Issue of Jurisdictional High Court in the case of Godrej Boyce Mfg. Co. Ltd - Applicability of rule 8D

IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH ‘A’ BENCH

BEFORE SHRI B.R.MITTAL (JUDICIAL MEMBER) AND

SHRI B.RAMAKOTAIAH (ACCOUNTANT MEMBER)

ITA No.3075/Mum/2011

Assessment Year: 2007 -08

ITO 1(1)-1,

Aayakar Bhavan, M.K. Road,

Mumbai.

(Appellant)

Vs.

M/s. Astor Corporation Pvt Ltd.,

Kasturi Building, 171/172, J Tata Road,

Mumbai-20

PA No.AAECA 0015G

(Respondent)

Appellant by: Ms Neeraj Pradhan

Respondent by: None

Date of hearing: 21.8.2012

Date of pronouncement: 5. 9.2012

ORDER

The department has filed this appeal for assessment year 2007-08 against order dated 2.11.2010

of ld CIT(A)-1, Mumbai on following grounds

“1. Whether on the facts and circumstances of the case and in law, ld CIT(A) is justified in

rejecting the AO’s working of expenses u/s.14A as per Rule 8D by observing that Jurisdictional

High Court in the case of Godrej Boyce Mfg. Co. Ltd., has decided this issue that rule 8D will be

applicable only from A.Y. 2008-09 onwards.

2. Whether on the facts and circumstances of the case and in law, ld CIT(A) erred in deleting the

disallowance of loss from share trading business amounting to Rs.3,93,339.

3. Whether on the facts and circumstances of the case and in law, ld CIT(A) erred in deleting the

disallowance of loss from future and options commodity business amounting to Rs.6,58,751.”

2. None appeared on behalf of assessee in spite of notice served through ld D.R. as per the report

of the Assessing Officer dated 20.7.2012 placed on record. Hence, we proceed to dispose of the

appeal after considering submissions of ld D.R. and on the basis of material available on record.

3. In respect of Ground No.1 of appeal, relevant facts are that assessee determined the total

expenses at Rs.77,873 in respect of earning exempt income. The AO was not satisfied and

worked out the disallowance at Rs.18,32,905 under Rule 8D r.w. section 14A of the I.T.Act.

Being aggrieved, assessee filed appeal before ld CIT(A). Ld CIT(A) after considering the

submissions of the assessee vide para 4.4 has restored the issue to the file of AO with a

direction to decide the expenses relating to exempt income by following the decision of Hon’ble

Jurisdictional High Court in the case of Godrej Boyce Mfg. Co Ltd vs DCIT, 328 ITR 81(Bom).

The relevant para of the order of ld CIT(A) reads as under:

“I have considered the AO’s order as well as the appellant’s A.R. submission. Having considered

both, I find that the AO has made this addition as per clause (iii) of Rule 8D (2) of the I.T.Act,

1961. Taking note of the appellant A.R’s submission, I am of the considered view that in view of

recent judgment of Jurisdictional Bombay High Court in the case of Godrej Boyce Mfg. Co Ltd.,

wherein, it has been held that Rule 8D is applicable from A.Y. 2008-09 onwards only. Hence, in

view of this decision, I consider it proper to hold that the AO’s action in making disallowance

under Rule 8D r.w.s 14A was not justified in present assessment year i.e. A.Y. 2007-08. But,

however, I also find that in the same order, the Jurisdictional High Court has held that the AO

should provide reasonable opportunity to the assessee for working out the expenditure related

to exempt income for making disallowance u/s.14A of the I.T.Act, 1961. In view of the same,

I consider it proper and appropriate to direct the AO to provide a reasonable opportunity to the

appellant and thereafter after taking note of appellant’s submission AO should work out the

disallowance u/s.14A of the I.T.Act, 1961 in respect of expenses related to exempt income in

accordance to decision of Jurisdictional High Court in the case of Godrej Boyce Mfg Co. Ltd.”

Hence, department is in appeal before the Tribunal.

4. On consideration of orders of authorities below, we agree with ld CIT(A) that Rule 8D is not

applicable to assessment year under consideration as held by Hon’ble Jurisdictional High Court

in the case of Godrej Boyce Mfg. Co. Ltd (supra). The Hon’ble High Court has held that Rule

8D is applicable from assessment year 2008-09 onwards. Therefore, we hold that there is no

infirmity in the order of ld CIT(A). Accordingly, we uphold his order and reject the ground no.1

of appeal taken by department.

5. In respect of Ground No.2 of appeal, relevant facts are that AO during the course of

assessment proceedings observed from profit and loss account that assessee has claimed share

trading loss of Rs.3,93,339. The AO stated that as per closing stock statement filed, assessee

has shown closing stock at Rs.1,13,12,992. However, in the balance sheet, the stock was

shown at Rs.1,83,09,640. Assessee was asked to reconcile the difference. Assessee vide letter

dated 12.12.2009 stated that there are two share divisions, in one division closing stock is

Rs.1,13,12,992 and in another division it is Rs.69,96,648. AO has stated that sinceassessee

has not given scrip- wise trading account of both the divisions, its claim of share trading loss

of Rs.3,93,339 is not verifiable. Accordingly, AO disallowed the claim of share trading of

Rs.3,93,339. Being aggrieved, assessee filed appeal before ld CIT(A). ld CIT(A) considered the

submissions of assessee and vide para 5.3 has deleted the disallowance made by the AO, which

reads as under:

“I have considered the AO’s order as well as appellant AR’s submission. Having considered

both, I find that the AO has given merely reason for this disallowance that the appellant has

not given any supporting evidences, scrip names, date of trade etc and hence he denied the

claim of the appellant. I find that the appellant has given a detailed submission in support of

its contention. During the appellant proceedings, the appellant has filed details thereof which

were filed before the AO which clearly suggests the details of loss incurred in share trading.

Accordingly, I direct the AO to allow the loss so incurred by the appellant. Thus, appellant’s this

ground of appeal is allowed.”

Hence, department is in appeal before the Tribunal.

6. During the course of hearing, ld D.R. relied on order of AO and submitted that assessee filed

new documents before ld CIT(A) which were not made available to the AO. In reply to a query

what are the documents which have been filed by the assessee, ld D.R. could not substantiate her

submissions.

7. On the other hand, we observe that assessee submitted that the details of working of share

trading loss were made available to the AO and supporting documents vis; contract notes, etc

were not called for also due to high voluminous documents and submitted that assessee could

produce the same. Ld CIT(A) has stated that assessee filed details relating to share trading loss

which were filed before the AO and said details clearly suggest the details of loss incurred by the

assessee in share trading. Considering the said facts, we hold that ld CIT(A) has not accepted any

new documents while deleting the disallowance of share trading loss of Rs.3,93,339 disallowed

by the AO. Hence, we uphold his order and reject Ground No.2 of appeal taken by department.

8. In respect of Ground No.3 of appeal, AO has stated that as per profit and loss account,

assessee has claimed loss on future & options commodity of Rs.6,58,751. Assessee was

asked to furnish commodity trading account with documentary evidences. However, assessee

furnished the break-up of this loss but no supporting evidence, scrip names, dates of trade etc

were furnished. Therefore, AO disallowed the claim of future & options commodity loss of

Rs.6,58,751. Being aggrieved, assessee filed appeal before the first appellate authority.

9. Before ld CIT(A), assessee filed the detail working of loss with supporting documents i.e.

contract notes, etc. ld CIT(A) after considering the submissions of the assessee and copies of the

details which depicted such loss, deleted the disallowance made by the AO. The relevant para 6.2

of the impugned order reads as under:

“I have considered the AO’s order as well as appellant AR’s submission. Having considered

both, I find that the AO has made the addition merely on the pretext that the appellant has

not furnished documents to substantiate its claim of loss from future and option commodity.

During the appellate proceedings, the appellant has filed copy of details which depicts such

loss. The said details have been clearly depicted such loss occurred to the appellant company of

Rs.6,58,751. In support of its contention, the appellant has filed contract note issued by Kotak

Commodity Services ltd on various dates. Taking note of the same, I am of the considered view

that the AO was not justified in his action. Accordingly, I direct the AO to allow such loss

claimed by the appellant on business of future and options.”

Hence, department is in appeal before the Tribunal

10. During the course of hearing, ld D.R. submitted that AO specifically asked for the details of

loss claimed by the assessee but no supporting documents were filed. However, assessee filed the

said details of loss and ld CIT(A) considered the those documents without seeking remand report

from the AO.

11. In view of above, we find substance in the said submission of ld D.R. that ld CIT(A) has

allowed the claim of loss of future & options commodity by considering the details which

were not filed by the assessee before the AO. Therefore, ld CIT(A) has violated Rule 46A of

I.T.Rules, 1962 in admitting new documents without seeking remand report from the AO. We

are of the considered view that orders of the authorities below on this issue be set aside and

the matter be restored to the file of AO for his fresh consideration. Accordingly, we set aside

the orders of authorities below and restore back the matter to the file of AO with a direction to

decide the same afresh after giving opportunity of hearing to the assessee. Hence, Ground No.3

of appeal taken by department is allowed for statistical purposes.

12. In the result, appeal filed by department is allowed in part.

Pronounced in the open court on 5th September, 2012

Sd/-

Sd/-

(B.RAMAKOTAIAH) (B.R. MITTAL)

Accountant Member

Judicial Member

Mumbai, Dated 5th September, 2012

Parida

1. The appellant

2. The respondent

3. Commissioner of Income Tax (Appeals),1, Mumbai

4. Commissioner of Income Tax, 1 , Mumbai

5. Departmental Representative, Bench ‘A’ Mumbai

BY ORDER

ASSTT. REGISTRAR, ITAT, MUMBAI