSESSEE. THE AUTHORITIES BELOW HAVE COMPUTED THE DISALLOWANCE AS PER RULE 8D. HOWEVER, THE HONBLE BOMBAY HIGH COURT, RECENTLY IN THE CASE OF GODREJ AND BOYCE MANUFACTURING CO. LTD. VS. DCIT, IN INCOME-TAX APPE AL NO. 626 OF 2010, HAVE HELD THAT RULE 8D HAS NO RETROSPECTIVE APPLICATION AND W OULD APPLY ONLY FROM THE ASSESSMENT YEAR 2008-09. IN RESPECT OF PRIOR YEARS , THE HONBLE HIGH COURT OF BOMBAY HAVE HELD THAT THE A.O. IS DUTY BOUND TO DET ERMINE THE EXPENDITURE WHETHER DIRECT OR INDIRECT WHICH HAD BEEN INCURRED IN RELATION TO THE EXEMPT INCOME AND THE EXPENDITURE HAD TO BE DETERMINED AF TER ADOPTING A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FA CTS AND CIRCUMSTANCES OF THE CASE AFTER ALLOWING OPPORTUNITY OF HEARING TO THE A SSESSEE. THE ASSESSMENT YEAR INVOLVED IN THIS APPEAL IS ASSESSMENT YEAR 2006-07. THEREFORE, RULE 8D IS NOT ITA NO.999/M/2010 SHRI CHIMANLAL U. SHAH 3 APPLICABLE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE A.O. FOR PASSING A FRESH ORDER A FTER NECESSARY EXAMINATION IN THE LIGHT OF THE JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY (SUPRA) AND AFTER ALLOWING OPPORTUNITY TO THE ASSESSEE. 7. IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF NOVEMBER, 2010. SD. SD. (RAJENDRA SINGH) (N.V. VASUDEAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED THE 10 TH NOVEMBER, 2010. KN COPY TO: 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT-XII, MUMBAI 4. THE CIT(A)-XXIII, MUMBAI 5. THE DR C BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, ITAT, MUMBAI