M/S. LOWKIM LTD, Mumbai v. THE ACIT RG 10(2), Mumbai

ITA 1504/MUM/2004 | 2000-2001
Pronouncement Date: 21-12-2011 | Result: Dismissed

Appeal Details

RSA Number 150419914 RSA 2004
Assessee PAN AAACL2462N
Bench Mumbai
Appeal Number ITA 1504/MUM/2004
Duration Of Justice 7 year(s) 9 month(s) 11 day(s)
Appellant M/S. LOWKIM LTD, Mumbai
Respondent THE ACIT RG 10(2), Mumbai
Appeal Type Income Tax Appeal
Pronouncement Date 21-12-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 21-12-2011
Date Of Final Hearing 08-12-2011
Next Hearing Date 08-12-2011
Assessment Year 2000-2001
Appeal Filed On 10-03-2004
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.1504/MUM/2004(A.Y. 2000-01) LAWKIM LTD. C/O. KALYANIWALLA & MISTRY CHARTERED ACCOUNTANTS KALPATARU HERITAGE 127 M.G.ROAD MUMBAI 400 023. PAN:AAACL 2462N (APPELLANT) VS. THE ACIT RANGE 10(2) AAYKAR BHAVAN MUMBAI 400 020 (RESPONDENT) ITA NO.2049/MUM/2004(A.Y. 2000-01) THE ACIT RANGE 10(2) AAYKAR BHAVAN MUMBAI 400 020 (APPELLANT ) VS. LAWKIM LTD. C/O. KALYANIWALLA & MISTRY CHARTERED ACCOUNTANTS KALPATARU HERITAGE 127 M.G.ROAD MUMBAI 400 023. PAN:AAACL 2462N (RESPONDENT) ASSESSEE BY : SHRI NITESH JOSHI REVENUE BY : SHRI B.JAYKUMAR CIT (DR) DATE OF HEARING : 08/12/2011 DATE OF PRONOUNCEMENT : 21/12/2011 ORDER PER N.V.VASUDEVAN J.M ITA NO.1504/MUM/04 IS AN APPEAL BY THE ASSESSEE. ITA NO.2049/MUM/04 IS AN APPEAL BY THE REVENUE. BOTH T HE APPEALS ARE DIRECTED AGAINST THE ORDER DATED` 21.01.2004 OF CI T(A)-X MUMBAI RELATING TO AY 2000-01. ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 2 ITA NO.1504/MUM/04: ASSESSEES APPEAL: 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA DS AS FOLLOWS: THIS APPEAL IS AGAINST THE ORDER OF THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) (CIT(APPEALS)) X MUMBAI AND RE LATES TO THE ASSESSMENT YEAR 2000-01 AND THE GROUNDS OF APPEAL H EREUNDER ARE WITHOUT PREJUDICE TO EACH OTHER. 1.0 THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING TH AT INTEREST ON CORPORATE DEPOSITS AND EQUIPMENT (STAFF) LOAN IS NO T DERIVED FROM THE BUSINESS OF THE INDUSTRIAL UNDERTAKING AND HENCE DO ES NOT QUALITY FOR COMPUTATION OF DEDUCTION U/S 80 LB OF THE ACT. 1.1 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF THE LAW THE LEARNED CIT(APPEALS) OUG HT TO HAVE HELD THAT THE SAID RECEIPT OF INTEREST BE CONSIDERED FOR COMP UTATION OF THE DEDUCTION UNDER SECTION 80 LB OF THE ACT. 2.0 THE LEARNED CIT(APPEALS) FURTHER ERRED IN CONFI RMING THAT ADVERTISEMENT EXPENSES INCURRED BY THE HEAD OFFICE BE APPORTIONED AND ALLOCATED TO THE TWO INDUSTRIAL UNDERTAKINGS S ITUATE AT SHINDEWADI AND DADRA IN THE RATIO OF SALES FOR THE PURPOSE OF COMPUTATION OF DEDUCTION U/S 80 LB OF THE ACT. 2.1 HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PROVISIONS OF THE LAW THE CIT(APPEALS) OUGHT TO HA VE HELD THAT THE SAID ALLOCATION OF ADVERTISEMENT EXPENSES NEEDS TO BE IG NORED FOR COMPUTATION OF DEDUCTION U/S 801B OF THE ACT. ITA NO.2049/MUM/04: REVENUES APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 1 26 000/- ON ACCOUNT OF NOTIONAL INTEREST @18% ON INTEREST FR EE DEPOSITS OF RS.7 00 000/- MADE BY THE A.O. WHILE DETERMINING TH E ANNUAL VALUE OF LET OUT PROPERTY. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO EXCLUDE SALES TAX OF RS.6 94 44 848/- IN THE COMPUTATION OF TOTAL TU RNOVER FOR THE PURPOSE OF DETERMINING THE DEDUCTION ULS.8OHHC OF T HE I.T.ACT. ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 3 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. TO INCLUDE INTEREST RECEIVED FROM ADVANCE TO SUPPLIERS AS ELIGIBLE PROF IT QUALIFYING FOR DEDUCTION ULS.801A ALTHOUGH THE A.O. HAD CORRECTLY ESTABLISHED THAT THE SAME WAS NOT DERIVED FROM ELIGIBLE BUSINESS. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) HAS ERRED IN DIRECTING THE A.O. NOT TO ALLOCATE OTHER EXPENSES (EXCEPT ADVERTISEMENT EXPENSES) TO THE SHI NDEWADI UNIT AND DADRA UNIT WHILE WORKING OUT THE ELIGIBLE PROFIT AN D COMPUTING DEDUCTION ULS.801A OF THE ELIGIBLE UNDERTAKING. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AS WELL AS IN LAW THE LEARNED CIT(A) ERRED IN DELETING THE ADDITION O F RS. 1 28 270/- MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF EXPE NDITURE ULS.14A OF THE I.T.ACT WHICH WAS HELD TO HAVE BEEN INCURRED TO WARDS EARNING OF DIVIDEND INCOME OF RS.25 65 4L2/- WHICH WAS CLAIMED EXEMPT U/S.1O(33) OF THE SAID ACT. 6. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ITO/AC/DC BE R ESTORED. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF SPECIALIZED ELECTRICAL MOTORS AND AL LIED PRODUCTS. THE LEARNED COUNSEL FOR THE ASSESSEE FILED BEFORE US A CHART SETTING OUT THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSESSEE/RE VENUE IN THEIR RESPECTIVE APPEALS AND HAS FURTHER ANNEXED A COPY OF THE ORDE R OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.5376/MUM/04 FOR A.Y. 01-02 DATED 16.5.2011 WHEREIN THE TRIBUNAL HAS DEALT WITH IDEN TICAL GROUNDS RAISED BY THE ASSESSEE/REVENUE IN THOSE APPEALS. 4. AS FAR AS GR.NO.1.0 1.1 RAISED BY THE ASSESSEE IN ITS APPEAL AND GR.NO.3 RAISED BY THE REVENUE IN ITS APPEAL THE TR IBUNAL HELD IN PARA-4 OF THE ORDER REFERRED TO ABOVE AS FOLLOWS: 4. WE HAVE HEARD THE PARTIES. THE ASSESSEE HAD CLA IMED THE DEDUCTION U/S.801B IN RESPECT OF SHINDEWADI UNIT AND DADRA UN IT. IT WAS NOTICED ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 4 BY THE A.O. THAT WHILE WORKING OUT THE PROFIT OF TH E SHINDEWADI UNIT THE ASSESSEE HAS INCLUDED THE FOLLOWING INTEREST EL EMENT: (I) INTEREST ON CORPORATE DEPOSIT RS 24 46 489/- (II) INTEREST ON EQUIPMENT LOAN RS 15 483/- (III) INTEREST ON FIXED DEPOSIT RS 484/- (IV) INTEREST ON ADVANCE TO SUPPLIERS RS 1 54 318/- THE A.O. WAS OF THE VIEW THAT THE SAID INTEREST INC OME CANNOT BE CONSIDERED AS PART OF THE ELIGIBLE PROFITS FOR COMP UTING THE DEDUCTION U/S.801B. HE THEREFORE REDUCE THE PROFIT