Torrent Pvt.Ltd., Ahmedabad V. The ACIT, Circle-8, Ahmedabad

MA 68/AHD/2015

• Counselvise Citation: [2017] 124 COUNSELVISE.COM (IT) 5172 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 20 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 21-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR WITH PARIN SHAH
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD BEFORE SHRI S. S. GODARA, JM & SHRI MANISH BORAD , AM. M.A. NO.68/AHD/2015 IN ITA NO. 1370/AHD/2009 & C.O. NO.107/AHD/2009 ASST. YEAR: 2006-07 ACIT, CIR.NO.8, AHMEDABAD. VS. TORRENT PVT. LTD., TORRENT HOUSE, OFF ASHRAM ROAD, NR. DINESH HALL, AHMEDABAD. APPELLANT RESPONDENT PAN APPELLANT BY SHRI S. N. SOPARKAR WITH PARIN SHAH, AR RESPONDENT BY SHRI PRASOON KABRA, SR.DR DATE OF HEARING: 18/11/2016 DATE OF PRONOUNCEMENT: 11/01/2017 O R D E R PER MANISH BORAD, ACCOUNTANT MEMBER . THIS ASSESSEES MISCELLANEOUS APPLICATION FILED U/ S 254(2) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) RAISES FOLLOWING GROUNDS:- 1. THE PRESENT MISC. APPLICATION ARISES FROM TH E AFORESAID ORDER OF THE HON'BLE TRIBUNAL IN CROSS-OBJECTIONS FILED BY THE A SSESSEE IN DEPARTMENTAL APPEAL ITA NO. 1370/A/2009 WHICH HAVE BEEN DISPOSED-OF BY THE HON'BLE TRIBUNAL VIDE THE ABOVE REFERRED ORDER. M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 2 2. IN GROUND NO. 2 OF THE CROSS-OBJECTIONS OF THE A SSESSEE FOR A.Y. 2006-07, THE ASSESSEE HAD CHALLENGED THE DISALLOWAN CE U/S. 14A OF RS. 6,79,897 CONFIRMED BY LD. CIT(A) [KINDLY REFER PARA 6 OF THE ORDER]. 3. THE A.O. HAD MADE THE DISALLOWANCE U/S. 14A IN T HE ASSESSMENT ORDER FOR A.Y. 2006-07 AT THE RATE OF 5% OF THE EXP ENDITURE OF RS.1,35,97,939 [KINDLY REFER PARA 7 OF ITAT'S ORDER ]. WHILE DECIDING THE ISSUE, THE HON'BLE TRIBUNAL RECORDED ITS FINDIN G IN PARA NOS. 9 AND 10 AS UNDER:- '9. WE FIND THAT THE A.O. MADE DISALLOWANCE U/S. 14A AT THE RATE OF 5% OF THE DIVIDEND INCOME EARNED DURING THE YEAR BY THE ASSESSEE. THE RATE OF 5% IS AN ADHOC ESTIMATE WITHOUT ANY BAS IS. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE A .O.' '10. WE FIND THAT IN SIMILAR CIRCUMSTANCES, THE HON 'BLE MADRAS HIGH COURT IN THE CASE OF M/S SIMPSON AND CO. LTD. V. DC IT, TAX CASE [APPEAL] NO. 2621/2006 ORDER DATED 15-10-2012 CONFI RMED THE DISALLOWANCE MADE AT THE RATE OF 2% OF DIVIDEND INO ME EARNED DURING THE YEAR AS FAIR AND REASONABLE. WE, THEREFO RE, FOLLOWING THE SAME, ARE OF THE CONSIDERED OPINION THAT IT SHALL M EET ENDS OF JUSTICE TO RESTRICT THE DISALLOWANCE U/S. 14A AT THE RATE O F 2% OF THE DIVIDEND INCOME EARNED DURING THE YEAR BY THE ASSESSEE. WE, THEREFORE, SET ASIDE THE ORDER OF THE LOWER AUTHORI TIES ON THIS ISSUE AND DIRECT THE A.O. TO DISALLOW 2% OF THE DIVIDEND INCO ME EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION U/S. 14A, AS EXPENDITURE INCURRED FOR EARNING OF DIVIDEND INC OME. THUS, THIS GROUND OF APPEAL OF THE ASSESSEE IS PART LY ALLOWED.' 4. FROM THE ABOVE, YOUR HONOURS WILL APPRECIATE THA T WHILE CONCLUDING THE ISSUE UNDER CONSIDERATION, THE HON'BLE TRIBUNAL HAS RESTRICTED THE DISALLOWANCE U/S. 14A AT THE RATE OF 2% OF DIVI DEND INCOME. FOR DIVIDEND INCOME EARNED BY THE ASSESSEE FOR THE ABOV E A.Y., KINDLY REFER PARA 3.2.1 ON PAGE 3 OF THE ASSESSMENT ORDER WHERE THE A.O. HAS RECORDED THE FINDING THAT ASSESSEE HAS EARNED E XEMPT INCOME OF RS. 19,26,81,869 AS DIVIDEND. IF THE DISALLOWANC E U/S. 14A IS RESTRICTED AT THE RATE OF 2% OF DIVIDEND INCOME I.E . RS. 19,26,81,869, THE DISALLOWANCE WILL COME TO RS. 38,53,637, AS AGA INST THE ORIGINAL DISALLOWANCE MADE BY THE A.O. AT RS. 6,79,897, WHIC H AMOUNTS TO AN ENHANCEMENT OF INCOME, INSTEAD OF GETTING RELIEF BY THE ASSESSEE. M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 3 5. ON VERIFICATION, WE ALSO FIND THAT AT THE TIME O F ARGUING THE ABOVE APPEAL, THE LD. COUNSEL OF THE ASSESSEE MR. SOPARKA R HAD RELIED UPON TWO DECISIONS:- [1] 237 ITR 164 KERALA IN THE CASE OF CATHOLIC SYRIAN BANK; AND [2] 137 ITD 301 AHMEDABAD IN THE C ASE OF ACIT V TORRENT PHARMACEUTICALS LTD. ON THE ISSUE OF DISALL OWANCE OF EXPENSES OF RS. 6,79,897 MADE BY THE A.O. U/S. 14A. WHILE DECIDING THE ABOVE REFERRED ISSUE, BOTH THE ABOVE REFERRED D ECISIONS HAVE NOT BEEN CONSIDERED BY THE HON'BLE BENCH. 6. THESE BEING MISTAKES APPARENT ON RECORD, THE ASS ESSEE REQUESTS YOUR HONOURS TO RECTIFY, IN THE INTEREST OF JUSTICE , THE ABOVE REFERRED ORDER, TO AVOID ENHANCEMENT OF INCOME DIRECTED BY T HE HON'BLE TRIBUNAL AS REFERRED TO ABOVE IN PARA 10 OF ITS ORD ER AND THEREFORE, TO DECIDE ON MERITS, THE ISSUE OF DISALLOWANCE U/S. 14 A, THIS ORDER IS REQUIRED TO BE RECALLED. 7. IT IS THEREFORE, PRAYED THAT THE IMPUGNED ORDER OF THE HON'BLE TRIBUNAL MAY KINDLY BE RECALLED U/S. 254[2] OF THE I. T, ACT ON THIS ISSUE AND OBLIGE. 2. LD. COUNSEL FOR THE ASSESSEE SUMMARIZING THE ISS UE IN THIS MISCELLANEOUS APPLICATION SUBMITTED THAT FOR ASST. YEAR 2005-06 LD. ASSESSING OFFICER MADE DISALLOWANCE U/S 14A OF THE ACT OF A LUMP SUM AMOUNT OF RS.5,00,000/- WHICH WAS SUSTAINED AT RS.50,000/- BY LD. CIT(A) AND FOR ASST. YEAR 2006-07 LD. ASSESSING OFFICER MADE DISALLOWANCE U/S 14A OF THE ACT AT RS. 6,79,897/- B Y APPLYING 5% ON CERTAIN EXPENDITURE TOTALING TO RS. 1,35,97,939/- A ND THE SAID DISALLOWANCE WAS CONFIRMED BY LD. CIT(A). 