Income Tax Appellate Tribunal - Chandigarh
Rico Auto Industries Ltd., Ludhiana vs Department Of Income Tax on 17 September, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'A', CHANDIGARH
BEFORE SHR I D.K.SRIVASTAVA, ACCOUNTANT MEMBER
AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER
ITA No.1418 /Chd/2010
(Assessment Year : 2006-07)
The A.C.I.T., Vs. Rico Auto Industries Ltd.,
Circle 1, B-26, Focal Point,
Ludhiana. Ludhiana.
And
C.O.No.18/Chandi/2011
Arising out of
ITA No.1418 /Chd/2010
(Assessment Year : 2006-07)
Rico Auto Industries Ltd., Vs. The A.C.I.T.,
B-26, Focal Point, Circle 1,
Ludhiana. Ludhiana.
PAN: AAACR8724R
(Appellant) (Respondent)
Assessee by : Shri Subhash Aggarwal
Department by : Shri N.K.Saini
O R D E R
PER SUSHMA CHOWLA, J.M, :
The appeal filed by the Revenue is against the order of the Commissioner of Income-tax (A), dated 17.9.2010 relating to assessment year 2006-07 against the order passed u/s 143(3) of the Income-tax Act.
2. The assessee has filed Cross Objection against the appeal filed by the Revenue. Both the appeal of the Revenue and the Cross Objection 2 filed by the assessee were heard together and are being disposed of by this consolidated order for the sake of convenience.
3. The grounds of appeal raised by the Revenue read as under :
"1. The Ld. CIT(A) has erred in law and facts in restricting the disallowance made by the AO u/s 14A of the Income-tax Act, 1961 read with Rule 8D(2) of the Income Tax Rules to Rs.2,00,000/- on estimate basis without assigning any reason as against the total disallowance of Rs.11,47,628/- made by AO.
2. That the order of the Ld. CIT(A) be set aside and that of the A.O. be restored because there is nothing wrong in reasonable addition by taking the help of a Rule (which came later on) instead of making a blind estimated addition."
4. The ground raised by the assessee in Cross Objection is as under :
"1. That the learned CIT(A)-I, Ludhiana, has erred in confirming an addition of Rs.2,00,000/- u/s 14A of the Income Tax Act, 1961."
5. The issue raised in the present appeal is in connection with the application of the provisions of section 14A of the Income-tax Act. During the course of assessment proceedings the assessee was found to have invested a sum of Rs.5.20 crores in securities income from which was exempt from tax. The Assessing Officer show caused the assessee as to why interest relatable to the dividend income be not disallowed under the provisions of section 14A of the Income-tax Act read with Rule 8D. In repl y, it was claimed by the assessee that no expenditure w a s i n c u r r e d d u r i n g t h e ye a r f o r e a r n i n g t h e d i v i d e n d i n c o m e , a g a i n s t the total investment of Rs.4.24 crores, the assessee had received dividend income of Rs.5.03 crores. The claim of the assessee was that 3 n o n e w i n v e s t m e n t w a s m a d e d u r i n g t h e ye a r . The Assessing Officer a p p l yi n g the provisions of section 14A of the Act disallowed Rs.11,47,628/-.
6. The CIT(A) held as under :
"4.2 I have considered the submissions of the AR. The assessee has invested an amount of Rs.5,20,40,861/- as investment in tax free incomes. Assessing Officer has disallowed expenses of Rs.11,47,628/- as expenditure incurred on tax free incomes u/s 14A of the Act read with rule 8D(2) of Income Tax Rules, 1962. Assessee however, has contended that Assessing Officer was not justified in disallowing said sum of Rs.11,47,628/- for the assessment year 2006-07 as the amendment u/s 14A has been made w.e.f. A.Y. 2007-08. Moreover, the company has not incurred any expenditure for the receipt of dividend on the investment made during the financial year 1999-2000 out of its own internal resources. The original provision of section 14A did not provide the method of computing expenditure incurred in relation to income which does not form part of total income. In view of the above AR stated that disallowance of Rs.11,47,628/- be deleted.
4.3 --------------------------(not produced). Assessee has made huge investments for which assessee in my opinion requires at least bare minimum infrastructure in the form of office, furniture and consequential expenses, staff etc. etc. An income cannot be earned in vacuum. No doubt assessee is having its business of manufacturing and sale of auto parts and can claim that existing infrastructure and man power was being used to handle the investments and earning tax free income therefrom but as already said part of such infrastructure and services of the employees have to be used for earning such tax free income. Since in the absence of specific details the expenditure to earn such tax free income cannot be quantified and rule 8D is applicable from A.Y. 2007-08 in 4 my opinion it would be reasonable to estimate expenditure of Rs.2 lacs for earning such tax free income. Accordingly addition of Rs.2 lac is sustained out of total addition of Rs.11,47,628/- and remaining addition of Rs.9,47,628/- is deleted. "
7. The As s es s i ng O ff i cer had di s al l owe d R s .11,47,628/ -, whi ch was res t ri ct ed t o R s .2 l acs b y t he C IT(A ). The R evenue i s i n appeal a gai ns t t he s ai d rej ect i on i n di s al l owance and t he as s es s ee h as fi l ed C ros s Obj ect i on agai ns t t he di s al l owance of R s .2 l a cs .
8. The l earned D.R . f or R evenue pl aced rel i ance on t he order of t he As s es s i ng O ffi ce r.
9. The l earn ed A.R . fo r t he as s es s e e poi nt ed out t hat t he di s al l owance i s not j us t i fi ed as t he as s es s e e has onl y r ec ei ved one di vi dend war rant . Furt her, rel i an ce wa s pl aced on t he rat i o l ai d down b y t h e C handi garh Ben ch of Tri bunal in DC IT Vs . M/s Hero C ycl es Lt d. ( I.T.A.No. 899/ C handi / 2008).
10. W e have h eard t h e ri val cont ent i ons and p erus ed re co rds . The cons t i t ut i onal val i dit y o f S ect i on 14A(2)&(3 ) of I. T. Act and R ul e 8D of t he In com e T ax R ul es was ch al l en ged befo re t he Hon 'bl e Bom ba y Hi gh C ourt i n Godrej & Bo yce M fg.C o. Lt d., 234 C TR 1. The C ourt hel d t hat t he provi s i ons of R ul e 8D we re not ul t ra vi rus t he provi s i on s of S e ct i on 14A and i t was al s o h el d t hat t he s am e do not off end A rt i cl e 14 of t he C ons t i t ut i on. It w a s furt her h el d t hat t he provi s i on of R ul e 8D was t o b e appl i ed pros pect i ve l y w.e.f. 01.04.200 7 i .e. i n rel at i on t o as s es s m ent ye a r 2008-09 and s ubs eq uent ye ars as t he M em orandum ex pl ai ni ng t he provi s i ons of t he Fi nanc e Bi l l 2006 s t at es t hat t his am endm ent woul d t ake eff ect from 01.04.2007. The C ourt s furt her hel d t ha t even i n t he abs enc e of s ub-s ect i on 5 (2) and (3) of S ect i on 14A and R ul e 8D, t he As s es s i ng Offi ce r w as not precl uded f rom m aki ng apport i onm ent on account of ex pendi t ure rel at abl e t o earni n g of ex em pt incom e.
11. W e fi nd no m eri t i n t he cont ent i on of t he as s es s ee t h at no ex pendi t ure i s at t ri but abl e t o t he earni n g o f t he di vi dend i ncom e, i n vi ew of t he rat i o l ai d down b y t he Hon'bl e Bom ba y Hi gh C ourt i n Godrej & Bo yc e M fg.C o. Lt d. (s upra ) . Fol l owi ng t he s a m e we uphol d t he or der of t he C IT(A) in res t ri ct i ng t he di s al l owance of R s .2 l acs bei ng t he ex pendi t ure at t ri but abl e t o t he earni n g o f t ax fre e i ncom e. The provi s i ons of R ul e 8D are appl i cabl e w.e. f. as s es s m ent yea r 2008-09 and cons e quent l y h ave no appl i cat i on t o t he year under app eal . Accordi n gl y, t he es t i m at e m ade b y t he As s es s i ng Offi c er b y a ppl yi n g t he afor es ai d provi s i ons of R ul e 8D ar e not warr ant ed. Uphol di ng t he orde r of t h e C IT(A ) we di s m i s s t he grounds of appeal r ai s ed b y R e venue and C ros s Ob j ect i on rai s ed b y t he as s es s ee..
12. In the result, both the appeal of Revenue and Cross Objection filed by the assessee are dismissed.
Order Pronounced in the Open Court on 28th day of April, 2011.
Sd/- Sd/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 28th April , 2011 Rati
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
True Copy By Order Assistant Registrar, ITAT, Chandigarh