Modern Fibotex India Ltd., Kolkata v. DCIT, CIR-10, KOLKATA, Kolkata

ITA 319/KOL/2014 | 2006-2007
Pronouncement Date: 28-09-2016

Appeal Details

RSA Number 31923514 RSA 2014
Assessee PAN AABCM7732P
Bench Kolkata
Appeal Number ITA 319/KOL/2014
Duration Of Justice 2 year(s) 7 month(s) 7 day(s)
Appellant Modern Fibotex India Ltd., Kolkata
Respondent DCIT, CIR-10, KOLKATA, Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 28-09-2016
Appeal Filed By Assessee
Bench Allotted C
Tribunal Order Date 28-09-2016
Assessment Year 2006-2007
Appeal Filed On 20-02-2014
Judgment Text
ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH KOLKATA BEFORE SHRI M.BALAGANESH ACCOUNTANT MEMBE R AND SHRI S.S.VISWANETHRA RAVI JUDICIAL MEMBE R I.T.A. NO. 319/KOL/ 2014 A.Y: 2006-07 M/S. MODERN FIBOTEX VS. DCIT CIR-10 KOLKATA INDIA LIMITED PAN: AABCM 7732P (APPELLANT) (RESPONDENT) APPEARANCES BY: SHRI ASHIM CHOUDHURY ADVOCATE FCA AR FOR THE ASS ESSEE SHRI RAJAT KUMAR KUREEL JCIT SR. D.R FOR TH E REVENUE DATE OF HEARING : 22-08- 2016 DATE OF PRONOUNCEMENT :28 -09-2016 O R D E R SHRI S.S. VISWANETHRA RAVI JM THIS APPEAL BY THE ASSESSEE DIRECTED AGAINST THE OR DER DATED 03-12-2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) XII KOLKATA FOR THE ASSESSMENT YEAR 200 6-07. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLL OWING EFFECTIVE GROUND:- 1. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEAL S) XII KOLKATA WAS NOT JUSTIFIED IN SUSTAINING THE D ISALLOWANCE OF RS.50 483/- CONSIDERING 1% OF THE EXEMPTED INCOM E (DIVIDEND INCOME) OF RS.50 48 305/- AS INDIRECT EXP ENDITURE INCURRED TO EARN SUCH EXEMPT INCOME AND IN DOING SO AO ERRED IN LAW AS WELL AS ON FACTS. ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 2 3. THE SOLE GROUND RAISED FOR OUR CONSIDERATION TO DECIDE IS AS TO WHETHER THE CIT-A IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF RS.50 483/- BEING 1% AS INDIRECT EXPENDITURE OF DIVIDEND EARNED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THE FACTS ARE THAT THE ASSESSE IS A COMPANY INVO LVED IN THE BUSINESS OF MANUFACTURE AND EXPORT OF TEXTILES AND DEALERS AND INVESTORS OF SHARES AND SECURITIES AND ALSO DERIVED INCOME FROM INTEREST AND DIVIDEND FOR THE YEAR UNDER CONSIDERAT ION. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING LOSS OF RS.15 69 781/- ON 30-11-2006. UNDER SCRUTINY AND A NOTICES U/S.143(1) AND 142(1) OF THE ACT WERE ISSUED. THE A SSESSEE SUBMITTED DETAILS/DOCUMENTS AND FILED WRITTEN SUBMI SSIONS. 5. IN ITS RETURN THE ASSESSEE CLAIMED DIVIDEND OF RS.50 48 305/- AS EXEMPT INCOME AND THE ASSESSING O FFICER WAS OF THE VIEW THE ASSESSE WOULD HAVE INCURRED EXPEND ITURE IN EARNING CLAIMED EXEMPT INCOME AND SOUGHT EXPLANATIO N WHY SUCH EXPENDITURE SHOULD NOT BE DISALLOWED FROM SUCH EXEM PT INCOME. THE MAIN CONTENTION OF THE ASSESSEE AMONGST OTHER C ONTENTIONS AS RAISED IN ITS WRITTEN SUBMISSIONS WAS THAT THE S ECTION 14A DOES NOT APPLY AS IT CAME INTO FORCE FROM 01-04-200 7 I.E FROM A.Y.2007-08. THE AO NOT SATISFIED WITH THE CONTENTI ONS OF THE ASSESSEE MADE APPLICABLE RULES 8D(2)(II) AND 8D(2 )(III) OF RULES 1962 AND COMPUTED A SUM OF RS.3 77 590/- FOR THE PURPOSE OF SECTION 14A OF THE ACT AND DISALLOWED TH E SAME AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 3 6. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEF ORE THE CIT-A CONTENDING THAT IT DID NOT INVEST IN SHA RES DERIVING FUNDS FROM BORROWED LOANS. THE SHARE CAPIT AL AND REVERSES & SURPLUS OF THE ASSESSEE WERE MORE THAN T HE INVESTMENTS STANDING AS ON 31.03.2006. THE ASSESSEE RELIED ON THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCEE VS DCLT REPORTED IN 284 ITR 85. CONSIDERING THE SUBMISSIONS OF THE ASSESSEE THE CI T-A DID NOT AGREE WITH THE FINDING OF THE AO IN COMPUTING T HE EXPENDITURE BY APPLYING THE RULE 8D(2)(II) AND 8D(2)(III) OF RULES 1962 BUT HOWEVER RESTRICTED THE DISALLOWAN CE TO 1% OF EXEMPT INCOME BY RELYING ON ORDERS OF KOLKATA TRIBU NAL WHEREIN ACCORDING TO CIT-A HELD IN MANY CASES THA T 1% MAY BE TAKEN INTO CONSIDERATION IN DETERMINING THE EXPENDI TURE THAT MAY HAVE INCURRED IN EARNING THE EXEMPT INCOME AND ACCO RDINGLY THE CIT-A DISALLOWED RS.50 483/- AS AGAINST RS.3 77 590 /- AS MADE BY THE AO. THE RELEVANT PORTION OF WHICH IS REPRODU CED HEREIN BELOW: I HAVE CAREFULLY CONSIDERED THE SUBMISSION PUT FORT H ON BEHALF OF THE APPELLANT ALONGWITH THE SUPPORTING DETAILS/D OCUMENTS FURNISHED & CASE LAWS RELIED UPON PERUSED THE FACT S OF THE CASE INCLUDING THE IMPUGNED ASSESSMENT ORDER AND OT HER MATERIALS BROUGHT ON RECORD. I FIND SUBSTANTIAL FOR CE IN THE ARGUMENT ADVANCED ON BEHALF OF THE APPELLANT. I AGR EE WITH THE CONTENTION OF THE A/R THAT THE PROVISIONS OF RU LE 8D OF I. T. RULES ARE NOT APPLICABLE IN THE APPELLANT'S CASE BEING THE RELEVANT ASSESSMENT YEAR 2006-07 AS THE SAME ARE AP PLICABLE FROM THE ASSESSMENT YEAR 2008-09 ONWARDS IN VIEW OF THE DECISION OF THE HON' BLE HIGH COURT OF BOMBAY IN TH E CASE OF GODREJ & BOYCEE MFG. CO.(SUPRA). AT THE SAME TIME I AGREE WITH THE CONTENTION OF THE ASSESSING OFFICER THAT EXPENSES INCURRED RELATING TO THE EARNING OF THE EXEMPT DIVI DEND INCOME ARE STILL DISALLOWABLE U/S.14P OF THE ACT I N THE RELEVANT ASSESSMENT YEAR. HOWEVER I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN APPLYING THE PROVISIONS OF RULE 8D OF THE I. T. RULES 1962 FOR DETERMINING THE DISALLOWA BLE EXPENSES U/S 14A OF THE ACT IN THE RELEVANT AY AS T HE SAME ARE NOT APPLICABLE IN THIS YEAR. I ALSO FIND THAT T HE VARIOUS ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 4 BENCHES OF THE JURISDICTIONAL ITAT KOLKATA HAVE HE LD THAT 1 % OF THE EXEMPT INCOME CAN REASONABLY BE CONSIDERED A S THE INDIRECT EXPENDITURE INCURRED TO EARN SUCH EXEMPT I NCOME FOR THE ASSESSMENT YEARS PRIOR TO THE ASSESSMENT YEAR 2 008-09. UNDER THE FACTS & CIRCUMSTANCES OF THE CASE AND RE SPECTFULLY FOLLOWING THE DECISIONS OF THE HON'BLE ITAT KOLKATA I DIRECT THE AO TO RESTRICT THE DISALLOWANCE OF INDIRECT EX PENSES INCURRED U/S 14A OF THE ACT TO RS.50 483/- BEING 1% OF THE DIVIDEND INCOME OF RS.50 48 305/- AS AGAINST RS. 3 77 590/- 'DISALLOWED BY HIM. THUS THESE GROUNDS OF APPEAL O F THE APPELLANT ARE PARTLY ALLOWED. 7. HAVING NOT SATISFIED WITH ORDER OF CIT-A THE AS SESSEE BEFORE US AND THE LD.AR REITERATED THE SUBMISSIONS AS MADE BEFORE THE AO AND CIT-A. THE LD.AR RELIED ON THE OR DER OF AO. 8. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL EVIDENCE ON RECORD. AS RIGHTLY POINTED BY THE LD.AR AS IT COULD BE GATHERED FROM THE WRITTEN SUBMISSIONS DT:1 6-12- 2008 AS FILED BEFORE THE AO AND FROM THE IMPUGNED O RDER OF CIT-A THE PROVISION OF RULE 8D CAME INTO FORCE F ROM 01- 04-2007 RELEVANT TO A.Y 2007-08 AND THE IMPUGNED OR DER WAS PASSED INVOLVING THE RETURN OF INCOME FILED FOR THE A.Y.2006-07 AND THEREFORE THE APPLICABILITY OF T HE PROVISIONS OF RULE 8D THEREWITH IN OUR OPINION DO ES NOT APPLY TO THE YEAR UNDER CONSIDERATION. BUT HOWEVER WE FIND THAT THE ORDER OF CIT-A IS JUSTIFIED IN RESPECT OF RESTRICTING THE DISALLOWANCE AT 1% AS HE RIGHTLY TAKEN INTO CONSIDERATION THE OBSERVATIONS OF THE KOLKATA TRIBU NAL IN HOLDING THAT THE 1% OF EXEMPT INCOME IS REASONABLE IN COMPUTING THE EXPENDITURE IN EARNING THE DIVIDEND I NCOME. THE HONBLE JURISDICTIONAL HIGH COURT OF CALCUTTA IN THE CASE ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 5 OF CIT VS M/S R.R.SEN & BROTHERS IN GA NO.3019/12 I N ITAT NO.243/2012 UPHELD THE DECISION OF THE KOLKATA TRI BUNAL IN COMPUTING THE EXPENDITURE AT 1% OF DIVIDEND INCOME. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELO W: THE COURT:- THE ASSESSEE DID NOT SHOW ANY EXPENDITU RE INCURRED BY HIM FOR THE PURPOSE OF EARNING THE MONE Y WHICH IS EXEMPTED UNDER THE INCOME TAX. THE TRIBUNAL HAS COM PUTED EXPENDITURE AT 1 PER CENT OF SUCH DIVIDEND INCOME W HICH ACCORDING TO THEM IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. 9. IN THE LIGHT OF PRINCIPLE LAID DOWN BY THE HONB LE JURISDICTIONAL HIGH COURT OF CALCUTTA AND IN VIEW O F THE DISCUSSION HEREIN ABOVE WE ARE OF THE VIEW THE ORD ER OF CIT-A DOES NOT REQUIRE OUR INTERFERENCE AND IT IS JUSTIFI ED ACCORDINGLY THE SOLE GROUND RAISED BY THE ASSESSEE FAILS AND IT IS DISMISSED. 10. THE GROUND NO-2 IS GENERAL AND NEEDS NO CONSIDE RATION AND IT IS DISMISSED. 11. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH SEPTEMBER 2016 SD/- SD/- M.BALAGANESH S.S.VIS WANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 /09/2016 ITA NO. 319/KOL/14 M/S. MODERN FIBOTEX INDIA LTD 6 1. THE APPELLANT/ ASSESSEE: M/S. MODERN FIBOTEX INDIA LIMITED 14/1B EZRA STREET KOL-1. 2 . THE RESPONDENT/ DEPARTMENT : THE DCIT CIR - 10 AAYKAR BHAWAN P-7 CHOWRINGHEE SQUARE KOL-69. 3. CIT 4. CIT(A) 5. THE DEPARTMENTAL REPRESENTATIVE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGIS TRAR ** PRADIP SPS INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCHES KOLKATA COPY OF THE ORDER FORWARDED TO : -