FOR THE PURPOSE OF COMPUTING THE DEDUCTION U/S.801B BY THE INTEREST IN COME OF RS 31 16 772/-. SAME WAY IN RESPECT OF DADRA UNIT TH E ASSESSEE HAS INCLUDED THE INTEREST INCOME IN RESPECT OF (I) INTEREST ON CORPORATE DEPOSIT RS 1 14 56 561/- (II) INTEREST ON ADVANCE TO SUPPLIERS RS 6 00 000/- (III) INTEREST ON FIXED DEPOSIT RS 2 400/- --------------------- TOTAL RS 1 20 56 980/- ============== THE A.O. REDUCED THE SAID AMOUNT FROM THE ELIGIBLE BUSINESS PROFITS FOR THE PURPOSE OF WORKING OUT THE DEDUCTION U/S.801B. IN CONSEQUENCE THE DEDUCTION CLAIMED BY THE ASSESSEE WAS REDUCED. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A). THE LD. C IT (A) HELD THAT TO THE EXTENT OF THE INTEREST INCOME RECEIVED FROM THE COR PORATE DEPOSIT FIXED DEPOSIT EQUIPMENT LOAN FROM THE SUPPLIERS ARE NOT DERIVED FROM THE ACTUAL CONDUCT OF BUSINESS OF THE ASSESSEES UNDERT AKING AND HENCE WILL NOT QUALIFY FOR COMPUTING THE DEDUCTION U/S.80 1B OF THE ACT. IN RESPECT OF THE INTEREST RECEIVED FROM THE ADVANCES FROM THE SUPPLIERS HE HELD THAT THE SAME IS TO BE TREATED AS DERIVED F ROM THE BUSINESS OF THE UNDERTAKING AS IT HAS DIRECT NEXUS WITH THE ACT UAL CONDUCT OF THE ASSESSEES BUSINESS. THE LD. CIT (A) THEREFORE DI RECTED THAT TO THE EXTENT OF INTEREST ON ADVANCES TO SUPPLIERS SHOULD NOT BE EXCLUDED. BEING AGGRIEVED NOW THE REVENUE IS IN APPEAL BEFOR E US. THE LD. D.R. ARGUED THAT THE INTEREST INCOME CANNOT BE TREATED A S DERIVED FROM THE BUSINESS OF THE UNDERTAKING. PER CONTRA THE LD. CO UNSEL ARGUES THAT INTEREST INCOME HAS DIRECT NEXUS WITH THE BUSINESS OF THE UNDERTAKING. ON THE PERUSAL OF THE FACTS WE FIND THAT IN SECTIO N 801B THE LEGISLATURE HAS USED THE WORD DERIVED FROM HAS BE EN EXPLAINED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. STERLI NG FOOD 237 ITR 579 AS WELL AS IN THE RECENT DECISION IN THE CASE OF LIBERTY INDIA VS. CIT. SO FAR AS INTEREST ON THE ADVANCES OF THE SUP PLIERS ARE CONCERNED IN OUR OPINION IT WILL NOT HIT BY THE PRINCIPLES L AID DOWN EITHER IN THE ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 5 CASE OF STERLING FOOD (SUPRA) OR LIBERTY INDIA (SUP RA) AS IT HAS DIRECT NEXUS WITH THE ADVANCES MADE TO THE SUPPLIERS OF TH E ALL MATERIALS TO THE ASSESSEES BUSINESS. TO THE EXTENT OF FINDING O F THE LD. CIT (A) THAT INTEREST RECEIVED ON THE ADVANCES IS DERIVED FROM T HE BUSINESS OF THE INDUSTRIAL UNDERTAKING. WE ACCORDINGLY CONFIRM TH E ORDER OF THE LD. CIT (A) ON THE GROUND TAKEN BY THE REVENUE. ACCORDI NGLY GROUND NO.2 IS DISMISSED. ` THE FACTS AND CIRCUMSTANCES AND THE NATURE OF INCOM E ON WHICH DEDUCTION U/S.80-IB OF THE ACT IS CLAIMED BEING IDENTICAL IN THE PRESENT YEAR RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE GR.NO.1.0 AND 1.1 RAISED BY THE ASSESSEE IS DISMISS ED AND GR.NO.3 RAISED BY THE REVENUE IS ALSO DISMISSED. 5. AS FAR AS GR.NO.2.0 AND 2.1 RAISED BY THE ASSESS EE IN ITS APPEAL AND GR.NO.4 IN REVENUES APPEAL THE TRIBUNAL HELD IN P ARA-6 TO 8 OF THE ORDER REFERRED TO ABOVE AS FOLLOWS: 6. WE HAVE HEARD THE PARTIES. THE CONTROVERSY IS I N RESPECT OF THE APPORTIONMENT OF THE HEAD OF EXPENSES (EXCEPT ADVER TISEMENT EXPENSES) TO THE SHINDEWADI AND DADRA UNITS FOR WOR KING OUT THE ELIGIBLE PROFIT FOR THE PURPOSE OF DEDUCTION U/S.80 1B. IT WAS NOTICED BY THE A.O. THAT THE ASSESSEE HAS NOT ALLOCATED COMMON HEAD OFFICE EXPENSES WHILE WORKING-OUT THE PROFITS OF THE SHIND EWADI UNIT AS WELL AS DADRA UNIT. THE A.O. THEREFORE ALLOCATED THE E XPENDITURE AS UNDER: A) OUT OF ADVERTISEMENT RS. 38 283/- B) OUT OF SALARIES RS.8 05 071/- C) OUT OF FOREIGN TRAVEL RS. 6 952/- D) OUT OF STAFF WELFARE EXPENSES RS. 8 66 915/- E) 20% ALLOCATED RS. 1 73 383/- ------------------ TO TAL RS. 10 23 690/- ============= 7. THE A.O. THEREFORE REDUCED ELIGIBLE PROFIT OF THE SHINDEWADI UNITS BY RS 10 23 690/- REDUCING PRO RATA H.O. EXP ENSES TREATING IT ATTRIBUTABLE TO SAID UNIT. THE A.O. MADE THE ALLOCA TION OF THE ABOVE THREE ITEMS I.E. (A) TO (C) ON THE RATIO OF THE SAL ES. SAME WAY IN RESPECT ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 6 OF DADRA UNIT THE A.O. ALLOCATED THE COMMON EXPEND ITURE TREATING THE SAME AS ATTRIBUTABLE TO THE DADRA UNIT WHICH WAS W ORKED OUT AS UNDER:- (A) ADVERTISEMENT RS 1 55 526/- (B) TELEPHONE TELEX ETC. RS. 1 29 435/- (C) FORMS CHALLANS ETC. RS. 1 63 740/- (D) COMPUTER EXPENSES RS. 2 25 497/ (E) TRADE ASSOCIATION RS. 40 779/- (F) PAGING CHARGES RS. 10 600/- (G) SALARIES(BASED ON SALES) RS. 32 70 600/- (H) FOREIGN TRAVEL RS. 28 244/- (I) STAFF WELFARE EXPENSE RS. 1 73 383/- -------------------- RS. 41 61 804/- ============= AND TO THAT EXTENT THE ELIGIBLE PROFIT FROM DADRA U NIT WAS REDUCED. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT (A). BEFORE THE LD. CIT (A) IT WAS PLEADED THAT EACH UNIT OF THE ASSESSEE-COMPA NY PREPARES SEPARATE PROFIT AND LOSS ACCOUNT AND ALL EXPENSES A S WELL AS INCOME PERTAINING TO THE SAID UNIT ARE REFLECTED IN THE PR OFIT AND LOSS ACCOUNT AND THERE IS NO NEED TO FURTHER ALLOCATE SOME HEADS OF ITS EXPENSES TO THESE UNITS. THE LD. CIT (A) ACCEPTED THE PLEA OF T HE ASSESSEE TO THE EXTENT OF THE ADVERTISEMENT EXPENSES AND HE HELD TH AT TO THE EXTENT OF THE APPORTIONMENT OF THE ADVT. EXPENSES THUS FULLY JUSTIFIED. THE LD. COUNSEL ARGUES THAT WHILE INTERPRETING ELIGIBILITY OF THE INCOME THE EXPRESSION DERIVED FROM IS STRICTLY INTERPRETED A ND INCOME EVEN THOUGH ATTRIBUTABLE IS EXCLUDED WHILE WORKING ALLO WABLE DEDUCTION. HE FURTHER PLEADS THAT ON THE SAME ANALOGY THE EXPENS ES WHICH ARE NOT DIRECTLY RELATED TO THE UNIT SHOULD BE NOT BE REDUC ED FROM THE ELIGIBLE PROFIT FOR WORKING OUT DEDUCTION. MERELY BECAUSE TH E EXPENDITURE IS ATTRIBUTABLE TO THE UNIT THAT CANNOT BE THE GROUND FOR MAKING THE DISALLOWANCE. WE HAVE ALSO HEARD THE LD. D.R. 8. SO FAR AS THE ARGUMENT OF THE LD. COUNSEL ON INT ERPRETATION IS CONCERNED THE SAME MAY BE CORRECT. BUT SO FAR AS ON