Income Tax Appellate Tribunal - Ahmedabad
Munjal Auto Industries Ltd.,, Baroda vs Dy.Cit.,Circle-4,, Baroda on 28 November, 2016
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'डी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" D " BENCH, AHMEDABAD
सव ी आर.पी.तोलानी, या यक सद य एवं द प कुमार के डया, लेखा सद य के सम!।
BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER
And SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
1. आयकर अपील सं./I.T.A. No.2044/Ahd/2012
2. आयकर अपील सं./I.T.A. No.1998/Ahd/2012
( नधा रण वष / Assessment Year : 2009-10)
1. Munjal Auto Industries बनाम/ 1. The DCIT
Ltd. Vs. Circle-4, Baroda
187, GIDC Estate
Waghodia
Baroda - 391 760
2. Munjal Auto
2. The DCIT Industries Ltd.
Circle-4 Baroda
Baroda
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AAACG 8588L
(अपीलाथ( /Appellants) .. ( )यथ( / Respondents)
Assessee by : Shri Surendra Modiani, AR
Revenue by : Shri Samir Vakil, Sr.DR
ु वाई क+ तार ख /
सन Date of Hearing 24/10/2016
घोषणा क+ तार ख /Date of Pronounce ment 28/11/2016
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM:
These cross-appeals by the Assessee and the Revenue are directed against the order of the Commissioner of Income Tax(Appeals)-III, Baroda dated 14/06/2012 passed for Assessment Year (AY) 2000-10.
ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -2-
2. The Revenue as well as the Assessee filed cross-appeals arising from the assessment order of the Assessing Officer (AO) passed under section 143(3) dated 24/10/2011 for the AY 2009-10.
3. The Revenue is aggrieved by the partial relief of Rs.28,96,697/- out of disallowance made u/s.14A of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). The assessee is also aggrieved by the action of the CIT(A) in confirming the partial disallowance to the extent of Rs.11,16,259/- under section 14A of the Act. The relevant ground of appeal raised by the Revenue in its ITA No.1998/Ahd/2012 reads as under:-
1. On the facts and in the circumstances of the case, the learned CIT(A) erred in deleting the addition of ₹28,96,697/- made u/s.14A read with rule 8D merely accepting the assessee's submission and without considering the facts of the case.
3.1. Likewise, the relevant ground of appeal raised by the assessee in its ITA No.2044/Ahd/2012 reads as under:-
1. The learned Commissioner (Appeals) erred in confirming disallowance of the extent of Rs.11,16,259/- under section 14A of Income-tax Act.
3. Briefly stated, relevant facts are that the assessee is in the business of manufacturing auto-components for two-wheelers. The assessee filed return of income declaring total income at Rs.16,16,85,860/-. The return ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -3- was subjected to scrutiny and the income was assessed at Rs.16,45,82,557/-. In the course of hearing, the AO observed that assessee has received dividend income of Rs.2,31,08,162/- which is claimed as exempt under section 10(34) of the Act. The assessee in response to show-cause notice by the AO submitted that no expenditure has been incurred towards interest for earning income by way of dividend from investments. Similarly, the assessee further submitted that no expenditure has been incurred towards administrative and managerial expenses except an estimated sum of Rs.50,000/- incurred for time spent by employees attributable to investments. Therefore, a sum of Rs.50,000/- has been disallowed in the return of income on this account which would cover indirect expenditure contemplated under Rule 8D(2)(iii) of the Act. However, the AO did not find the submission of the assessee as tenable and resorted to disallowance as per formula laid down under Rule 8D of the Income Tax Rules, 1962. He accordingly, computed disallowance as per Rule 8D at Rs.28,96,697/- comprising of Rs.17,80,438/- towards proportionate interest expenditure under Rule 8D(2)(Ii) and Rs.11,16,259/- being 0.5% of the average investments in shares towards administrative and managerial services.
5. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) deleted the disallowance on account of ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -4- interest made under Rule 8D(2)(ii) but however, confirmed the other disallowance of Rs.11,16,259/- conferred under Rule 8D(2)(iii).
6. Aggrieved by the order of the CIT(A) granting partial relief to the assessee, the Revenue filed an appeal before the Tribunal. Similarly, the assessee also preferred appeal against the order of the CIT(A) assailing his action of confirmation of part disallowance.