3. THE ISSUE RELATING TO DISALLOWANCE U/S 14A OF TH E ACT FOR ASST. YEARS 2005-06 AND 2006-07 CAME UP BEFORE THE TRIBUN AL. IN ITA NO.3906/AHD/2008 FOR ASST. YEAR 2005-06 AND IN ITA NO.1370/AHD/2009 FOR ASST. YEAR 2006-07 THIS BENCH DECIDED THE M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 4 ISSUE FOR ASST. YEAR 2005-06 CONFIRMING THE DISALLO WANCE SUSTAINED BY LD. CIT(A) AT RS.50,000/-. HOWEVER, FOR ASST. YE AR 2006-07, THE BENCH RELYING ON THE DECISION OF HON. MADRAS HIGH C OURT IN THE CASE OF M/S SIMPSON AND CO. LTD. VS. DCIT, TAX CASE (APP EAL) NO.2621 OF 2006 ORDER DATED 15.10.2012 PARTLY ALLOWED THE ASSE SSEES GROUND RESTRICTING THE DISALLOWANCE U/S 14A @ 2% OF THE DI VIDEND INCOME. THIS HAS RESULTED IN AN INCREASE OF THE CORRESPONDI NG SEC.14A DISALLOWANCE FROM RS.6,79,897/- TO THAT @ 2% OF THE EXEMPT INCOME F RS.1,92,681,869/- COMING TO RS.38,53,637/-. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL MADE AN APPARENT ERROR WHILE ADJUDICATING THE ISSUE OF D ISALLOWANCE U/S 14A OF THE ACT FOR ASST. YEAR 2006-07 FOR THE VERY REASON THAT THE TRIBUNAL SUSTAINED THE DISALLOWANCE U/S 14A OF THE ACT BY APPLYING 2% OF THE DIVIDEND INCOME OF RS.19,26,81,869/- DUE TO WHICH THE DISALLOWANCE AMOUNT IS CALCULATED AT RS.38,53,637/- WHICH IS MUCH MORE THAN THE DISALLOWANCE OF RS.6,79,897/- MADE BY LD. ASSESSING OFFICER AND CONFIRMED BY LD. CIT(A). LD. COUNSEL FU RTHER SUBMITTED THAT IT SEEMS THAT THE TRIBUNAL HAD AN INTENTION TO APPL Y THE RATE OF 2% AS AGAINST 5% ON THE EXPENDITURE AMOUNT OF RS.1,35,97, 939/- AS ADOPTED BY LD. ASSESSING OFFICER BUT DUE TO APPAREN T ERROR THE FIGURE OF DIVIDEND HAS BEEN MENTIONED IN THE ORDER. LD. CO UNSEL THEN REQUESTED THAT SUITABLE RECTIFICATION MAY BE MADE I N THE ABOVE ORDER SO THAT DISALLOWANCE U/S 14A DOES NOT EXCEED THE AM OUNT MADE BY LD. ASSESSING OFFICER. LD. AR FURTHER EMPHASIZED TH AT THE TRIBUNALS ORDER IN FACT INTENDED TO PARTLY ALLOW ASSESSEES C ORRESPONDING M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 5 GROUND PLEADED IN ITS CROSS OBJECTION IN VIEW OF TH E FINDINGS CONTAINED IN PARA 10 PAGE 4. 5. LD. DR STRONGLY SUPPORTS OUR ORDER DATED 8/5/201 5 DISALLOWING 2% OF ASSESSEES EXEMPT INCOME FOLLOWING HONBLE MA DRAS HIGH COURT JUDGMENT REFERRED HEREIN ABOVE. 6. WE HAVE HEARD RIVAL CONTENTION AND PERUSED THE R ECORD. THIS MISCELLANEOUS APPLICATION ARISES OUT OF THE TRIBUNA LS ORDER FOR ASST. YEAR 2006-07 WHEREIN DISALLOWANCE U/S 14A OF THE AC T SUSTAINED BY THE TRIBUNAL SEEMS TO BE HIGHER THAN THE DISALLOWA NCE MADE BY LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER U/S 143(3 ) OF THE ACT. WE OBSERVE THAT THE TRIBUNALS ORDER DATED 8.5.2015 AD JUDICATED THE ISSUE RELATING TO DISALLOWANCE U/S 14A OF THE ACT FOR ASS T. YEAR 2005-06 AND 2006-07 TOGETHER. 