,
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES `A' MUMBAI
[ .. , Û è . , è
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND
SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER
. / ITA No.2305/MUM/2013
[ [ /Assessment Year 2005-06
Alco Company P. Ltd., / Asstt. Commissioner of Income
3 r d Floor, Rahimtoola Tax 2(1),
Vs.
House, 7, Homji Street, Mumbai.
Fort, Mumbai 400001
è . / . / PAN/GIR No. : AAACA 1031G
( /Appellant) .. (× / Respondent)
. / ITA No.1799/MUM/2013
[ [ /Assessment Year 2005-06
The DCI T 2(1), / Alco Company P. Ltd.,
Aaykar Bhavan, Room 3 r d Floor, Rahimtoola
t h
Vs.
No.561, 5 Floor, MK House, 7, Homji Street,
Road, Mumbai 400 020 Fort, Mumbai 400001
è . / . / PAN/GIR No. : AAACA 1031G
( /Appellant) .. (× / Respondent)
Assessee by Shri Chetan A. Karia
Revenue by Shri Jeevanlal Lavidiya
/ Da te o f Hearing : 08/06/2015
/Date of Pronouncement : 08/06/2015
/ O R D E R
PER I.P.BANSAL, J.M:
These are cross appeals and are directed against order passed by Ld.
CIT(A)-4, Mumbai dated 18/12/2012 for assessment year 2005-06. Grounds
of appeal read as under:
2 . / ITA No.2305& 1799/MUM/2013
[ [ /Assessment Year 2005-06
Grounds of Assessee's Appeal:
1) The Learned Commissioner of Income Tax (appeals) erred in confirming disallowance of
Rs.16,23,432/- u/s.14A of the Act as against Rs.4,85,000/- disallowance by the
assessee.
2) The appellant prays that:
i) Disallowance u/s.14A may be restricted to the amount of Rs.4,85,000/-
ii) Recovery of demand in dispute may be stayed;
iii) Personal hearing may be granted;
iv) Any other relief your honours may deem fit.
Grounds of Revenue's Appeal:
"On the facts and in the circumstances of the case and law, the learned CIT(A) has erred
in allowing relief to the assessee to the extent impugned in the grounds enumerated
below:
1. The order of the CIT(A) is opposed to law and facts of the case.
2. " On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in
re-working the disallowance u/s. 14A on ad-hoc basis ignoring the fact that the AO
had worked out the disallowance u/s.14A by the calculation method prescribed in
rule 8D which has been accepted as a reasonable method by the Jurisdictional High
Court in Godrej & Boyce Mfg. Co. Ltd. ( 328 ITR 81)
2. It may be mentioned here that the appeal filed by the assessee is a
belated one and is delayed by 11 days. An application for condonation of delay
has been filed, which is dated 9/6/2014 and an affidavit is also filed by
Joint Managing Director. It is stated in the application that the papers to be
filed along with the appeal were forwarded to the Chartered Accountant and
due to communication gap at the end of the Chartered Accountant's office the
delay has occurred.
3. In this view of the situation, after hearing both the parties, as delay is
small we condone the delay in filing the appeal and proceed to decide these
appeals.
4. The issue raised by both the parties is common i.e. regarding
disallowance made under section 14A of the Income Tax Act, 1961(the Act).
Earlier the matter was restored back by the Tribunal to the file of AO for re-
adjudication of disallowance under section 14A in the light of decision of
Hon'ble Bombay High court in the case of Godrej & Boyce Mfg. Co. Ltd.
(supra). The AO calculated the disallowance by applying 0.5% of average
3 . / ITA No.2305& 1799/MUM/2013
[ [ /Assessment Year 2005-06
investment i.e. regarding the expenditure and computed the disallowance at
Rs.29,82,705/-. The disallowance was agitated in the appeal filed before Ld.
CIT(A)and assessee submitted a calculation before Ld. CIT(A) for making the
disallowance u/s.14A. The said calculation is reproduced by Ld. CIT(A) in
para-4.1 of his order, which for the sake of convenience is reproduced below:
"Disallowance on the bas si Expenses to ratio of Sales:
Taxable Income Amount Proposition
Other Income 12,84,809
Sales 1,93,62,156 2,06,46,964 16%
Exempt Income
Dividend 10,12,02,024
Interest on Tax Free bonds 79,18,562
Long term gain Exempt 10,91,20,586 84%
Total Income As Per P&L 12,97,67,550 100%
Indirect Expenses 86,83,860
Less : Directly related to sales 71,60,428
A mounts already disallowed 9,04,906 80,65,334
Expenses relating to entire 6,18,526
business:
84% of Expenses to be 5,20,114
disallowed
Add: Expenses spent for 9,04,906
investment
Total Disallowance 14,25,020
5. Ld. CIT(A) after going through the details of expenses and above
calculation of the assessee has come to a conclusion that in place of
Rs.14,25,020/- calculated in the aforementioned table, the disallowance was
required to be made at a sum of Rs.16,23,432/- and, therefore, he reduced the
disallowance to a sum of Rs.16,23,432/-. The Relevant observations of Ld.
CIT(A), for the sake of convenience, are reproduced below:
"5. I have considered the facts of the case and submissions of the assessee. The
total dividend income, interest on tax' free bonds are Rs.I0,91,20,586/- and it is
84% of the total receipts of the assessee including other income and sales.
Assessee has claimed as per the chart reproduced above that certain expenses
are relating to sales only and they cannot be apportioned, whereas, A.O. has
calculated the disallowance on the basis of the investment made as per Rule 8D
and the question of allocation does not arise. But Hon'ble ITAT in the case of
Gillette Group India Pvt. Ltd. 16 ITR (Trib) 57 has held that the disallowance
cannot be more than the expenses charged to profit and loss Alc. even as per Rule
BD, whereas, in the case of the assessee expenses other than related to sales are
Rs.9,04,906/- directly related to investment u/s. 14A and other apportionable
expenses are Rs.6,18,526/- as per the chart given by the assessee and,
4 . / ITA No.2305& 1799/MUM/2013
[ [ /Assessment Year 2005-06
therefore, the disallowance on account of expenses should not be more than
Rs.15,23,432/- which are the total expenses other than the expenses directly
related to sales. Whereas, the expenses claimed by the assessee as directly
relatable to sales have not been verified by the A.O. and certain expenses, like
repair and maintenance, rent and electricity, travelling expenses etc. cannot be
said to be entirely related to sales, therefore, on adhoc basis Rs.1 lakh are more
allocated to the dividend earning activity of the assessee and a total
disallowance, which is also a reasonable disallowance in view of the decision in
Godrej & Boyce Mfg. Co. Ltd. vs. CIT 328 ITR 81, of Rs.16,23,432/- is confirmed.
This is a reasonable disallowance by respectfully following the decision of
Hon'ble ITAT in the case of Gillette Group India Pvt. Ltd. (supra) also. In result, the
ground of appeal is treated as partly allowed."
The Department is aggrieved with the part disallowance, which has been
deleted by Ld. CIT(A) and assessee in its appeal is aggrieved with the
disallowance sustained to the extent of Rs.16,23,432/- in place of disallowance
of Rs.14,25,020/- calculated in the above table.
6. On the these facts, it was submitted by Ld. AR that assessee has rightly
allocated 84% expenses which was calculated to Rs.5,20,114/- and Ld. CIT(A)
without assigning any reason has considered 100% expenses and has further
added a sum of Rs.1.00 lac. He submitted that in assessment year 2005-06
rule 8D is not applicable as per decision of Hon'ble Bombay High Court in the
case of Godrej & Boyce Mfg. Co. Ltd. (supra), therefore, Ld. CIT(A) has rightly
held that Rule 8D could not be applied. He submitted that though assessee in
its grounds of appeal has assailed the entire addition over and above
Rs.4,85,000/- but assessee's grievance in the present appeal is limited only to
the extra disallowance upheld by Ld. CIT(A) above Rs.14,25,020/-, calculated
in the aforementioned table.
7. On the other hand, Ld. DR arguing the appeal for Revenue submitted
that disallowance was rightly calculated by AO as per Rule 8D, which is a
reasonable disallowance. In reply to the arguments of Ld. AR it was submitted
by him that Ld. CIT(A) did not commit any error in making further addition to
the aforementioned calculation submitted by the assessee.
5 . / ITA No.2305& 1799/MUM/2013
[ [ /Assessment Year 2005-06
8. We have heard both the parties and their contentions have carefully been
considered. As per aforementioned decision of Hon'ble Bombay High Court in
the case of Godrej & Boyce Mfg. Co. (supra), rule 8D is not applicable to the
assessment years prior to assessment year 2008-09. The disallowance
calculated by the AO at a sum of Rs.29,82,705/- is in accordance with Rule
8D, which cannot be upheld, therefore, finding no merit in Revenue's appeal
the same is dismissed.
9. Now coming to the appeal filed by the assessee, we have gone through
the aforementioned calculation submitted by the assessee and also the order
passed by Ld. CIT(A), we found that the calculation submitted by the assessee
is reasonable and was required to be accepted by Ld. CIT(A). Therefore,
considering the details of expenditure and calculation submitted by the
assessee, we uphold the disallowance only to the extent of Rs.14,25,020/- and
rest of the disallowance upheld by Ld. CIT(A) is deleted and appeal filed by the
assessee is partly allowed.
10. In the result, the appeal filed by the Revenue is dismissed and appeal
filed by the assessee is partly allowed.
Order pronounced in the open court on 08/06/2015
Û 08/06/2015
Sd/- Sd/-
(. / D.KARUNAKARA RAO) (.. / I.P. BANSAL)
è / ACCOUNTANT MEMBER Û è / JUDICIAL MEMBER
Mumbai; Dated 08/06/2015
6 . / ITA No.2305& 1799/MUM/2013
[ [ /Assessment Year 2005-06
/Copy of the Order forwarded to :
1. / The Appellant
2. × / The Respondent.
3. È() / The CIT(A)-
4. È / CIT
5. , , / DR, ITAT,
Mumbai
6. [ / Guard file.
/ BY ORDER,
× //True Copy//
/ (Dy./Asstt. Registrar)
, / ITAT, Mumbai
.../Vm, Sr. PS
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