SUPREME NONOWVENS P. LTD, MUMBAI v. ACIT RG 10(2), MUMBAI

ITA 1785/MUM/2010 | 2007-2008
Pronouncement Date: 28-01-2011 | Result: Partly Allowed

Appeal Details

RSA Number 178519914 RSA 2010
Assessee PAN AAACS5921R
Bench Mumbai
Appeal Number ITA 1785/MUM/2010
Duration Of Justice 10 month(s) 22 day(s)
Appellant SUPREME NONOWVENS P. LTD, MUMBAI
Respondent ACIT RG 10(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 28-01-2011
Assessment Year 2007-2008
Appeal Filed On 08-03-2010
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER AND SHRI. V. DURGA RAO JUDICIAL MEMBER. I.T.A. NO. 1785/MUM/2010. ASSESSMENT YEAR : 2007-08. M/S SUPREME NONOWVENS P. LTD. AS STT. COMMISSIONER OF INCOME-TAX CENTRE POINT 7 TH FLOOR 18 TH ROAD VS. RANGE-10(2) MUMBAI. CHEMBUR MUMBAI 400071. PAN AAACS5921R. APPELLANT BY : SHRI K. GOPAL. RESPONDENT BY : SHRI AMARDEEP. O R D E R PER J. SUDHAKAR REDDY A.M. : THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED A GAINST THE ORDER OF THE CIT(APPEALS)-22 MUMBAI DATED 18-02-2010 FOR THE AS SESSMENT YEAR 2005-06 ON THE FOLLOWING GROUNDS : 1. THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISALLOW ANCE OF RS.700840/- READ WITH RULE 8D OF I.T. ACT RELYING ON THE ITAT S PECIAL BENCH DECISION IN THE CASE OF DAGA CAPAITAL MANAGEMENT P. LTD. WHILE TOTALLY IGNORING THE PUNJAB & HARYANA HIGH COURT DECISION O F 04-11.2009 IN THE CASE OF CIT VS. HERO CYCLES LTD. WHICH HELD THAT IN CURRING OF EXPENSES FOR EARNING TAX-FREE INCOME IS ESSENTIAL FOR DISALL OWANCE U/S 14A OF I.T. ACT. FURTHER M/S DAGA CAPITAL MANAGEMENT P. LTD. DE CISION IS ALREADY CHALLENGED & ADMITTED BY MUMBAI HIGH COURT WHO WAS TO HAR THE SAME ON 15.02.2010 BUT ADJOURNED TO 23.03.2010. 2. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT O UT OF RS.1285.21 LACS INVESTMENTS WERE VERY OLD OUT OF IS 1384.11 LACS TO TAL INVESTMENTS. FURTHER OUT OF OLD INVESTMENTS OF RS.1285.21 THERE WAS VERY OLD 2 INVESTMENTS OF RS.961.61 LACS WHICH WAS NOT INVOLVI NG ANY CASH OUTFLOW AT ALL & WERE ISSUED IN LIEU OF DAMAN I UNI T TRANSFER. 2. WE HAVE HEARD SHRI K. GOPAL LEARNED COUNSEL FOR THE ASSESSEE AND SHRI AMARDEEP LEARNED DR. 3. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE WE HOLD AS FOLLOWS. 4. THE AO DISALLOWED INTEREST OF RS.33 512/- AS WEL L AS EXPENDITURE OF RS.6 67 330/- U/S 14A BY APPLYING THE RATIO LAID D OWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT P. LTD. 5. WE FIND THAT AS FAR AS THE DISALLOWANCE OF INTER EST OF RS.33 512/- IS CONCERNED THIS BENCH OF THE TRIBUNAL IN THE ASSESS EES OWN CASE FOR THE EARLIER ASSESSMENT YEAR IN ITA NO. 1295/MUM/2009 AT PARA 7 HELD AS FOLLOWS : WE FIND THE COORDINATE BENCH OF THE TRIBUNAL IN T HE CASE OF M/S GODREJ AGROVET LTD. (SUPRA) FOLLOWING THE DECISION OF THE HONBLE PUNJAB & GARTANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCL ES LTD. (SUPRA) UNDER IDENTICAL FACTS AND CIRCUMSTANCES HAS DELETED THE D ISALLOWANCE OF INTEREST EXPENDITURE U/S 14A MADE BY THE ASSESSING OFFICER A ND UPHELD BY THE CIT(A). IN THAT CASE IT WAS THE CONTENTION OF THE REVENUE THAT THE ASSESSEE COULD HAVE UTILIZED ITS SURPLUS FUNDS IN REPAYING T HE BORROWINGS INSTEAD OF INVESTING IN SHARES AND BY NOT DOING SO THERE WAS DIVERSION OF BORROWED FUNDS TOWARDS INVESTMENT IN SHARES TO EARN DIVIDEND INCOME. THE TRIBUNAL FOLLOWING A COUPLE OF DECISIONS HEAD HELD THAT SUCH DISALLOWANCE AS NOT SUSTAINABLE. SINCE THE FACTS IN THE IMPUGNED CASE A RE IDENTICAL TO THAT OF THE FACTS DECIDED BY THE CO-ORDINATE BENCH OF THE TRIBU NAL AND SINCE THE OWN CAPITAL AND FREE RESERVES OF THE ASSESSEE COMPANY A T RS.20 80 26 776/- IS 3 MORE THAN THE INVESTMENT OF RS.12 84 70 920/-; THER EFORE WE ARE OF THE CONSIDERED OPINION THAT NO PART OF INTEREST IS DISA LLOWABLE U/S 14A OF THE I.T. ACT. ACORDINGLY THE ORDER OF THE CIT(A) IS SET ASI DE AND THE GROUNDS OF APPEAL NO. 1 TO 5 RAISED BY THE ASSESSEE ARE ALLOWE D. AS THE FACTS ARE IDENTICAL THE DISALLOWANCE OF INT EREST U/S 14A IS HEREBY DELETED. 6. COMING TO THE BALANCE DISALLOWANCE WE SET ASIDE THE MATTER TO THE FILE OF THE AO FOR FRESH ADJUDICATION FOR THE REASON THAT THE REVENUE AUTHORITIES HAVE FOLLOWED THE RATIO LAID DOWN BY THE SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT SERVICES LTD. AND HONBLE BOMBA Y HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. P. LTD. VS. ACIT 3 28 ITR 81 HAS PARTLY REVERSED THIS JUDGMENT AND HELD THAT RULE 8D WOULD HAVE ONLY PROSPECTIVE OPERATION. HENCE WE SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN LINE WITH THE JUDGMENT OF JURISDICTIONAL HIGH CO URT ON THE ISSUE AS FAR AS THE BALANCE DISALLOWANCE IS CONCERNED. 7. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (V. DURGA RAO)) (J. SUDHAK AR REDDY) JUDICIAL MEMBER. A CCOUNTANT MEMBER MUMBAI DATED: 28 TH JANUARY 2011. WAKODE 4 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR D-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRA R ITAT MUMBAI BENCHES MUMBAI.