7. AS FAR AS ASST. YEAR 2006-07 IS CONCERNED, DIVID END INCOME EARNED BY THE ASSESSEE IS RS.19,26,81,869/-. LD. AS SESSING OFFICER WHILE FRAMING THE ASSESSMENT ORDER U/S 143(3) OF TH E ACT ON 28.11.2008 CALCULATED DISALLOWANCE U/S 14A BY APPLY ING 5% OF THREE EXPENSES NAMELY EMPLOYEES REMUNERATION AT RS.50,8 7,617/-, GENERAL ADMINISTRATIVE EXPENSES AT RS. 27,39,843/- AND INTEREST PAYMENT OF RS.57,70,479/-; TOTALLY TO RS.1,35,97,93 9/- LD. ASSESSING OFFICER APPLIED 5% OF THIS AMOUNT OF RS.1,35,97,939 /- AND CALCULATED THE DISALLOWANCE U/S 14A OF THE ACT AT RS. 6,79,897 /-. LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY ASSESSING OFFICE R. THE TRIBUNALS ORDER DATED 8/5/2015 PARTLY ACCEPTED ASSESSEES CON TENTION IN PARA 10 OF ITS ORDER BY OBSERVING THAT ENDS OF JUSTICE C OULD BE MET IN M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 6 RESTRICTING THE IMPUGNED DISALLOWANCE TO THAT @ 2% OF THE EXEMPT INCOME. THIS RESULTS IN ENHANCEMENT OF THE IMPUGNED SEC.14A DISALLOWANCE AS INDICATED HEREINABOVE. WE ARE OF TH E OPINION THAT IN THESE PECULIAR FACTS AN APPARENT ERROR HAS CROPPED UP IN TRIBUNALS ORDER DATED 8.5.2015 GIVING RISE TO MUTUALLY CONTRA DICTORY SITUATION BETWEEN SUBSTANTIVE REASONING AND CONSEQUENTIAL COM PUTATION. WE THUS RECALL OUR FINDINGS IN ORDER DATED 8/5/2015 TO THE LIMITED EXTENT OF ISSUING DIRECTION TO THE AO TO COMPUTE SEC.14A DISA LLOWANCE @ 2% OF THE EXEMPT INCOME (SUPRA) AND DEEM IT APPROPRIAT E TO UPHOLD THE ORIGINAL DISALLOWANCE AMOUNT OF RS. 6,79,897 IN QUE STION. THE ASSESSEES CORRESPONDING GROUND NO.2 IN ITS C.O. NO .107/AHD/2009 SHALL BE DEEMED TO HAVE BEEN DISMISSED HENCEFORTH. 9. IN THE RESULT, ASSESSEES M.A. IS ALLOWED IN ABO VE STATED TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH JANUARY, 2017 SD/- SD/- (S. S. GODARA) JUDICIAL MEMBER (MANISH BORAD) ACCOUNTANT MEMBER DATED 11/01/2017 MAHATA/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, AHMEDABAD M.A. NO.68/AHD/2015 IN C.O. NO.107/AHD/2009 IN ITA NO. 1370/AHD/2009 ASST. YEAR 2006-07 7 1. DATE OF DICTATION: 10/01/2017 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: 10/01/2017 OTHER MEMBER: 3. DATE ON WHICH APPROVED DRAFT COMES TO THE SR. P. S./P.S.: 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: __________ 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE S R. P.S./P.S.: 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK: 11/1/17 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK: 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: 9. DATE OF DESPATCH OF THE ORDER: