Karmen International P Ltd., CHENNAI V. DCIT, CHENNAI

MA 106/CHNY/2015

• Counselvise Citation: [2015] 124 COUNSELVISE.COM (IT) 3581 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: S SRIDHAR; A S SRIRAMAN S
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ , % ' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER M.P.NO.106/MDS/2015 & I.T.A.NO.57/MDS/2015 ( / ASSESSMENT YEAR: 2010-11) M/S. KARMEN INTERNATIONAL P.LTD. DP NO.48 & 51, SIDCO INDL. ESTATE, THIRUMAZHISAI CHENNAI-602 107. VS DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-II(4), CHENNAI. PAN: AAACK8998A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR & MR. A.S.SRIRAMAN, ADVOCATES /RESPONDENT BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 11 TH SEPTEMBER, 2015 /DATE OF PRONOUNCEMENT : 28 TH OCTOBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS MISCELLANEOUS PETITION IS FILED BY THE ASSESS EE REQUESTING TO RECALL THE ORDER PASSED BY THIS TRIBU NAL IN ITA NO.57/MDS/2015 DATED 29.05.2015 AND ADJUDICATE THE ALTERNATIVE GROUND NO.7 RAISED BY THE ASSESSEE IN I TS APPEAL STATING THAT THE TRIBUNAL WHILE DISPOSING OFF THE A PPEAL INADVERTENTLY OMITTED TO DECIDE THE ALTERNATIVE GRO UND RAISED BY THE ASSESSEE IN RESPECT OF THE DISALLOWANCE MADE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RU LES. 2 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 2. ON A PERUSAL OF THE ORDER OF THIS TRIBUNAL IN IT A NO.57/MDS/2015 DATED 29.05.2015, WE FIND THAT THE T RIBUNAL DISPOSED OFF GROUND NO.4 AND 5 OF THE GROUNDS OF AP PEAL RELATING TO DISALLOWANCE UNDER SECTION 14A OF THE A CT SUSTAINING THE DISALLOWANCE MADE BY THE ASSESSEE AN D CONFIRMED BY THE COMMISSIONER OF INCOME TAX (APPEAL S). HOWEVER, WE FIND THAT THE ALTERNATIVE GROUND RAISED BY THE ASSESSEE I.E. GROUND NO.7 OF GROUNDS OF APPEAL WAS NOT ADJUDICATED. 3. THE ALTERNATIVE GROUND RAISED BY THE ASSESSEE IN ITS GROUNDS OF APPEAL READS AS UNDER:- THE COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT ALTERNATIVELY THE FAILURE TO CONSIDER THE ESTIMATED DISALLOWANCE TO THE EXTENT OF THE TAX FREE INCOME EARNED WAS BAD IN LAW AND OUGHT TO HAVE APPRECIATED THAT IN ANY EVENT THE COMPUTATION OF ESTIMATED EXPENSES AS PER RULE 8D WAS WRONG, ERRONEOUS, UNJUSTIFIED, INCORRECT AND NOT SUSTAINABLE IN LAW. 4. DEPARTMENTAL REPRESENTATIVE HAS NO SERIOUS OBJEC TION IN RECALLING THE ORDER TO DISPOSE OFF THE ALTERNATI VE GROUND SINCE THIS TRIBUNAL DID NOT GIVE ANY FINDING NOR DI SPOSED OFF THE ALTERNATIVE GROUND NO.7 VIDE ORDER DATED 29.05. 2015. 3 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 5. SINCE THE ABOVE GROUND IS NOT DISPOSED OFF INADVERTENTLY, THERE IS A MISTAKE APPARENT ON RECOR D IN THE ORDER PASSED BY THIS TRIBUNAL. THUS, WE RECALL THE ORDER IN ITA NO.57/MDS/2015 DATED 29.05.2015 FOR THE LIMITED PURPOSE OF DISPOSING OFF THE ALTERNATIVE GROUND. TH E MISCELLANEOUS PETITION IS ALLOWED. 6. COMING TO THE MERITS OF THE ALTERNATIVE GROUND, COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED ` 37,23,755/- UNDER SECTION 14A READ WITH RULE 8D. COUNSEL SUBMITS TH AT DURING THIS ASSESSMENT YEAR ASSESSEE RECEIVED DIVIDEND IN COME OF ` 5,55,455/- AND THIS DIVIDEND INCOME WAS CLAIMED A S EXEMPT INCOME UNDER SECTION 10(34) OF THE ACT. COU NSEL FOR THE ASSESSEE CONTENDS THAT DISALLOWANCE UNDER SECTI ON 14A IF ANY, SHOULD BE RESTRICTED TO THE EXEMPT INCOME OF ` 5,55,455/- AND IT CANNOT BE ` 37,23,755/-. IN SUPPORT OF HIS CONTENTIONS, COUNSEL PLACES RELIANCE ON THE DECISIO N OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DA GA GLOBAL CHEMICALS PVT.LTD. IN ITA NO.5592/MUM/2012 D ATED 01.01.2015 AND THE DECISION OF THE DELHI HIGH COURT IN THE 4 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 CASE OF JOINT INVESTMENTS PVT. LTD. VS. CIT IN ITA NO.117 OF 2015 DATED 25.02.2015. COPIES OF THE ORDERS ARE PLA CED ON RECORD. 5. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 6. HEARD BOTH THE PARTIES. ON A PERUSAL OF THE OR DER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DA GA GLOBAL CHEMICALS PVT. LTD. (SUPRA), WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL HOLDING THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D C ANNOT EXCEED THE EXEMPT INCOME. WHILE HOLDING SO, THE TRI BUNAL OBSERVED AS UNDER:- 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONG WITH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCE D THEIR ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND R AISED BY SUBMITTING THAT NO EXPENDITURE DIRECTLY OR INDIRECT LY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIE R YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THE REFORE, NO DISALLOWANCE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRON GLY DEFENDED THE CONCLUSION ARRIVED AT BY THE LD.COMMIS SIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE LD. FIRST APP ELLATE AUTHORITY AS APPORTIONMENT OF EXPENDITURE FOR EARNI NG THE DIVIDEND INCOME WAS DONE AS PER THE PROVISIONS OF T HE ACT. IT WAS PLEADED THAT SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT A PPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS , IN 5 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES W HICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS A CCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE ST AND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIB UNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR E ARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MA Y BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82 ,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. I T WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WA S MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FU NDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED T O RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE I S THEREFORE, ALLOWED. 7. IN THE CASE OF THE ASSESSEE, THE ASSESSING OFFIC ER DISALLOWED ` 37,23,755/- UNDER SECTION 14A READ WITH RULE 8D, WHEREAS THE ACTUAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE AND CLAIMED AS EXEMPT INCOME UNDER SECTIO N 10(34) WAS ONLY ` 5,55,455/-. FOLLOWING THE DECISION OF THE MUMBAI BENCH CITED ABOVE WE ARE OF THE VIEW THAT 6 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D SH OULD NOT EXCEED THE EXEMPT INCOME CLAIMED BY THE ASSESSEE. THE MUMBAI BENCH IN ITS ORDER SUSTAINED THE DISALLOWANC E ON APPLICABILITY OF PROVISIONS OF SECTION 14A READ WIT H RULE 8D. HOWEVER, THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS THAT DISALLOWANCE IT AT ALL SHOULD BE MADE, IT SHOULD B E RESTRICTED TO EXEMPT INCOME EARNED AND NOT BEYOND THAT. THUS, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALL OWANCE TO THE EXEMPT INCOME I.E. ` 5,55,455/-. THE ALTERNATIVE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 8. ACCORDINGLY, FINAL RESULT IN ITA NOS.57/MDS/2015 AND 64/MDS/2015 IN PARA 12 IS AS FOLLOWS:- IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY AL LOWED AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- SD/- ( ' ) ( % '' ) ( CHANDRA POOJARI ) ( CHALLA NAG ENDRA PRASAD ) ) / ACCOUNTANT MEMBER ' ) / JUDICIAL MEMBER ' /CHENNAI, + /DATED 28 TH OCTOBER, 2015 SOMU 7 M.P.NO.106/MDS/2015 & ITA NO.57/MDS/2015 ./ 0/ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 1 () /CIT(A) 4. 1 /CIT 5. / 5 /DR 6. /GF .