ITO, Ward - 4(2), Kolkata, Kolkata v. M/s. Micro Management Pvt. Ltd., Kolkata

ITA 2239/KOL/2010 | 2007-2008
Pronouncement Date: 22-03-2011 | Result: Dismissed

Appeal Details

RSA Number 223923514 RSA 2010
Assessee PAN AABCM8245K
Bench Kolkata
Appeal Number ITA 2239/KOL/2010
Duration Of Justice 3 month(s)
Appellant ITO, Ward - 4(2), Kolkata, Kolkata
Respondent M/s. Micro Management Pvt. Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 22-03-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted C
Tribunal Order Date 22-03-2011
Assessment Year 2007-2008
Appeal Filed On 22-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOL KATA () BEFORE /AND . . !' ) [BEFORE HONBLE SRI MAHAVIR SINGH JM & HONBLE SHR I C. D. RAO AM] # # # # / I.T.A NO. 2239/KOL/2010 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR : 2007-08 INCOME TAX OFFICER WD-4(2) KOLKATA VS. M/S. M ICRO MANAGEMENT PVT. LTD. (PAN-AABCM 8245 K) ( )* /APPELLANT ) (+ )*/ RESPONDENT ) FOR THE APPELLANT: SHRI B. R. PUROKAYASTHA FOR THE RESPONDENT: N O N E !- / ORDER THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A)-VI KOLKATA IN APPEAL NO.755/CIT(A)-VI/ 09-10/CIR-6/KOL VIDE DATED 25.10.2010. THE ASSESSMENT WAS FRAMED BY DCIT CIR-6 KOLKATA OF THE INCOME TA X ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE H IS ORDER DATED 11.12.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) IN RESTRICTING THE DISALLOWANCE OF INTEREST AT RS.2 77 126/- AS AGAINST THE DISALLOWANCE MADE BY ASSESSING OFFICER AT RS.39 66 636/-. FOR THIS THE REVENUE HAS RAISED THE FOLLOWING GROUND NO.1: 1. THAT LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE ADDITION U/S. 14A AND NOT RESTRICTING IT TO CERTAIN AMOUNT A PPLYING THE PROVISION OF RULE8D IN VIEW OF THE DECISION OF THE ITAT SPECIAL BENCH MUMBAI PRONOUNCED IN THE CASE OF DAGA CAPITAL MANAGEMENT LTD. 3. AT THE OUTSET IT WAS BROUGHT TO THE NOTICE OF L D. DR THAT THIS ISSUE IS NOW COVERED BY THE DECISION OF HONBLE BOMBAY HIGH COUR T IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) WH EREAS IT WAS ARGUED BY THE LD. DR THAT THE CIT(A) HAS RESTRICTED THE DISALLOWANCE OF INTER EST AND OTHER EXPENDITURE AT RS.2 77 926/- WHICH IS NOT REASONABLE AND A REASONABLE DISALLOWAN CE SHOULD BE MADE. 2 ITA 2239/K/2010 MICRO MANAGEMENT PVT. LTD. A.Y.07- 08 4. WE HAVE HEARD LD. DR AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. ADMITTEDLY THE CIT(A) HAS RESTRICTED THE DISALLOWA NCE AT RS.2 77 926/- BY GIVING FOLLOWING FINDING: IN THIS REGARD I AM OF THE OPINION THAT WHEN THE A SSESSEE DEALS IN SHARES AS A TRADER HE DEFINITELY KEEPS THE DIVIDEND ALSO IN MIN D. THE PRICES OF SHARES DEPEND ON WHETHER DIVIDEND HAS BEEN DECLARED ON SHARES OR NOT. IF DIVIDEND IS TO BE DECLARED ON SOME SHARES ITS PRICE WILL BE HIGHER AN D IF DIVIDED HAS BEEN DECLARED ON IT THEN THE PRICE WILL BE LOWER. THE SHARE TRADE RS KEEP THIS ASPECT IN MIND WHILE TRADING IN SHARES. THUS DIVIDEND DOES PLAY IMPORTA NT ROLE IN PURCHASE AND SALE OF SHARES. FROM HIS DEALINGS IN SHARES THE ASSESSEE EA RNS BOTH TRADING PROFIT AS WELL AS DIVIDEND. THEREFORE IT CANNOT BE SAID THAT NO E XPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE DIVIDEND INCOME. SI NCE THE EXPENDITURE INCURRED IS MIXED THEREFORE THE EXPENDITURE RELATED TO DIVIDEND INCOME HAS TO BE DETERMINED ON AN ESTIMATE BASIS KEEPING IN VIEW FACTS OF THE C ASE. IN THIS CASE FIRST OF ALL IT IS SEEN THAT THE ASSESSEE HAS PAID INTEREST OF RS.27 5 0 108/- ON LOAN. THE STOCK IN TRADE IN RESPECT OF WHICH THE DIVIDEND HAS BEEN EAR NED IS ABOUT RS.84.2 CRORE AS ON 31.03.2007. THE SHARE CAPITAL AND RESERVED AND S URPLUS AS ON 31.03.2007 ARE ABOUT RS.69 CRORE. THE LOANS ON