MIND FILTERS LTD, v. DCIT RG 3(1),

MA 536/MUM/2011 | 2002-2003
Pronouncement Date: 27-07-2012 | Result: Allowed

Appeal Details

RSA Number 53619924 RSA 2011
Assessee PAN HJULY2012D
Bench Mumbai
Appeal Number MA 536/MUM/2011
Duration Of Justice 8 month(s) 11 day(s)
Appellant MIND FILTERS LTD,
Respondent DCIT RG 3(1),
Appeal Type Miscellaneous Application
Pronouncement Date 27-07-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 27-07-2012
Assessment Year 2002-2003
Appeal Filed On 15-11-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I MUMBAI BEFORE : SHRI R.S.SYAL A M & SHRI AMIT SHUKLA JM MISCELLANEOUS APPLICATION NO.536 /MUM/2011 ASSESSMENT YEAR: 2002-2003 M/S HIND FILTERS 1521/1522 MAKER CHAMBERS V 221 BACKBAY RECLAMATION MUMBAI-21 PAN NO.AAACH 039 L DCIT 3(1) MUMBAI. APPELLANT VS. RESPONDENT APPELLANT BY : MR. DIVESH I SHAH RESPONDENT BY : MR. K.G.KUTTY DATE OF HEARING : 27 TH JULY 2012 DATE OF PRONOUNCEMENT : 27 TH JULY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE PRESENT MISCELLANEOUS APPLIC ATION HAS BEEN FILED BY THE ASSESSEE UNDER SECTION 254(2) AGAINST THE ORDER DATED 23.1.2009 PASSED BY THE IT AT IN ITA NO.7231/M/2005 & 6801/MUM/2005 FOR THE QUANTUM OF ASSESSMENT FOR THE ASSESSMENT YEAR 2002-2003. THE ONL Y GRIEVANCE OF THE ASSESSEE IN THE PRESENT APPLICATION IS WITH REGARD TO GROUNDS NO.1 & 2 IN DEPARTMENTS APPEAL AND GROUND NO.1 IN ASSESSEES APPEAL RELATING TO DISALLOWANCE MADE UNDER SECTION 14A. 2. THE ITAT HAS DECIDED THIS ISSUE AGAINST THE ASSESSEE FOLLOWING THE JUDGMENT OF SPECIAL BENCH IN THE CASE OF M/S DAGA CAPITAL MANAGEMENT PRIVATE LI MITED 216 SOT 603(MUM) AND SET ASIDE THE MATTER TO THE ASSESSING OFFICER TO MAKE THE DISALLOWANCE UNDER MA NO : 536/MUM/2011 2 SECTION 14A IN ACCORDANCE WITH THE RATIO OF THE SPECIAL BENCH. THE RELEVANT OBSERVATION AND THE FINDING OF THE ITAT IN DEPARTMENTS APPEAL FOR THE SAKE OF READY REFE RENCE IS REPRODUCED HEREUNDER :- 4. ON A CAREFUL CONSIDERATION OF FACTS AND CIRCUMSTANCES AND PERUSAL OF RECORDS AND ORDERS OF AUTHORITIES BELOW WE ARE OF THE VIEW THAT THIS ISSUE HAS BEEN ELABORATELY DISCUSSED BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. LTD. WHEREIN IT HAS BEEN HELD AS FOLLOWS : (I) SECTION 14A HAS AN OVERRIDING EFFECT AND APPLIES TO ALL EXPENDITURE IN RELATION TO EXEMPT INCOME EVEN THOUGH SUCH EXPENDITURE WOULD HAVE BEEN ALLOWABLE UNDER OTHER PROVISIONS SUCH AS 36(1)(III). (II) SUB-SECTION (2) AND (3) OF SECTION 14A THOUGH INSERTED BY THE FINANCE ACT 2006 WITH EFFECT FROM 1.4.2007 READ WITH RULE 8D ARE PROCEDUR AL AND CLARIFICATORY IN NATURE AND APPLY TO PENDING MATTERS. (III) THE WORDS IN RELATION TO IN SECTION 14A ENCOMPASS NOT ONLY THE DIRECT EXPENSE BUT ALSO THE INDIRECT EXPENSE WHICH HAS ANY RELATION TO THE EXEMPT INCOME. THE ARGUMENT THAT THE WORDS CONTEMPLATE A DIRECT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE AND THE EXEMPT INCOME CANNOT BE A CCEPTED. ACCORDINGLY THE ARGUMENT THAT SECTION 14A CANNOT APPLY TO SHARES HELD AS STOCK-IN-TRADE CANNOT BE ACCEPTED. THE FACT THAT THE DIVIDEND INCOME IS INCIDENTAL TO THE PURCHASE OF SHARES IS ALSO IRRELEVANT. THE QUESTION AS TO WHETHER THE ONUS IS ON THE ASSESSEE OR THE ASSE SSING OFFICER FOR BRINING AN ITEM OF EXPENDITURE WITHIN S.14A IS ALSO IRRELEVANT IN VIEW OF RULE 8D. IN THE LIGHT OF THE DECISION OF THE MUMBAI SPECIAL BENCH CITED SUPRA WE REFER THESE ISSUES TO THE FILE OF THE ASSESSING OFFICER TO DECIDE THE SAME ACCORDING TO THE DICTUM LAID DOWN IN THE MA NO : 536/MUM/2011 3 AFORESAID DECISION OF THE SPECIA L BENCH OF THE TRIBUNAL NEEDLESS TO SAY THE ASSESSEE SHALL BE HEARD IN THIS MATTER. ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. AND IN ASSESSEES APPEAL IS :- 7. THE FIRST GROUND IN THE ASSESSEES APPEAL IS DIRECTED AGAINST THE CIT(A)S ORDER IN SUSTAINING THE ADDITION MADE U/S14A OF THE ACT TO THE EXTENT OF ` .75 000/- BEING THE OTHER EXPENDITURE INCURRED FOR EARNING DI VIDEND INCOME. THIS ISSUE HAS BEEN CONSIDERED BY US IN THE REVENUE APPEAL AND SAME HAS BEEN REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DENOVO CONSIDERATION. FOR PARITY OF REASONING GROUND NO.1 RAISED IN ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 3. THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE JUDGMENT OF THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PRIVATE LIMITED (SUPRA) HAS BEEN OVERRULED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND MFG. COMPANY LI MITED VS. DCIT REPORTED IN (2010) 328 ITR 81(BOM) AND THEREFORE THE FINDING OF THE ITAT FOLLOWING THE SPECIAL BENCH IS A MISTAKE APPARENT FROM THE RECORD WHICH DESERVES TO BE RECTIFIED IN CONSONANCE WITH THE HIGH COURTS JUDGMENT. IN SUPPORT OF THIS CONTENT ION RELIANCE HAS BEEN PLACED ON THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF ACIT VS. SAURASHTRA KUTCH STOCK EXCHANGE LTD. REPORTED IN (2008) 305 ITR 227 (SC) . 4. ON THE OTHER HAND LEARNED SENIOR DR SUBMITTED THAT THE ITAT HAS MERELY SET ASIDE THE ISSUE TO THE FILE OF THE AO TO WORK OUT THE MA NO : 536/MUM/2011 4 DISALLOWANCE IN ACCORDANCE WITH THE SPECIAL BENCH DECISION AND THEREFORE THERE IS NO INFIRMITY OR MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANING OF SECTION 254 (2). 5. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSIONS OF THE PARTIES AND ALSO PERUSING THE RECORD WE FIND THAT WHILE DECIDING THE ISSUE OF APPLICABILITY OF SECTION 14A THE TR IBUNAL HAS DECIDED THE ISSUE OF DISALLOWANCE U/S.14A BY FOLLOWING THE RATIO LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF DAGA CAPI TAL MANAGEMENT PRIVATE LIMITED (SUPRA). THE SAID JUDGMENT HAS NOW BEEN OVERRULED BY THE HONBLE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 12 TH AUGUST 2010 IN THE CASE OF GODREJ AND BOYCE MF G. COMPANY LIMITED (SUPRA) WHEREIN THE HONBLE HIGH COURT CAME TO THE FOLLOWING CONCLUSION :- (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24 2008 SHALL APPLY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-2009: (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-2009 WHEN RULE 8D WAS NOT APPLICABLE THE ASSESSING OFFICER HAS TO ENFORCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE THE ASSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED 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 FURNISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE GERMANE MATERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002-03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED MA NO : 536/MUM/2011 5 ANY EXPENDITURE (DIRECT OR INDI RECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT A REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION THE ASSESSING OFFICER SHALL PROVIDE 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. 6 . THE ISSUE BEFORE US IS W HETHER SUBSEQUENT DECISION OF JURISDICTIONAL HIGH COURT CAN CON STITUTE MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANING OF SECTION 254(2) IN THE ORDER PASSED BY THE TRIBUNAL. THIS ASPECT OF THE MATTER HAS BEEN SUBJECTED TO JUDICIAL SCRUTINY BY THE HONBLE SUPREME COURT IN THE CASE OF ACIT VS. SAURASHTRA KATCH STOCK EXCHANGE OF INDIA (SUPRA) WHEREIN THEIR LORDSHIPS HAVE OBSERVED AND HELD AS UNDER :- 40. THE CORE ISSUE T HEREFORE IS WHETHER NON-CONSIDERATION OF A DECISION OF JURISDICTIONAL COURT (IN THIS CASE A DECISION OF THE HIGH COURT OF GUJARAT) OR OF T HE SUPREME COURT CAN BE SAID TO BE A 'MISTAKE APPARENT FROM THE RECORD'? IN OUR OPINION BOTH THE TRIBUNAL AND THE HIGH COURT - WERE RIGHT IN HOLDING THAT SUCH A MISTAKE CAN BE SAID TO BE A MISTAKE APPARENT FROM THE RECORD' WHICH COULD E RECTIFIED UNDER SECTION 254(2). 41. A SIMILAR QUESTION CA ME UP FOR CONSIDERATION BEFORE THE HIGH COURT OF GUJARAT N SUHRID GEIGY LIMITED V. COMMISSIONER OF SURTAX GUJARAT (1999) 237 ITR 834 (GUJ). IT AS HELD BY THE DIVISION BENCH OF THE HIGH COURT THAT IF THE POINT IS COVERED BY A DECISION OF THE JURISDICTIONAL COURT RENDERED PRIOR OR EVEN SUBSEQUENT TO THE ORDER OF RECT IFICATION IT COULD BE SAID TO BE 'MISTAKE APPARENT FROM THE RECORD' UNDER SECTION 254 (2) OF THE ACT AND COULD BE CORRECTED BY THE TRIBUNAL. MA NO : 536/MUM/2011 6 42. IN OUR JUDGMENT IT IS ALSO WELL-SETTLED THAT A JUDICIAL DECISION ACTS RETROSPECTIVELY. ACCORDING TO BLACKSTONIAN THEORY IT IS NOT THE FUNCTION OF THE COURT TO PR ONOUNCE A `NEW RULE' BUT TO MAINTAIN AND EXPOUND THE `O LD ONE'. IN OTHER WORDS JUDGES DO NOT MAKE LAW THEY ONLY DISCOVER OR FIND THE CORRECT LAW. THE LAW HAS ALWAYS BEEN THE SAME. IF A SUBSEQUENT DECISION ALTERS THE EARLIER ONE IT (THE LA TER DECISION) DOES NOT MAKE NEW LAW. IT ONLY DISCOVERS THE CORRE CT PRINCIPLE OF LAW WHICH HAS TO BE APPLIED RETROSPECTIVELY. TO PUT IT DIFFERENTLY EVEN WHERE AN EARLIER DECISION OF THE COURT OPERATED FOR QUITE SOME TIME THE DECISION RENDERED LATER ON WOULD HAVE RETROSPECTIVE EFFECT CLARIFYING THE LEGAL POSITION WH ICH WAS EARLIER NOT CORRECTLY UNDERSTOOD. 43. SALMOND IN HIS WELL-KNOWN WORK STATES; 'THE THEORY OF CASE LAW IS THAT A JUDGE DOES NOT MAKE LAW; HE MERELY DECLARE S IT; AND THE OVERRULING OF A PREVIOUS DECISION IS A DECLARATION THAT THE SUPPOSED RULE NEVER WAS LAW. HENCE ANY INTERM EDIATE TRANSACTIONS MADE ON THE STRENGTH OF THE SUPPOSED RULE ARE GOVERNED BY T HE LAW ESTABLISHED IN THE OVERRULING DECISION. THE OVERRULING IS RETROSPECTIVE EXCEPT AS REGARDS MATTERS THAT ARE RES JUDICATAE OR ACCOUNTS THAT HAVE BEEN SETTLED IN THE MEANTIME'. (EMPHASIS SUPPLIED) 44. IT IS NO DOUBT TRUE THAT AFTER A HISTORIC DECISION IN GOLAK NATH V. UNION OF INDIA (1967) 2 SCR 762 THIS COURT HAS ACCEPTED THE DOCTRINE OF `PROSPECTIVE OVERRULING'. IT IS BASED ON THE PHILOSOPHY: 'THE PAST CANNOT ALWAYS BE ERASED BY A NEW JUDICIAL DECLARATION' . IT MAY HOWEVER BE STATED THAT THIS IS AN EXCEPTION TO THE GENERAL RULE OF THE DOCTRINE OF PRECEDENT. 45. RECTIFICATION OF AN ORDER STEMS FROM THE FUNDAMENTAL PRINCIPLE THAT JUSTICE IS ABOVE ALL. IT IS EXERCISED TO REMOVE THE ERROR AND TO DISTURB THE FINALITY. MA NO : 536/MUM/2011 7 THUS IT IS SETTLED PRINCIPLE OF LAW THAT THE DECISION OF THE JURISDICTIONAL HIGH COURT OR THE HONBLE SUPREME COURT RENDERED PRIOR TO OR EVEN SUBSEQUENT TO THE ORDER WILL CONSTITUTE MISTAKE APPARENT FROM THE RECORD WITHIN THE MEANI NG OF SECTION 254 (2) AND IT SHOULD BE CORRECTED BY THE TRIBUNAL. 7 . WE ACCORDINGLY MODIFY THE DIRECTI ONS AND THE ORDER OF THE ITAT PASSED IN ITA NO.7231/MUM/2005 & 6801/MUM/2005 VIDE ORDER DATED 23 RD JANUARY 2009 AND DIRECT THAT ASSE SSING OFFICER WILL NOT APPLY RULE 8D IN VIEW OF THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. (SUPRA) AND WORK OUT THE DISALLOWANCE UNDER SECTION 14A IN CONSONANCE WITH THE RATIO LAID DOWN THEREIN BY ADOPTING REASONABL E BASIS IN ACCORDANCE WITH THE FACTS AND MATERIAL ON RECORD AND AFTER GIVING DUE AND REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL THE RELEVANT MATERIALS AND ITS ACCOUNTS HAVING BEARING ON THE ISSUE INVOLVED. 8. IN THE RESULT THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE IS TREATED AS ALLOWED AS PER THE DIRECTIONS GIVEN ABOVE. ORDER PRONOUNCED ON THIS 27 TH DAY OF JULY 2012. SD/- SD/- ( R.S.SYAL ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DT: 27 TH JULY 2012 MA NO : 536/MUM/2011 8 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE C.I.T. 4. CIT (A) 5. THE DR B - BENCH ITAT MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI PKM