Alco Company P. Ltd, Mumbai vs Assessee

आयकर अपील य अ धकरण, मंब ु ई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'A' MUMBAI सव ी आय.पी. बंसल, या यक सद य एवं डी. क णाकर राव,ु लेखा सद य

BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND

SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER आयकर अपील सं. / ITA No.2305/MUM/2013 नधा रण वष /Assessment Year 2005-06 Alco Company P. Ltd., बनाम/ Asstt. Commissioner of Income 3 r d Floor, Rahimtoola Tax 2(1), Vs. House, 7, Homji Street, Mumbai. Fort, Mumbai 400001 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACA 1031G (अपीलाथ /Appellant) .. ( यथ / Respondent) आयकर अपील सं. / ITA No.1799/MUM/2013 नधा रण वष /Assessment Year 2005-06

The DCI T - 2(1), बनाम/ Alco Company P. Ltd., Aaykar Bhavan, Room 3 r d Floor, Rahimtoola t h Vs. No.561, 5 Floor, MK House, 7, Homji Street, Road, Mumbai 400 020 Fort, Mumbai 400001 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACA 1031G

(अपीलाथ /Appellant) .. ( यथ / Respondent)

Assessee by Shri Chetan A. Karia Revenue by Shri Jeevanlal Lavidiya सन ु वाई क" तार$ख / Da te o f Hearing : 08/06/2015 घोषणा क" तार$ख /Date of Pronouncement : 08/06/2015 आदे श / O R D E R

PER I.P.BANSAL, J.M:

These are cross appeals and are directed against order passed by Ld. CIT(A)-4, Mumbai dated 18/12/2012 for assessment year 2005-06. Grounds of appeal read as under:

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Grounds of Assessee's Appeal:

1) The Learned Commissioner of Income Tax (appeals) erred in confirming disallowance of Rs.16,23,432/- u/s.14A of the Act as against Rs.4,85,000/- disallowance by the assessee.

2) The appellant prays that:

i) Disallowance u/s.14A may be restricted to the amount of Rs.4,85,000/-

ii) Recovery of demand in dispute may be stayed;

iii) Personal hearing may be granted;

iv) Any other relief your honours may deem fit.

Grounds of Revenue's Appeal:

"On the facts and in the circumstances of the case and law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:

1. The order of the CIT(A) is opposed to law and facts of the case.

2. " On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in re-working the disallowance u/s. 14A on ad-hoc basis ignoring the fact that the AO had worked out the disallowance u/s.14A by the calculation method prescribed in rule 8D which has been accepted as a reasonable method by the Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. ( 328 ITR 81)

2. It may be mentioned here that the appeal filed by the assessee is a belated one and is delayed by 11 days. An application for condonation of delay has been filed, which is dated 9/6/2014 and an affidavit is also filed by Joint Managing Director. It is stated in the application that the papers to be filed along with the appeal were forwarded to the Chartered Accountant and due to communication gap at the end of the Chartered Accountant's office the delay has occurred.

3. In this view of the situation, after hearing both the parties, as delay is small we condone the delay in filing the appeal and proceed to decide these appeals.

4. The issue raised by both the parties is common i.e. regarding disallowance made under section 14A of the Income Tax Act, 1961(the Act). Earlier the matter was restored back by the Tribunal to the file of AO for re- adjudication of disallowance under section 14A in the light of decision of Hon'ble Bombay High court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). The AO calculated the disallowance by applying 0.5% of average 3 आयकर अपील सं. / ITA No.2305& 1799/MUM/2013 नधा रण वष /Assessment Year 2005-06

investment i.e. regarding the expenditure and computed the disallowance at Rs.29,82,705/-. The disallowance was agitated in the appeal filed before Ld. CIT(A)and assessee submitted a calculation before Ld. CIT(A) for making the disallowance u/s.14A. The said calculation is reproduced by Ld. CIT(A) in para-4.1 of his order, which for the sake of convenience is reproduced below:

"Disallowance on the bas si Expenses to ratio of Sales:

Taxable Income Amount Proposition Other Income 12,84,809 Sales 1,93,62,156 2,06,46,964 16% Exempt Income Dividend 10,12,02,024 Interest on Tax Free bonds 79,18,562 Long term gain -Exempt 10,91,20,586 84% Total Income As Per P&L 12,97,67,550 100% Indirect Expenses 86,83,860 Less : Directly related to sales 71,60,428 A mounts already disallowed 9,04,906 80,65,334 Expenses relating to entire 6,18,526 business: 84% of Expenses to be 5,20,114 disallowed Add: Expenses spent for 9,04,906 investment Total Disallowance 14,25,020

5. Ld. CIT(A) after going through the details of expenses and above calculation of the assessee has come to a conclusion that in place of Rs.14,25,020/- calculated in the aforementioned table, the disallowance was required to be made at a sum of Rs.16,23,432/- and, therefore, he reduced the disallowance to a sum of Rs.16,23,432/-. The Relevant observations of Ld. CIT(A), for the sake of convenience, are reproduced below:

"5. I have considered the facts of the case and submissions of the assessee. The total dividend income, interest on tax' free bonds are Rs.I0,91,20,586/- and it is 84% of the total receipts of the assessee including other income and sales. Assessee has claimed as per the chart reproduced above that certain expenses are relating to sales only and they cannot be apportioned, whereas, A.O. has calculated the disallowance on the basis of the investment made as per Rule 8D and the question of allocation does not arise. But Hon'ble ITAT in the case of Gillette Group India Pvt. Ltd. 16 ITR (Trib) 57 has held that the disallowance cannot be more than the expenses charged to profit and loss Alc. even as per Rule BD, whereas, in the case of the assessee expenses other than related to sales are Rs.9,04,906/- directly related to investment u/s. 14A and other apportionable expenses are Rs.6,18,526/- as per the chart given by the assessee and,

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therefore, the disallowance on account of expenses should not be more than Rs.15,23,432/- which are the total expenses other than the expenses directly related to sales. Whereas, the expenses claimed by the assessee as directly relatable to sales have not been verified by the A.O. and certain expenses, like repair and maintenance, rent and electricity, travelling expenses etc. cannot be said to be entirely related to sales, therefore, on adhoc basis Rs.1 lakh are more allocated to the dividend earning activity of the assessee and a total disallowance, which is also a reasonable disallowance in view of the decision in Godrej & Boyce Mfg. Co. Ltd. vs. CIT 328 ITR 81, of Rs.16,23,432/- is confirmed. This is a reasonable disallowance by respectfully following the decision of Hon'ble ITAT in the case of Gillette Group India Pvt. Ltd. (supra) also. In result, the ground of appeal is treated as partly allowed."

The Department is aggrieved with the part disallowance, which has been deleted by Ld. CIT(A) and assessee in its appeal is aggrieved with the disallowance sustained to the extent of Rs.16,23,432/- in place of disallowance of Rs.14,25,020/- calculated in the above table.

6. On the these facts, it was submitted by Ld. AR that assessee has rightly allocated 84% expenses which was calculated to Rs.5,20,114/- and Ld. CIT(A) without assigning any reason has considered 100% expenses and has further added a sum of Rs.1.00 lac. He submitted that in assessment year 2005-06 rule 8D is not applicable as per decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra), therefore, Ld. CIT(A) has rightly held that Rule 8D could not be applied. He submitted that though assessee in its grounds of appeal has assailed the entire addition over and above Rs.4,85,000/- but assessee's grievance in the present appeal is limited only to the extra disallowance upheld by Ld. CIT(A) above Rs.14,25,020/-, calculated in the aforementioned table.

7. On the other hand, Ld. DR arguing the appeal for Revenue submitted that disallowance was rightly calculated by AO as per Rule 8D, which is a reasonable disallowance. In reply to the arguments of Ld. AR it was submitted by him that Ld. CIT(A) did not commit any error in making further addition to the aforementioned calculation submitted by the assessee.

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8. We have heard both the parties and their contentions have carefully been considered. As per aforementioned decision of Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. (supra), rule 8D is not applicable to the assessment years prior to assessment year 2008-09. The disallowance calculated by the AO at a sum of Rs.29,82,705/- is in accordance with Rule 8D, which cannot be upheld, therefore, finding no merit in Revenue's appeal the same is dismissed.

9. Now coming to the appeal filed by the assessee, we have gone through the aforementioned calculation submitted by the assessee and also the order passed by Ld. CIT(A), we found that the calculation submitted by the assessee is reasonable and was required to be accepted by Ld. CIT(A). Therefore, considering the details of expenditure and calculation submitted by the assessee, we uphold the disallowance only to the extent of Rs.14,25,020/- and rest of the disallowance upheld by Ld. CIT(A) is deleted and appeal filed by the assessee is partly allowed.

10. In the result, the appeal filed by the Revenue is dismissed and appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 08/06/2015 आदे श क" घोषणा खुले यायालय म* +दनांकः 08/06/2015 को क" गई ।

Sd/- Sd/- (डी. क णाकर रावु / D.KARUNAKARA RAO) (आय.पी. बंसल / I.P. BANSAL) लेखा सद य / ACCOUNTANT MEMBER या यक सद य / JUDICIAL MEMBER मुंबई Mumbai; +दनांक Dated 08/06/2015 6 आयकर अपील सं. / ITA No.2305& 1799/MUM/2013 नधा रण वष /Assessment Year 2005-06

आदे श क त ल प अ!े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु/त(अपील) / The CIT(A)- 4. आयकर आयु/त / CIT

5. 0वभागीय त न2ध, आयकर अपील$य अ2धकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, स या0पत त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मंब ु ई / ITAT, Mumbai व. न.स./Vm, Sr. PS