WHICH INTEREST HAS BEEN PAID ARE ABOUT RS.7 CRORE. THESE FIGURES SHOW THAT THE SELF OWNED FUNDS OF THE ASSESSEE ARE NOT SUFFICIENT TO COVER THE INVESTMENT IN STOCK WHICH H AS YIELDED DIVIDEND INCOME. IT CAN BE SAID THAT THE BORROWED FUNDS HAVE BEEN USED FOR ACQUIRING SHARES. THEREFORE SOME OF THE INTEREST PAID ON BORROWED FUN DS CAN BE LINKED TO DIVIDEND INCOME. IT IS SEEN THAT THE PROFIT OF THE ASSESSEE FROM TRADING IN SHARES IS ABOUT RS.6.84 CRORE AND THE DIVIDEND EARNED IS ABOUT 0.59 CRORE. THE INTEREST RELATED TO DIVIDEND INCOME CAN BE ESTIMATED IN PROPORTION TO T HESE TWO TYPES OF INCOME EARNED FROM SHARES. ON THIS BASIS THE INTEREST RELA TED TO DIVIDEND INCOME CAN BE COMPUTED AS 27 50 108/- X 0.59/ 7.43 = 2 18 358/-. I HOLD THAT THIS MUCH OF INTEREST CAN BE SAID TO BE RELATED TO DIVIDEND INCO ME AND THEREFORE THE SAME CAN BE DISALLOWED U/S. 14A. AS REGARDS THE OTHER EXPEN SES HONBLE ITAT KOLKATA IS TAKING A VIEW THAT 1% OF DIVIDEND EARNED CAN BE TA KEN AS EXPENDITURE INCURRED IN RELATION TO THE DIVIDEND INCOME. 1% OF RS.59 56 81 6/- WILL COME TO RS.59 568/-. THUS THE TOTAL DISALLOWANCE U/S. 14A WOULD COME TO RS.2 18 358 + 59 568/- = RS.2 77 926/-. IN VIEW OF THE ABOVE DISCUSSION THE DISALLOWANCE U/ S. 14A IS REDUCED TO RS.2 77 926/- FROM RS.39 66 636/- MADE BY THE A.O. 5. THE FACTS AS DISCUSSED BY CIT(A) ARE UNDISPUTED. WE FIND THAT CIT(A) HAS MADE PROPORTIONATE DISALLOWANCE OF INTEREST AND OTHER EX PENSES AT RS.2 18 358/- AND RS.59 568/- RESPECTIVELY THEREBY MAKING A PROPORTIO NATE DISALLOWANCE OF RS.2 77 926/- AS AGAINST THE DISALLOWANCE MADE BY ASSESSING OFFIC ER AT RS.39 66 636/-. THE PRINCIPLE LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) AT PAGES 138 & 13 9 VIDE SUB PARAS (V) TO (VII) ARE AS UNDER: 3 ITA 2239/K/2010 MICRO MANAGEMENT PVT. LTD. A.Y.07- 08 (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24 2008 SHALL APP LY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09 WHE N RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB- SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN I NCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURN ISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSI NG OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED A NY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CON TEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASON ABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETE RMINATION THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORT UNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MAT ERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE IN VIEW OF FACTS OF THIS CASE AND THE PRINCIPLE LAI D DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCEE MFG. CO. LTD. (S UPRA) THAT RULE 8D IS APPLICABLE FOR AND FROM ASSESSMENT YEAR 2008-09 AND PRIOR TO THAT THE ASSESSING OFFICER CAN MAKE ESTIMATE IN THE GIVEN FACTS AND CIRCUMSTANCES WE F IND NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) AS HE HAS MADE REASONABLE DISALLOWA NCE AND WE CONFIRM THE SAME. APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISM ISSED. 7. ORDER PRONOUNCED IN OPEN COURT ON 22ND DAY OF MA RCH 2011. SD/- SD/- . . !' (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( ' ' ' ') )) ) DATED 22ND DAY OF MARCH 2011 ./ $01 2 JD.(SR.P.S.) 4 ITA 2239/K/2010 MICRO MANAGEMENT PVT. LTD. A.Y.07- 08 !- 3 +4 5!4&6- COPY OF THE ORDER FORWARDED TO: 1 . )* / APPELLANT ITO WARD-4(2) KOLKATA. 2 + )* / RESPONDENT M/S. MICRO MANAGEMENT PVT. LTD. 32 EZRA ST. 2 ND FLOOR KOLKATA-1. 3 . -$ / THE CIT(A) KOLKATA 4. -$ ( )/ CIT KOLKATA 5 . => +$ / DR KOLKATA BENCHES KOLKATA 4 +/ TRUE COPY !-$?/ BY ORDER 1 /ASSTT. REGISTRAR .