M/s. R. Wadiwala & Co., Surat V. The Income tax Officer,Ward-5(4), Surat

MA 218/AHD/2011

• Counselvise Citation: [2012] 123 COUNSELVISE.COM (IT) 7893 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 23-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: J P SHAH
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER M.A.NO.218/AHD/2011 IN I.T.A. NO.4044/ AHD/2007 (ASSESSMENT YEAR 2004-05) M/S. R. WADILAL & CO., 9/2003-4, LIMDA CHOWK, MAIN ROAD, SURAT-395001 VS. ITO, WARD 5(4), SURAT PAN/GIR NO. : AAEFR5962N (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI JP SHAH, AR RESPONDENT BY: B L YADAV, SR. DR DATE OF HEARING: 27.04.2012 DATE OF PRONOUNCEMENT: 11.05.2012 O R D E R PER SHRI A. K. GARODIA, AM:- THIS MISCELLANEOUS APPLICATION IS FILED BY THE ASS ESSEE AND IT IS A CONTENTION RAISED IN THE MISCELLANEOUS APPLICATION THAT WHILE DECIDING GROUND NO.2 OF THE ASSESSEES APPEAL, IT IS STATED BY THE TRIBUNAL IN THE IMPUGNED TRIBUNAL ORDER THAT LD. A.R. FAIRLY ACCEPT ED THIS ISSUE IS NOW COVERED AGAINST THE ASSESSEE BY THE DECISION OF SPE CIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITAL MANAG EMENT (P) LTD. AS REPORTED IN 117 ITR 169 (SB). IT WAS SUBMITTED IN THE MISCELLANEOUS APPLICATION THAT THE ASSESSEES COUNSEL DID NOT MAK E ANY SUCH STATEMENT IN THE COURSE OF HEARING OF THIS APPEAL. IT IS ALSO S UBMITTED IN THE MISCELLANEOUS APPLICATION THAT THIS DECISION OF SPE CIAL BENCH OF THE M.A.NO.218 /AHD/2011 2 TRIBUNAL WAS DISAPPROVED BY HONBLE BOMBAY HIGH COU RT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. VS DCIT AS REPORTED I N 328 ITR 81 (BOMBAY) AND THIS FACT WAS POINTED OUT BY THE LD. C OUNSEL FOR THE ASSESSEE IN THE COURSE OF HEARING OF THIS APPEAL. IT WAS FURTHER SUBMITTED THAT RELIANCE WAS PLACED ON THE DECISION OF AHMEDAB AD BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DISHMAN PHARMACEUT ICALS & CHEMICALS LTD. VS DCIT 45 SOT 37 (AHD) (URO). 2. IN THE COURSE OF HEARING BEFORE US, IT WAS SUBMI TTED BY THE LD. A.R. THAT NO SUCH STATEMENT WAS MADE BY HIM WHEN THE APP EAL WAS HEARD THAT THIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE D ECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITA L MANAGEMENT (P) LTD. (SUPRA). HE FURTHER SUBMITTED THAT IN FACT THIS WA S ARGUED THAT THE DISALLOWANCE IS EXCESSIVE AND IT SHOULD BE REDUCED. AS AGAINST THIS, IT WAS SUBMITTED BY LD. D.R. THAT THERE IS NO APPARENT MISTAKE IN THE TRIBUNAL ORDER AND HENCE, THE MISCELLANEOUS APPLICA TION OF THE ASSESSEE SHOULD BE REJECTED. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. REGAR DING THE FIRST MISTAKE POINTED OUT BY THE ASSESSEE IN THE MISCELLA NEOUS APPLICATION THAT THE COUNSEL OF THE ASSESSEE DID NOT MAKE THIS STATE MENT DURING THE COURSE OF HEARING OF APPEAL THAT THIS ISSUE IS COVERED AGA INST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA), WE WOULD LIKE TO OBSERVE THAT WHETHER SUCH STATEMENT WAS MADE BY THE LD. COUNSEL FOR THE ASSESSEE IN THE COURSE OF HEARING OF THE APPEAL OR NOT, THE FAC T WILL NOT CHANGE AS TO WHETHER THE ISSUE IS COVERED OR NOT BY THIS DECISIO N OF SPECIAL BENCH OF THE TRIBUNAL. THEREFORE, WITHOUT