7. At the time of hearing, it was submitted by the Ld.AR for the assessee that appeal filed by the Revenue is hit by CBDT Circular No.21 of 2015 dated 10/12/2015. As per aforesaid Circular, all pending appeals filed by Revenue are liable to be dismissed as a measure for reducing litigation where the tax effect does not exceed the prescribed monetary limit which is Rs.10 lakhs. In the instant case, the tax effect on the disputed issue raised by the Revenue is less Rs.10 lakhs and therefore appeal of the Revenue is required to be dismissed in limine.
8. The Ld.DR for the Revenue fairly admitted the applicability of the CBDT Circular No.21 of 2015. Accordingly, appeal of the Revenue is dismissed as not maintainable. However, it will be open to the Revenue to seek restoration of its appeal on showing inapplicability of the aforesaid CBDT Circular in any manner.
ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -5-
9. Now, we shall proceed to deal with the grievance by the assessee in its appeal. The only issue is whether the CIT(A) is justified in confirming disallowance of Rs.11,16,259/- towards administrative and managerial expenses under section 14A r.w.Rule 8D(2)(iii) of the IT Rules, 1962.
10. At the outset, the Ld.AR Mr.Surendra Modiani submitted that an estimated amount of Rs.50,000/- has been disallowed suo motu by the assessee itself as attributable to exempt income. The AO has not recorded any objective satisfaction as to how the expenditure incurred by an assessee in relation to earning of the income which is not includible in computing the total income of the assessee exceeds the aforesaid suo motu disallowance. He therefore urged that disallowance sustained by the CIT(A) towards administrative and managerial expenses are uncalled for and deserves to be quashed.
11. The Ld.DR, on the other hand, relied on the orders of the authorities below.
12. We find that the submission of the assessee before the CIT(A) a sum of Rs.50,000/- has been disallowed by the assessee itself suo motu has remained uncontroverted. On a broader consideration, we also note that the investments were largely made in the earlier years and has been carry ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -6- forwarded in the current year with a very few movements therein. The assessee has computed disallowance which was claimed to be sufficient by the assessee having regard to the facts and circumstances of the case. Notwithstanding the aforesaid stand of the assessee on this account, the AO mechanically applied Rule 8D(2)(iii) without examining the merits of the assessee's stand and without recording any satisfaction as to how the disallowance offered by the assessee is incorrect having regard to account of the assessee. We note that no lack of satisfaction with regard to the correctness of the accounts of the assessee in respect of such expenditure in relation to the exempt income has been recorded by the AO as contemplated under section 14A(2) of the Act. We are of the considered view that under the circumstances, where the Revenue has failed to record dissatisfaction on the correctness of the claim of the assessee with respect to disallowance offered, it is not open for it to resort Rule 8D(2)(iii) in terms of IT Rules, 1962. We find that in terms of section 14A of the IT Act r.w.Rule 8D of IT Rules, the onus is on the AO to show how the assessee's claim is incorrect. A bare reading of section 14A of the Act would suggest that its applicability is not automatic. It is hedged by condition prescribed therein. Section 14A inheres in it the concept of reasonableness. The formidable amount of expenditure cannot be said to be attributable to tax-free income by applying a straight jacket formula as per Rule 8D(2)(iii) of the IT Rules without demonstrating incorrectness in the offer of disallowance made by ITA Nos.2044 & 1998/Ahd/2012 Munjal Auto Industries Ltd. vs. ACIT (cross-appeals) Asst.Year - 2009-10 -7- the assessee. Hence, we are disposed to adjudicate the issue in favour of the assessee. Thus, the order of CIT(A) on disallowance of administrative and managerial expenses stands vacated.
13. In the combined result, the appeal of the assessee is allowed, whereas appeal of the Revenue is dismissed.
This Order pronounced in Open Court on 28/11/2016
Sd/- Sd/-
(आर.पी.तोलानी) ( द प कुमार के डया)
या यक सद य लेखा सद य
( R.P. TOLANI ) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated 28/ 11 /2016
ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क ! त#ल$प अ%े$षत/Copy of the Order forwarded to :
1. अपीलाथ( / The Appellant
2. )यथ( / The Respondent.
3. संबं4धत आयकर आयु6त / Concerned CIT
4. आयकर आयु6त(अपील) / The CIT(A)-III, Baroda
5. 7वभागीय त न4ध, आयकर अपील य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड फाईल / Guard file.
आदे शानुसार/ BY ORDER, स)या7पत त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad