IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "D", MUMBAI
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND
SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER
ITA No.7742/Mum/2010
Assessment Year : 2007-08
Dhanlaxmi Cotex Ltd. Dy. Commissioner of Income
285, Princess Street tax , Range 4(1)
C.J. House, 2nd Floor Mumbai.
Mumbai-400 002. Vs.
PAN No. AABCD 2387 H
(Appellant) (Respondent)
Assessee by : Shri Narayan T. Atal
Department by : Shri Amardeep
Date of hearing : 28.8.2012
Date of Pronouncement : 28.8.2012
ORDER
PER RAJENDRA SINGH, AM:
This appeal by the assessee is directed against the order dated
28.10.2010 of CIT(A) for the assessment year 2007-08. The only
dispute raised by the assessee in this appeal is regarding disallowance
of expenses under section 14A of the Income tax Act in relation to
exempt income.
2. Facts in brief are that the AO during the assessment proceedings
noted that the assessee had earned dividend income of Rs.22,20,978/-
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A.Y. 07-08
which was exempt from tax. The AO, therefore, disallowed the
expenses under section 14A of the Act under rule 8D which was
computed at Rs.4,37,272/-. The assessee disputed the decision of AO
and submitted before CIT(A) that Rule 8D was applicable only from
assessment year 2008-09 in view of the judgment of the Hon'ble High
Court of Bombay in case of Godrej and Boyce Mfg. Co. vs. DCIT (328
ITR 81). It was also submitted that the assessee had received dividend
from investment in shares and major dividend income was received
from sister concern in which one time investment was made. The
investment made in other companies had not resulted into payment of
dividend. Therefore disallowance of expenses @ 0.5% of average
investment was not tenable. CIT(A), thereafter proceeded to compute
disallowability extent independently. It was observed by him that the
direct expenditure as well as in direct interest expenditure shown by
the assessee was nil which had been accepted by the AO. As regards
the other indirect expenses CIT(A) noted that portfolio managers were
charging @ 2-3% which also included their profit element of 1-1.5%.
In case of the assessee which was doing other business also further
exclusion was required on account of fixed expenses being the
administrative expenses. CIT(A), therefore, held that indirect expenses
relating to use of infrastructure and staff for maintaining huge portfolio
had to be taken at 0.5% of the average investment which is the same
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A.Y. 07-08
as per Rule 8D. He, therefore, confirmed disallowance made by AO
aggrieved by which the assessee is in appeal before the Tribunal.
3. Before us, ld. AR for the assessee submitted that in terms of
judgment of Hon'ble High Court of Bombay in case of Godrej and
Boyce Mfg. Co. (supra), the assessee was required to be given an
opportunity regarding disallowance of expenses. It was pointed out
that though Rule 8D was not applicable, CIT(A) made disallowance as
per Rule 8D only. It was also submitted that actual expenses incurred
were nominal against which huge disallowance of Rs.4,37,272/- has
been made. It was accordingly urged that the order of CIT(A) should
be set aside. Ld. Departmental Representative placed on the order of
CIT(A).
4. We have perused the records and considered the matter
carefully. The dispute is regarding disallowance of expenses relating to
expenses under section 14A of the Act. In view of the judgment of
the Hon'ble High Court of Bombay in case of Godrej and Boyce Mfg.
Co. (supra), Rule 8D for computation of disallowable expenses is
applicable only from assessment year 2008-09 and in respect of prior
years disallowance has to made on a reasonable basis after hearing
the assessee. In this case AO made disallowance under rule 8D and,
therefore, had not considered the issue on merit regarding
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A.Y. 07-08
reasonableness of expenditure. Though CIT(A) has given reasons for
making disallowance @ 5% of average investment, in fact the
disallowance is same as provided in rule 8D. CIT(A) has not given any
specific opportunity to the assessee regarding basis of disallowance
adopted by him. In our view the matter requires fresh examination at
the level of AO in the light of judgment of Hon'ble High Court of
Bombay in the case of Godrej and Boyce Mfg. Co. (supra). We,
therefore, set aside the order of CIT(A) and restore the matter back to
AO for passing a fresh order after necessary examination in the light of
observations made above and after affording opportunity of hearing to
the assessee.
5. In the result, appeal of the assessee is allowed for statistical
purposes.
Order pronounced in the open court on 28.8.2012.
Sd/- Sd/-
(D. MANMOHAN ) (RAJENDRA SINGH)
VICE PRESIDENT ACCOUNTANT MEMBER
Mumbai, Dated: 28.8.2012.
Jv.
5 ITA No. 7742/M/10
A.Y. 07-08
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT(A) Concerned, Mumbai
The DR " " Bench
True Copy
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.
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