GOING INTO THIS A SPECT AS TO WHETHER IN FACT ANY SUCH STATEMENT WAS MADE BY THE LD. COUNSEL FOR THE ASSESSEE OR NOT, WE ACCEPT THE CONTENTION OF THE ASSESSEE IN TH E MISCELLANEOUS M.A.NO.218 /AHD/2011 3 APPLICATION THAT NO SUCH STATEMENT WAS MADE BY THE LD. A.R. IN THE COURSE OF HEARING OF APPEAL BEFORE US AND, THEREFORE, WE R ECTIFY THE ORDER TO THIS EXTENT AND THE RELEVANT PARA 7 OF THE TRIBUNAL ORDE R SHOULD BE SUBSTITUTED BY THE FOLLOWING PARA: 7. ALTHOUGH LD. A.R. VEHEMENTLY ARGUED THAT THE DE CISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. AS REPORTED IN 117 ITD 169 (SB) IS NO MORE A GOOD LAW BECAUSE THE SAME IS DISAPPROVED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING P. LTD. AS REPORTED IN 328 ITR 81 (BOMBAY) THE FACT IS THAT THE ISSUE INVOLVED IN THE PRESENT CASE IS SQUARELY COVERED BY THIS DECISION OF SPECIAL BENCH OF THE TR IBUNAL RENDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA) AN D ONLY ONE PART OF THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL I.E. REGARDING RETROSPECTIVE APPLICATION OF RULE 8D WAS DISAPPROVED BY HONBLE B OMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING P. LTD. (SUPRA) AND THIS ASPECT WAS NOT DISAPPROVED THAT EVEN IN THE CASE OF DEALER OF SHARES, DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE U/S 14A OF THE INCOME TAX ACT, 1961 AS WAS HELD BY THE SPECIAL BENCH OF THE TRIBUNAL AND, THEREFORE, IT IS STILL A GOOD LAW. HENCE, RESPECTF ULLY FOLLOWING THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL, THIS ISS UE IS DECIDED AGAINST THE ASSESSEE. GROUND NO.2 IS REJECTED. 4. THE 2 ND CONTENTION RAISED IN THE MISCELLANEOUS APPLICATION IS THIS THAT THE DISALLOWANCE MADE IN THE PRESENT CASE IS E XCESSIVE IN THE LIGHT OF THE TRIBUNAL DECISION RENDERED IN THE CASE OF DISHM AN PHARMACEUTICALS & CHEMICALS LTD. (SUPRA) ON WHICH RELIANCE WAS PLACED AT THE TIME OF HEARING OF APPEAL BUT THE SAME WAS NOT CONSIDERED B Y THE TRIBUNAL IN THE IMPUGNED ORDER. WE FIND THAT A COPY OF THIS TRIBUN AL DECISION IS AVAILABLE IN THE APPEAL FOLDER AND IN PARA 28 OF THIS TRIBUNA L DECISION, IT WAS NOTED M.A.NO.218 /AHD/2011 4 BY THE TRIBUNAL THAT DURING THE COURSE OF ASSESSMEN T PROCEEDINGS ITSELF, IT WAS STATED BY THE ASSESSEE IN THAT CASE THAT IT HAD SUBSTANTIAL INTEREST FREE FUNDS AT ITS DISPOSAL AND, THEREFORE, IN THE ABSENC E OF NEXUS BETWEEN THE BORROWINGS AND THE INVESTMENTS, NO PART DISALLOWANC E OF INTEREST IS CALLED FOR AND THE ASSESSEE HAD NOT INCURRED ADMINISTRATIV E EXPENSES IN ORDER TO EARN DIVIDEND INCOME. IN THAT CASE, THE CLAIM OF THE ASSESSEE WAS ALLOWED BY LD. CIT(A) AND IT WAS SUBMITTED BY THE L D. COUNSEL FOR THE ASSESSEE BEFORE THE TRIBUNAL IN THAT CASE THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN THE ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2002-03. THE JUDGEMENT OF HONBLE BOMBAY HIGH COURT RENDERED IN THE CASE OF GODREJ & BOYCE MANUFA CTURING (P) LTD. (SUPRA) WAS NOT BROUGHT TO THE NOTICE OF THE TRIBUN AL IN THAT CASE I.E. IN THE CASE OF DISHMAN PHARMACEUTICALS & CHEMICALS LTD. B UT IN THE PRESENT CASE, THIS JUDGMENT IS DULY CONSIDERED BY THE TRIBU NAL IN THE IMPUGNED ORDER AND AS PER THIS JUDGMENT, PRIOR TO ASSESSMENT YEAR 2008-09, ALTHOUGH RULE 8D IS NOT APPLICABLE BUT REASONABLE D ISALLOWANCE IS STILL CALLED FOR AND AS PER THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RENDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA), DISALLOWANCE IS CALLED FOR EVEN IN RESPECT OF DEALE R OF THE SHARES. IN THE PRESENT CASE, NO INTEREST FREE FUND WAS AVAILABLE W ITH THE ASSESSEE BECAUSE EVEN THE PARTNERS CAPITAL OF RS.95.56 LACS AFTER I NCLUDING NET PROFIT OF THE PRESENT YEAR OF RS.79.15 LACS IS INTEREST BEARING. IN ADDITION TO THIS, THERE IS UNSECURED LOAN OF RS.104.47 LACS AND INVESTMENT IS TO THE TUNE OF RS.132.78 LACS. ON THE PARTNERS CAPITAL, INTEREST WAS PAID BY THE ASSESSEE OF RS.5,53,185/- AND HENCE, EVEN THE PARTNERS CAPI TAL WAS NOT INTEREST FREE FUND AVAILABLE WITH THE ASSESSEE AND, THEREFOR E, IT IS APPARENT THAT THE ENTIRE FUND AVAILABLE WITH THE ASSESSEE WAS INTERES T BEARING FUND OUT OF WHICH INVESTMENT IN SHARES WAS MADE TO THE EXTENT O F RS.132.78 LACS. M.A.NO.218 /AHD/2011 5 THE MAIN DISALLOWANCE IS ON ACCOUNT OF INTEREST EXP ENDITURE IN PROPORTION TO DIVIDEND INCOME TO TOTAL INCOME EARNED BY THE AS SESSEE. INTEREST DISALLOWANCE WAS OF RS.6,22,906/- AND ONLY A SUM OF RS.20,000/- WAS DISALLOWED IN RESPECT OF VARIOUS ADMINISTRATIVE EXP ENSES. CONSIDERING THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT EVEN AS PER THE TRIBUNAL DECISION RENDERED IN THE CASE OF DISHMAN PHARMACEUT ICALS & CHEMICALS LTD. (SUPRA), THERE IS NO APPARENT MISTAKE IN THE T RIBUNAL ORDER BECAUSE IN THE PRESENT CASE, NO INTEREST FREE FUND IS AVAILABL E WITH THE ASSESSEE WHEREAS IN THAT CASE, IT WAS NOTED BY THE TRIBUNAL THAT SUBSTANTIAL INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE AND NO NEXUS COULD BE BROUGHT OUT ON RECORD BY THE A.O. BETWEEN THE BORRO WINGS AND THE INVESTMENTS. BUT IN THE PRESENT CASE, WHEN NO INTE REST FREE FUND IS AVAILABLE WITH THE ASSESSEE, NEXUS IS DIRECT THAT T HE FUNDS USED IN THE INVESTMENT WERE ONLY INTEREST BEARING FUNDS. WE, T HEREFORE, DO NOT FIND ANY APPARENT MISTAKE IN THE TRIBUNAL ORDER APART FR OM THIS ASPECT THAT LD. COUNSEL FOR THE ASSESSEE DID NOT MAKE THE STATEMENT IN THE COURSE OF HEARING OF APPEAL THAT THE ISSUE INVOLVED IS COVERE D AGAINST THE ASSESSEE BY THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL RE NDERED IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD., (SUPRA) AND FOR T HIS ASPECT, WE HAVE ALREADY RECTIFIED PARA 7 OF THE IMPUGNED TRIBUNAL O RDER. 5. IN THE RESULT, MISCELLANEOUS APPLICATION OF THE ASSESSEE STANDS PARTLY ALLOWED IN THE ABOVE TERMS. 6. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- SD./- (D. K. TYAGI) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP M.A.NO.218 /AHD/2011 6 COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION2/5 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3/5.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 11/5 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.11/5 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11 /5/2012 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .