SHIVAM ENTERPRISES, MUMBAI v. ITO WD 20(3(2), MUMBAI

ITA 4774/MUM/2010 | 2005-2006
Pronouncement Date: 29-07-2011 | Result: Dismissed

Appeal Details

RSA Number 477419914 RSA 2010
Assessee PAN AAACP3134B
Bench Mumbai
Appeal Number ITA 4774/MUM/2010
Duration Of Justice 1 year(s) 1 month(s) 19 day(s)
Appellant SHIVAM ENTERPRISES, MUMBAI
Respondent ITO WD 20(3(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 29-07-2011
Assessment Year 2005-2006
Appeal Filed On 09-06-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI F BENCH BEFORE SHRI T.R.SOOD ACCOUNTANT MEMBER & SMT. ASHA VIJAY RAGHAVAN JUDICIAL MEMBER I.T.A.NO.4727/MUM/2010 A.Y 2007-08 SUBHKAM CAPITAL LTD. THE INTERNATIONAL HOUSE 4 TH FL. NEW MARINE LINES CROSS ROAD NO.1 NEAR AMERICAN CENTRE 16 MAHARSHI KARVE ROAD CHURCHGATE MUMBAI 400 020. PAN: AAACP 3134 B VS. DY. COMMISSIONER OF I.T. 2(3) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.C.JAIN. RESPONDENT BY : SHRI R.K.GUPTA [SR.DR] DATE OF HEARING: 25/07/2011 DATE OF PRONOUNCEMENT: 29/7/2011 O R D E R PER T.R.SOOD AM: IN THIS APPEAL THE FOLLOWING GROUNDS HAVE BEEN RAI SED: 1. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE DISALL OWANCE U/S.14A OF THE I.T.ACT 1961 OF RS.386579/-. 1.1 THE LD. CIT(APPEALS) IN CONFIRMING THE DISALLOW ANCE DID NOT CONSIDER THE SUBMISSIONS OF THE APPELLANT IN TH EIR ENTIRETY. 2. THE LD. CIT(APPEALS) ERRED IN CONFIRMING THE ADD ITION OF RS.3 86 579/- TO THE BOOK PROFITS BEING DISALLOWANC E U/S.14A OF THE ACT. 2. GROUND NO.1 & 1.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT A SSESSEE HAD EARNED LONG TERM CAPITAL GAINS WHICH IS EXEMPT FROM TAX AND ACCORDINGLY INVOKED THE PROVISIONS OF SEC.14A AND DISALLOWED 0.5% OF THE AVERAGE INVESTMENT AMOUNTING TO RS.3 86 579/- U /S.14A. ON APPEAL ACTION OF THE AO WAS CONFIRMED BY THE LD. C IT(A) FOLLOWING THE 4727/M/10 2 DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. & ORS. (2008) 119 TTJ (MUM) (S.B) 289. 3. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IT HAS ALREADY BEEN HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [328 ITR 81] T HAT RULE 8D IS NOT OF RETROSPECTIVE NATURE THEREFORE AT BEST AO COUL D HAVE MADE ONLY A REASONABLE DISALLOWANCE. 4. ON THE OTHER HAND LD. DR SUBMITTED THAT IN THE SAME DECISION IT HAS ALSO BEEN HELD THAT REASONABLE DISALLOWANCE U/S .14A CAN BE MAINTAINED. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY AND FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]: HELD THAT THE PROVISIONS OF RULE 8D OF THE RULES WHICH HAVE BEEN NOTIFIED W.E.F. 24TH MARCH 2008 SHALL APPLY W ITH EFFECT FROM ASSESSMENT YEAR 2008-09. EVEN PRIOR TO ASSESSM ENT YEAR 2008-09 WHEN RULE 8D WAS NOT APPLICABLE THE ASSES SING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOU ND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED I N RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INC OME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONA BLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND C IRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTUNITY TO THE AS SESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. THE PROCE EDINGS FOR ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK T O THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETE RMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE ( DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FRO M MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER S. 14A. THE ASSESSING OFFICER CA N ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION THE ASSESSING OFFICER SHALL PRO VIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT OR GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE. 4727/M/10 3 RESPECTFULLY FOLLOWING THE ABOVE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE ISSUE REGARDING DISALLOWANCE OF EXPEN DITURE U/S.14A IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 3. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT AO HA S ALSO COMPUTED BOOK PROFITS. WHILE COMPUTING SUCH BO OK PROFITS U/S.115JB AO HAS ADDED BACK A SUM OF RS.3 86 579/- ON ACCOUNT OF EXPENDITURE WHICH WAS DISALLOWED U/S.14A. ON APPEAL ACTION OF THE AO WAS CONFIRMED BY THE LD. CIT(A). 4. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT WHILE COMPUTING THE BOOK PROFITS SUCH EXPENDITURE COULD N OT HAVE BEEN DISALLOWED IN VIEW OF THE EXCEPTION PROVIDED IN CLA USE [F] OF EXPLANATION 1 TO SEC.115JB. 5. ON THE OTHER HAND LD. DR SUPPORTED THE ORDER OF THE CIT(A). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. IT IS SETTLED LAW BY NOW THAT WHILE COMPUTING THE BOOK PROFITS ON LY THOSE ADJUSTMENTS CAN BE MADE WHICH HAVE BEEN SPECIFICALL Y PROVIDED IN THE ACT. NO OTHER ADJUSTMENT BY TINKERING CAN BE MADE W HILE COMPUTING SUCH BOOK PROFITS. REFERENCE MAY BE MADE TO THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. APOLLO TYRES LTD. [255 ITR 273]. THEREFORE WE HAVE TO EXAMINE WHETHER ANY ADJUSTMENT HAS BEEN PROVIDED IN RESPECT OF EXPENDITURE WHICH WAS D ISALLOWED. EXPLANATION 1 TO SUB-SEC.(2) OF SEC.115JB READS AS UNDER: SEC.115JB: XX XX XX 4727/M/10 4 EXPLANATION [ 1 ].FOR THE PURPOSES OF THIS SECTION BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION ( 2) AS INCREASED BY ( A ) THE AMOUNT OF INCOME-TAX PAID OR PAYABLE AND THE PROVISION THEREFOR; OR ( B ) THE AMOUNTS CARRIED TO ANY RESERVES BY WHATEVER NAME CALLED [ OTHER THAN A RESERVE SPECIFIED UNDER SECTION 33AC ]; OR ( C ) THE AMOUNT OR AMOUNTS SET ASIDE TO PROVISIONS MAD E FOR MEETING LIABILITIES OTHER THAN ASCERTAINED LIABILITIES; OR ( D ) THE AMOUNT BY WAY OF PROVISION FOR LOSSES OF SUBS IDIARY COMPANIES; OR ( E ) THE AMOUNT OR AMOUNTS OF DIVIDENDS PAID OR PROPOS ED ; OR ( F ) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [ SECTION 10 ( OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF ) OR [***] SECTION 11 OR SECTION 12 APPLY; OR] ( G ) THE AMOUNT OF DEPRECIATION ] ( H ) THE AMOUNT OF DEFERRED TAX AND THE PROVISION THER EFOR ( I ) THE AMOUNT OR AMOUNTS SET ASIDE AS PROVISION FOR DIMINUTION IN THE VALUE OF ANY ASSET (I) ( II ) THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIO NS OF [ SECTION 10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE ( 38 ) THEREOF)] OR [***] SECTION 11 OR SECTION 12 APPLY IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT; OR THUS FROM THE ABOVE IT IS CLEAR THAT CLAUSE [F] PRO VIDES THAT THE AMOUNT OF EXPENDITURE WHICH IS EXEMPT U/S.10 IS REQUIRED T O BE ADDED BACK. THAT MEANS SUCH EXPENDITURE CAN BE ADDED TO THE BOO K PROFITS. HOWEVER A CAREFUL READING OF THE HIGHLIGHTED PORTI ON OF CLAUSE [F] WOULD SHOW THAT AN EXCEPTION HAS BEEN MADE IN RESPE CT OF INCOME WHICH IS EXEMPT U/S.10(38). THIS IS CLEAR FROM THE EXPRESSION USED IN THE BRACKET OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE 38 THEREOF. THIS MEANS EXPENDITURE IN RESPECT OF ANY INCOME WHI CH IS EXEMPT U/S.10 IS REQUIRED TO BE ADDED BACK TO THE BOOK PRO FITS. HOWEVER NO SUCH ADJUSTMENT IN RESPECT OF EXPENDITURE IN RESPEC T OF INCOME EXEMPT U/S.10(38) IS REQUIRED TO BE ADDED. AS PER SEC.10(3 8) ANY INCOME 4727/M/10 5 ARISING ON ACCOUNT OF TRANSFER OF LONG TERM ASSET B EING IN THE NATURE OF EQUITY SHARES IS EXEMPT. THIS IS SO BECAUSE THE GOV ERNMENT HAD STARTED CHARGING SECURITIES TRANSACTION TAX ON THE SHARES DEALT THROUGH STOCK EXCHANGE. THIS MEANS THAT WHENEVER AN INCOME ARISES ON ACCOUNT OF LONG TERM CAPITAL GAIN FROM SHARES THEN SUCH EXPENDITURE CANNOT BE ADDED TO THE BOOK PROFITS. APART FROM THE LANGUAGE OF THE SECTION THIS IS PALPABLY CLEAR THAT SUCH EXPENDITUR E COULD NOT BE ADDED BECAUSE WHEN WHOLE OF THE ITEM OF LONG TERM CAPITAL GAIN IS INCLUDED IN THE BOOK PROFITS THEN THERE IS NO JUSTIFICATION FO R FURTHER ADDING THE EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING SUC H LONG TERM CAPITAL GAIN OTHERWISE THIS WOULD AMOUNT TO DOUBLE TAXATIO N. ONCE BY TAXING THE WHOLE GROSS INCOME AND THEN BY ADDING THE EXPEN DITURE INCURRED FOR EARNING SUCH EXEMPT INCOME. THIS CAN BE UNDERST OOD BY A SIMPLE EXAMPLE. LET US SAY AN ASSESSEE HAS RS.100/- AS EXE MPT INCOME ON ACCOUNT OF TRANSFER OF LONG TERM SHARES WHICH IS EX EMPT U/S.10(38). FURTHER ASSESSEE HAS LET US SAY INCURRED A SUM OF RS.10/- AS EXPENDITURE FOR EARNING THIS INCOME. IF THE WHOLE O F RS.100 IS BEING ADDED TO THE BOOK PROFITS THEN THERE IS NO JUSTIFI CATION FOR ADDING FURTHER RS.10 TO SUCH BOOK PROFITS. THEREFORE IN O UR VIEW THE EXPENDITURE WHICH WAS DISALLOWED U/S.14A SHOULD NOT HAVE BEEN ADDED TO THE BOOK PROFITS BECAUSE THE BOOK PROFITS IN THE CASE BEFORE US AMOUNTING TO RS.4 69 12 489/- OBVIOUSLY INCLUDE THE LONG TERM CAPITAL GAIN OF RS.4 02 86 439/-. ACCORDINGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO NOT TO ADD EXPENDITURE WHI CH HAS BEEN 4727/M/10 6 DISALLOWED U/S.14A AMOUNTING TO RS.3 86 579/- TO TH E BOOK PROFITS DETERMINED U/S.115JB. 7. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 29/7/2011. SD/- SD/- (ASHA VIJAY RAGHAVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 29/7/2011. P/-* COPY TO- 1) APPELLANT 2) RESPONDENT 3) CITA MUMBAI. 4) CIT CITY MUMBAI 5) DR BENCH MUMBAI TRUE COPY BY ORDER DY /ASST.REGISTRAR ITAT MUMBAI. SR.NO. PARTICULARS DATE INITIALS 1 DRAFT DICTATED ON 27-7-11 P 2 DRAFT PLACED BEFORE AUTHOR 26-7-11 P 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 5 APPROVED DRAFT COMES TO SR.PS/PS 6 ORDER KEPT FOR PRONOUNCEMENT 7 FILE SENT TO BENCH CLERK 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE A.R 10 DATE OF DISPATCH OF ORDER 4727/M/10 7