MANU ENTERPTISES LTD., MUMBAI v. ITO - 3(2)(2), MUMBAI

ITA 4568/MUM/2019 | 2012-2013
Pronouncement Date: 08-03-2021 | Result: Allowed

Appeal Details

RSA Number 456819914 RSA 2019
Assessee PAN AAACM4979M
Bench Mumbai
Appeal Number ITA 4568/MUM/2019
Duration Of Justice 1 year(s) 8 month(s) 3 day(s)
Appellant MANU ENTERPTISES LTD., MUMBAI
Respondent ITO - 3(2)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 08-03-2021
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted SMC
Tribunal Order Date 08-03-2021
Last Hearing Date 03-03-2021
First Hearing Date 03-03-2021
Assessment Year 2012-2013
Appeal Filed On 05-07-2019
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI ! '# '$ BEFORE VIKAS AWASTHY JUDICIAL MEMBER & SHRI N.K.PRADHAN ACCOUNTANT MEMBER . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) MANU ENTERPRISES LIMITED 1 ST FLOOR SIDHWAS HOUSE N.A.SAWANT MARG COLABA MUMBAI 400 005 PAN: AAACM4979M ...... ) / APPELLANT VS. THE INCOME TAX OFFICER-3(2)(2) ROOM NO.673/664 6 TH FLOOR AAYKAR BHAVAN M.K.ROAD MUMBAI 400 020 ..... !*/ RESPONDENT ASSESSEE BY : MS. KANJAL BHUTA REVENUE BY : SHRI SANJAY J. SETHI +* / DATE OF HEARING : 03/03/2021 -. +* / DATE OF PRONOUNCEMENT : 08/03/2021 '/ ORDER PER VIKAS AWASTHY J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-9 MUMBAI ( IN SHORT THE C IT(A)) DATED 17/05/2019 FOR THE ASSESSMENT YEAR 2012-13. 2 . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) 2. IN APPEAL THE ASSESSEE HAS ASSAILED THE DISALLO WANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME T AX ACT 1961 ( IN SHORT THE ACT) R.W.R. 8D OF THE INCOME TAX RULES 1962. 3. MS. KANJAL BHUTA APPEARING ON BEHALF OF THE AS SESSEE SUBMITTED AT THE OUTSET THAT THE ASSESSING OFFICER HAS NOT RECORDED HIS DIS-SATISFACTION WITH REGARD TO ASSESSEES CLAIM THAT NO EXPENDITURE WAS INCURR ED IN EARNING OF EXEMPT INCOME. THE LD. AUTHORIZED REPRESENTATIVE FOR THE A SSESSEE CONTENDED THAT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR U NDER APPEAL THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS.30 66 562/- ON ACCOU NT OF DIVIDEND RECEIVED ON THE INVESTMENTS. SINCE NO INVESTMENTS WERE MADE D URING THE FINANCIAL YEAR 2011-12 NO SUO-MOTU DISALLOWANCE WAS MADE UNDER SE CTION 14A OF THE ACT . THE LD.AUTHORIZED REPRESENTATIVE OF THE ASSESSEE S UBMITTED THAT SUBSTANTIAL INVESTMENTS WERE MADE BY THE ASSESSEE IN THE SHARES OF MANUGRAPGH INDIA LTD. A SUBSIDIARY OF THE ASSESSEE IN THE EAR LIER ASSESSMENT YEARS.. THE INVESTMENT IN THE SAID COMPANY WAS MADE FROM OWN FU NDS AND BORROWED FUNDS WERE NOT USED BY THE ASSESSEE. THE LD.AUTHORIZED R EPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT OWN FUNDS OF THE ASSESSEE ARE SUFFIC IENT TO COVER THE INVESTMENTS THAT HAVE YIELDED TAX FREE INCOME HENCE NO DISALL OWANCE WAS WARRANTED ON SUCH INVESTMENTS. THE LD.AUTHORIZED REPRESENTATIVE OF T HE ASSESSEE MADE AN ALTERNATE CONTENTION THAT IF AT ALL DISALLOWANCE U/R.8D IS TO BE MADE THE INTEREST EXPENDITURE SHOULD BE REDUCED WHILE COMPUTING SUC H DISALLOWANCE. 4. ON THE CONTRARY SHRI SANJAY J. SETH REPRESEN TING THE DEPARTMENT VEHEMENTLY DEFENDED THE IMPUGNED ORDER.THE LD.DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE U/R 8 D(2)(III) THAT IS HALF PERCENT OF AVERAGE INVESTMENT. THE ASSESSING OFFICER HAS D ULY RECORDED SATISFACTION 3 . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) BEFORE MAKING DISALLOWANCE UNDER SECTION 14A R.W.R . 8D. THE LD. DEPARTMENTAL REPRESENTATIVE PRAYED FOR DISMISSING THE APPEAL OF THE ASSESSEE. 5. BOTH SIDES HEARD ORDERS OF AUTHORITIES BELOW EX AMINED. THE SOLITARY ISSUE RAISED IN THE PRESENT APPEAL BY THE ASSESSEE IS AGA INST DISALLOWANCE OF RS.14 10 393/- MADE UNDER SECTION 14A R.W.R. 8D. 6. THE FIRST CONTENTION OF THE ASSESSEE IS THAT BEF ORE INVOKING THE PROVISIONS OF RULE8D THE ASSESSING OFFICER HAS NOT RECORDED SA TISFACTION AS PROVIDED IN SECTION 14A(2) OF THE ACT. SUB-SECTION(2) OF SECTION 14A M ANDATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT IN ACCORDANCE WITH RULE 8D IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE. SUB-SECTION (3) OF SECTION 14A OF THE A CT STATES THAT PROVISIONS OF SUB- SECTION (2) SHALL ALSO APPLY WHERE THE ASSESSEE CLA IMS THAT NO EXPENDITURE HAS BEEN INCURRED IN EARNING OF EXEMPT INCOME. 7 IN THE PRESENT CASE THE CLAIM OF ASSESSEE IS THAT SINCE NO NEW INVESTMENTS WERE MADE DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL NO EXPENDITURE HAS BEEN INCURRED BY THE ASS ESSEE IN RELATION TO EARNING OF DIVIDEND INCOME EXEMPT FROM TAX. THE PROVISION S OF SUB-SECTION (2) AND (3) REQUIRE THE ASSESSING OFFICER TO RECORD SATISFACTIO N BEFORE INVOKING THE PROVISIONS OF RULE 8D WITH RESPECT TO ASSESSEES COMPUTATION O F SUO-MOTU DISALLOWANCE OR ASSESSEES CLAIM THAT NO EXPENDITURE HAS BEEN INCUR RED. 8. A PERUSAL OF THE ASSESSMENT ORDER DATED 29/11/20 14 REVEALS THAT ASSESSING OFFICER HAS NOT RECORDED SATISFACTION AT ALL BEFORE INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AS MANDATED UNDER THE ACT. THE ASSESSING OFFICER REJECTED THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING AS UND ER:- 4 . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) THE DETAILED NOTE OF THE ASSESSEE ON DISALLOWANCE IS CONSIDERED BUT NOT ACCEPTED. EVEN THOUGH THE ASSESSEE HAS MADE AN EFFORT TO EXPLAIN T HAT NO PART OF INTEREST/EXPENDITURE HAVE BEEN INCURRED IN RELATION TO EARNING OF THE EXEMPT INCOME (DIVIDEND INCOME) THE FACT REMAINS UNDISPUTED THAT THE DISALLOWANCE IS TO BE W ORKED OUT MANDATATORILY AS PER THE NORMS PRESCRIBED UNDER RULE 8D OF THE I.T.ACT. THEREAFTER THE ASSESSING OFFICER COMPUTED THE DIS ALLOWANCE U/R 8D RECORDING OF DISSATISFACTION BY THE ASSESSING OFFICER IN RELATION TO ASSESSEES CLAIM OF SUO- MOTU DISALLOWANCE OR NO DISALLOWANCE IS SINE-QUA -NON TO INVOKING OF RULE 8D. ANY DISALLOWANCE MADE U/R.8D WITHOUT RECORDING SATI SFACTION AS ENVISAGED UNDER SECTION 14(2) OF THE ACT IS UNSUSTAINABLE IN LAW. 9. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GOD REJ AND BOYCE MFG CO. LTD. VS. DCIT REPORTED AS 328 ITR 81 IN AN UNAMBIG UOUS MANNER HELD THAT SATISFACTION UNDER SECTION 14A(2) OF THE ACT BY THE ASSESSING OFFICER HAS TO BE ARRIVED IN AN OBJECTIVE MANNER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT READS AS UNDER:- ( VIII ) SUB - SECTION (2) OF SECTION 14A DOES NOT ENABLE THE ASSE SSING OFFICER TO APPLY THE METHOD PRESCRIBED BY RULE 8D WITHOUT DETERMINING IN THE FI RST INSTANCE THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. SUB-SE CTION (2) OF SECTION 14A MANDATES THAT IT IS ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF TH E CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT THAT HE CAN PROCEED TO MAKE A DETERM INATION UNDER THE RULES; ( IX ) THE SATISFACTION ENVISAGED BY SUB - SECTION (2) OF SECTION 14A IS AN OBJECTIVE SATISFAC TION THAT HAS TO BE ARRIVED AT BY THE ASSESSING OF FICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE . THE SAFEGUARD INTRODUCED BY SUB- SECTION (2) OF SECTION 14A FOR A FAIR AND REASONABL E EXERCISE OF POWER BY THE ASSESSING OFFICER CONDITIONED AS I T IS BY THE REQUIREMENT OF AN OBJECTIVE SATISFACTION MUST THEREFORE BE SCRUPULOUSLY OBSERVED. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE AN OPPORTUNI TY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECOR DING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT THAT HE COMES TO THE CONCLUSION THAT HE IS NO T SATISFIED WITH THE CLAIM OF THE ASSESSEE; 5 . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) THE HON'BLE SUPREME COURT OF INDIA IN THE CASE OF G ODREJ AND BOYCE MFG CO. LTD. 394 ITR 449 AFFIRMING THE VIEW OF HON'BLE BOMBAY HIGH COURT HELD: 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIO NS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A F ORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEE AS PLACED BEFORE HIM IT IS NOT POSSIBLE TO GENERATE T HE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONL Y THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION AS EARLIER PREVAILING WOULD BECOME APPLICABLE. 10. IN THE INSTANT CASE AS POINTED EARLIER THE A SSESSING OFFICER HAS NOT RECORDED HIS DIS-SATISFACTION WITH REGARD TO ASSESS EES CLAIM AS POSTULATED BY THE PROVISIONS OF SECTION 14A OF THE ACT AND ELUCIDATED BY THE HONBLE COURTS. THUS WE FIND MERIT IN THE CONTENTIONS OF THE ASSESSEE. THE DISALLOWANCE MADE UNDER SECTION 14A R.W.R. 8D IS DIRECTED TO BE DELETED. T HE IMPUGNED ORDER IS SET-ASIDE AND THE APPEAL OF THE ASSESSEE IS ALLOWED. 11. IN THE RESULT APPEAL BY ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY T HE 8 TH DAY OF MARCH 2021. SD/- SD/- (N.K.PRADHAN) (VIKAS AWAST HY) '# / ACCOUNTANT MEMBER / JUDICIAL MEMBER / MUMBAI 0/ DATED 08/03/2021 VM SR. PS (O/S) 6 . 4568/ / 2019 (. . 2012-13 ) ITA NO.4568/MUM/2019(A.Y.2012-13) !*12'.* COPY OF THE ORDER FORWARDED TO : 1. ) / THE APPELLANT 2. !* / THE RESPONDENT. 3. 3* ( ) / THE CIT(A)- 4. 3* CIT 5. 45!* . . . / DR ITAT MUMBAI 6. 56789 / GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT MUMBAI