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ACIT, Circle 6(1) Room No. 406, 5th Floor Aayakar Bhavan, M.K. Road Mumbai 400020 Vs.Brahmdev Holding & Trading Ltd. 403/A, Steel Chamber Broach Street, Masjid Bunder Mumbai 400009
September, 19th 2014
                           "G" Bench, Mumbai

                 Before Shri D. Manmohan, Vice President
             and Shri D. Karunakara Rao, Accountant Member

                      ITA No. 1775 & 1776/Mum/2011
                    (Assessment Years: 2006-07 & 2007-08)

     ACIT, Circle 6(1)                Brahmdev Holding & Trading Ltd.
     Room No. 406, 5th Floor          403/A, Steel Chamber
     Aayakar Bhavan, M.K. Road        Broach Street, Masjid Bunder
     Mumbai 400020                    Mumbai 400009
                             PAN - AAACB1648L
              Appellant                         Respondent

                      ITA No. 1918 & 1919/Mum/2011
                    (Assessment Years: 2006-07 & 2007-08)

     Brahmdev Holding & Trading Ltd.       ITO/ACIT - 6(1)
     403/A, Steel Chamber                  Room No. 406, 5th Floor
     Broach Street, Masjid Bunder          Aayakar Bhavan, M.K. Road
     Mumbai 400009                         Mumbai 400020
                             PAN - AAACB1648L
              Appellant                        Respondent

                     Revenue by:       Shri N. Padmanaban
                     Assessee by:      Shri Nishit Gandhi

                     Date of Hearing:       18.09.2014
                     Date of Pronouncement: 18.09.2014


Per D. Manmohan, V.P.

      These cross appeals are directed against the orders dated 21.12.2010
passed by the CIT(A)-14, Mumbai and they pertain to assessment years
2006-07 and 2007-08. The issue involved in all these appeals being
common, we proceed to dispose of these appeals by a combined order for the
sake of convenience.

2.      The only ground urged by Revenue in their appeals reads as under: -

      "1. On the facts and in the circumstances of the case and in law, the
          Ld. CIT(A) erred in directing the Assessing Officer to re-compute the
          disallowance u/s 14A on a reasonable basis relying on the
                                      2 ITA No. 1775,1776,1918&1919/Mum/2011
                                                 Brahmdev Holding & Trading Ltd.

         judgement of Bombay High Court in the case of Godrej & Boyce
         Mfg. Ltd. without appreciating the fact that the judgment of
         Bombay High Court has not been accepted by the Revenue and
         SLP has been proposed."
In the appeals filed by the assessee it was contended that the CIT(A) erred in
directing the AO to recompute the disallowance under section 14A and he
failed to appreciate that no expenditure was incurred towards earning of
dividend income and hence the assessee does not fall within the purview of
section 14A.

3.    It deserves to be noticed that the assessee is engaged in the business
of finance, investment in shares and undertaking job work. During the
previous years relevant to the assessment years under consideration
assessee declared income tax refund, dividend, interest from loans, labour
hire charges, etc. Though the assessee earned exempt income comprising of
dividend and sale of investments, no expenditure has been apportioned
towards exempt income in the return filed for AY 2006-07. Similarly, for AY
2007-08 assessee earned exempt income but no expenditure was claimed for
earning such exempt income. When called upon to explain, it was submitted
that the assessee invested in shares with an intention to retain controlling
interest and not to earn dividend and none of the expenditure incurred by
the company is in relation to earning dividend income.

4.    The AO rejected the contention of the assessee. He examined the
opening and closing balance of investment, dividend earned and expenditure
incurred in the form of interest paid on loans taken, etc. to come to the
conclusion that though the assessee has share capital, reserves and
surplus, the funds applied towards investments, loans and advances is not
determinate. In other words, the funds are mixed up and hence it cannot be
said that investments are fully made out of own capital. In the absence of
nexus between the borrowed funds and own capital, provisions of section
14A come into play. He also observed that Rule 8D is applicable from 2008.
Since it provides for a mechanism for working out the disallowance under
section 14A, the rule can be made applicable retrospectively. In this regard
                                      3 ITA No. 1775,1776,1918&1919/Mum/2011
                                                  Brahmdev Holding & Trading Ltd.

the AO applied the decision of the ITAT Special Bench in the case of ITO v/s
Daga Capital Management P. Ltd. (2008) 119 TTJ (Mum.) 289 (SB).

5.    Aggrieved, assessee contended before the CIT(A) that the entire
business expenditure was incurred in the normal course of business and no
expenditure can be said to have any direct or indirect connection with the
income earned by the assessee and claimed as exempt. During the course of
hearing it was brought to the notice of the CIT(A) that the Hon'ble
jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd.
reversed the decision of the ITAT Special Bench, Mumbai by holding that
Rule 8D is prospective in nature. It was also submitted that section 14A is
not applicable since no expenditure was incurred during the year under
consideration, for earning tax free income.

6.    The learned CIT(A) agreed with the view taken by the assessee on the
issue of applicability of Rule 8D to the years under consideration.
Respectfully following the decision of the Hon'ble Bombay High Court in the
case of High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, (2010), 328
ITR 081, the learned CIT(A) observed that Rule 8D is not applicable and the
AO has to compute the disallowance, if any, by adopting a reasonable basis
by taking into consideration the relevant facts and circumstances after
giving the assessee a reasonable opportunity to place all the germane
material on record.

7.    In the opinion of the AO Rule 8D can be applied retrospectively and
hence the Revenue preferred appeals before the Appellate Tribunal. On the
other hand, the case of the assessee is that in the absence of expenditure
relatable to earning of exempt income the question of application of Rule 8D
does not arise; in the alternative, interest income earned should be netted
against interest expenditure in the event of proving that interest expenditure
was also directly or indirectly relatable to earning of exempt income.

8.    We have heard the learned D.R. as well as the learned counsel for the
assessee in this regard and carefully perused the record. As could be noticed
from the findings of the learned CIT(A), the matter was merely set aside for
readjudication after giving the assessee reasonable opportunity of being
                                         4 ITA No. 1775,1776,1918&1919/Mum/2011
                                                    Brahmdev Holding & Trading Ltd.

heard. The learned CIT(A) having observed that Rule 8D is prospective in
nature, in line with the view taken by the Hon'ble Bombay High Court, we
do not find any infirmity in the orders passed by the CIT(A) and therefore the
appeals filed by the Revenue have no legs to stand. Similarly, the appeals
filed by the assessee also deserve to be dismissed since the learned CIT(A)
has merely set aside the matter to the file of the AO keeping the matter open
to the assessee to put forth the facts and circumstances and to raise all the
arguments in support of its contention that a particular expenditure cannot
be apportioned or even under section 14A there is no case made out by the
AO. Since the entire matter is open before the AO, no prejudice is caused to
the assessee. Under these circumstances the appeals filed by the assessee
are dismissed.

9.        In the result, the appeals filed by the Revenue and the assessee are

Order pronounced in the open court on 18th September, 2014.

                   Sd/-                                    Sd/-
           (D. Karunakara Rao)                       (D. Manmohan)
           Accountant Member                          Vice President

Mumbai, Dated: 18th September, 2014

Copy to:

     1.   The   Appellant
     2.   The   Respondent
     3.   The   CIT(A) ­ 14, Mumbai
     4.   The   CIT­ 6, Mumbai City
     5.   The   DR, "G" Bench, ITAT, Mumbai

                                                       By Order

//True Copy//
                                                  Assistant Registrar
                                          ITAT, Mumbai Benches, Mumbai
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