FACTS IT CANNOT BE DENIED THAT EVEN NOT A SINGLE OPERATION OR TRANS ACTION IS CARRIED OUT FROM THE HEAD OFFICE PERTAINING TO THE ABOVE UNITS. MOREOVER SALES OPERATIONS ARE HANDLED BY THE STAFF IN THE HEAD OFF ICE AND HENCE IS A PART OF THE PROFIT AND LOSS ACCOUNT FOR WORKING OUT THE PROFITS OF THE INDUSTRIAL UNDERTAKING. SO FAR AS THE SHINDEWADI UN IT IS CONCERNED THE A.O. MADE ALLOCATION OF SOME OF THE HEAD OFFICE EXPENDITURE IN PROPORTION TO THE RATIO OF THE SALES. SO FAR AS DAD RA UNIT IS CONCERNED WE FIND THAT ALLOCATION MADE BY THE A.O. IS REASONA BLE. WE THEREFORE ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 7 REVERSE THE ORDER OF THE LD. CIT (A) ON THIS ISSUE AND RESTORE THE ORDER OF THE A.O. ACCORDINGLY GROUND NO.3 IS ALLOWED THE FACTS AND CIRCUMSTANCES BEING IDENTICAL IN THE PRESENT YEAR RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL REFERRED TO ABOVE GR.NO.2.0 AND 2.1 RAISED BY THE ASSESSEE IS DISMISSED AND GR.NO.4 RAI SED BY THE REVENUE IS ALLOWED. 6. AS FAR AS GR.NO.1 RAISED BY THE REVENUE IN ITS APPEAL IS CONCERNED THE TRIBUNAL HELD IN PARA-2 OF THE ORDER REFERRED TO AB OVE AS FOLLOWS: 2. WE HAVE HEARD THE PARTIES. THE ASSESSEE-COMPANY IS IN THE MANUFACTURING AND SALE OF ELECTRICAL MOTORS ETC. TH E ASSESSEE COMPANY HAS A HOUSE PROPERTY IN PUNE WHICH WAS LET OUT FOR THE PERIOD FROM 1.4.2002 TO 30.6.2000. AFTER CLAIMING VACANCY ALLOW ANCE AND STATUTORY DEDUCTION U/S.24 THE ASSESSEE DECLARED THE NIL IN COME UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE ASSESSEE HAS TAKEN INTEREST- FREE SECURITY DEPOSIT OF RS 7 00 000/- FOR LETTING OUT THE SAID PROPERTY. THE A.O. MADE THE ADDITION OF 18% OF NOTIONAL INTER EST ON THE SAID INTEREST-FREE DEPOSIT AND MADE THE ADDITION OF RS 2 1 000/- TO THE GROSS RENT DECLARED BY THE ASSESSEE. THE ASSESSEE CHALLEN GED THE SAID ADDITION BEFORE THE LD. CIT (A) WHO DELETED IT. WE FIND THAT NOW THIS ISSUE STANDS COVERED IN FAVOUR OF THE ASSESSEE BY T HE DECISION OF HONBLE HIGH COURT OF DELHI (FULL BENCH) IN THE CAS E OF CIT VS. MANIKUMAR SUBBA AND ANOTHER 333 ITR 38(FB). WE ACC ORDINGLY CONFIRM THE ORDER OF THE LD. CIT (A) AND DISMISS GR OUND NO.1. 7. AS FAR AS GR.NO.2 RAISED BY THE REVENUE IN ITS A PPEAL IS CONCERNED THE ISSUE IS AS TO WHETHER SALES TAX OF RS.6 94 44 848/ - IN THE COMPUTATION OF TOTAL TURNOVER FOR THE PURPOSE OF DETERMINING THE D EDUCTION U/S.80-HHC OF THE ACT. IN VIEW OF THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF CIT VS. LAKSHMI MACHINE WORKS 290 ITR 667(SC) SALE S TAX HAS TO BE EXCLUDED FOR ARRIVING AT THE TOTAL TURNOVER FOR DET ERMINING DEDUCTION U/S.80- HHC OF THE ACT. CONSEQUENTLY THE ORDER OF THE CIT (A) ON THIS ISSUE IS UPHELD. ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 8 8. AS FAR AS GR.NO.5 RAISED BY THE REVENUE IN ITS A PPEAL IS CONCERNED THE FACTS ARE THAT DURING THE PREVIOUS YEAR THE ASSESS E RECEIVED DIVIDEND INCOME OF RS.2545 412/- ON SHARES OF COMPANIES AND UNITS FROM UTI WHICH WAS EXEMPT U/S. 10(33) OF THE IT.ACT 1961. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE I.T.ACT WHICH LAYS DOWN THAT NO DEDUCTI ON OF EXPENSES SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY AN AS SESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SINCE THE ASSESSEE HAD EARNED DIVIDEND OF RS.25 654 12/- WHICH WAS EXEMPT U/S. 10(33) OF THE I.T.ACT 1961 THE AO MADE AN ADHOC D ISALLOWANCE OF 5% OF THE INCOME EARNED BEING TREATED AS EXPENDITURE INCURRED IN EARNING THE DIVIDEND INCOME OF RS.L 282701-. 9. ON APPEAL BY THE ASSESSEE THE CIT(A) HELD AS FO LLOWS: 7.3 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPE LLANT COMPANY. IT IS OBSERVED THAT DURING THE YEAR UNDER CONSIDERATI ON THE APPELLANT COMPANY HAS NOT MADE ANY NEW INVESTMENTS. A PERUSA L OF STATEMENT SHOWING DATES OF MAKING OF INVESTMENTS PROFITS OF EACH YEAR AND DIVIDEND EARNED REVEALS THAT APPELLANT COMPANY PURC HASED UTI-64 IN THE YEAR 1994-95 FOR THE TOTAL COST OF RS.99 80 000 /- AND IN THAT YEAR THE FREE RESERVES AVAILABLE WITH THE APPELLANT COMP ANY FOR THE YEAR WERE RS.4 14 97 000/-. THE SAME IS THE POSITION IN OTHER YEARS WHEN THE INVESTMENTS WERE MADE. DURING THE YEAR UNDER CO NSIDERATION THE RESERVES AND SURPLUS AMOUNTS TO RS.29 8149 000/- AN D SHARE CAPITAL AMOUNTS TO RS.60 26 000/- WHEREAS THE AGGREGATE AM OUNT OF INVESTMENTS IS RS.7 78 69 000/-. THUS THE AGGREGAT E AMOUNT OF INVESTMENTS IS MUCH LOWER AS COMPARED TO THE CAPITA L EMPLOYED. IN THE ASSESSMENT THE AO HAS NOT RECORDED ANY SPE CIFIC REASONING WHILE MAKING THE ADDITION OF RS. 1 28 270/- AND AO HAS MERELY ESTIMATED SUCH EXPENDITURE @ 5% OF THE TOTAL UNITS AND DIVIDEND INCOME. I AM OF THE OPINION THAT UNDER THE PRESENT FACTS OF THE CASE THERE IS NO CASE OF MAKING ADDITION OF RS. 1 28 270 /- AND ACCORDINGLY THE SAME IS DELETED. ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 9 10. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE H AS RAISED GR.NO.5 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMI SSIONS. WE ARE OF THE VIEW THAT INDIRECT EXPENSES HAVE ALSO TO BE CONSIDE RED FOR DISALLOWANCE U/S.14-A OF THE ACT. WE ARE OF THE FURTHER VIEW TH AT DISALLOWANCE OF 5% OF THE DIVIDEND INCOME AS DISALLOWANCE U/S.14-A OF THE ACT IS REASONABLE AND THE SAME IS THEREFORE RESTORED. GR.NO.5 IS ACCORDI NGLY ALLOWED. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DI SMISSED AND THAT OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST DAY OF DEC. 2011. SD/- SD/- ( R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED. 21 ST DEC.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RE BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR I TAT MUMBAI BENCHES MUMBAI. VM. ITA NO.1504&2049/MUM/2004(A.Y. 2000-01 ) 10 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 8/12/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9/12/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER