M/S Manipal Prakashan Limited , Manipal vs Assessee

M/s. Manipal Prakashan Ltd., Vs. The Assistant Commissioner of Udayavani Building, Income Tax, Press Corner, Circle 1, Manipal - 576 104. Udupi. PAN: AABCM 2207K APPELLANT RESPONDENT

Appellant by : Ms. Sheetal, Advocate Respondent by : Shri P. Dhivahar, Jt. CIT(DR)

Date of hearing : 14.05.2015 Date of Pronouncement : 26.05.2015

ORDER

Per N.V. Vasudevan, Judicial Member

This appeal by the assessee is against the order dated 17.03.2014

of the CIT(Appeals), Mysore relating to assessment year 2011-12.

2. The assessee is a company engaged in the business of printing and

manufacture of packing material. The assessee earned dividend income ITA No.602/Bang/2014 Page 2 of 5

which was exempt u/s. 10(34) of the Act. The Assessing Officer was of the

view that expenses incurred in earning the dividend income which was

exempt from tax had to be disallowed u/s. 14A of the Act r.w. Rule 8D of

the I.T. Rules. The assessee submitted before the AO that no expenses

whatsoever were incurred to earn the dividend income and therefore no

disallowance could be made u/s. 14A of the Act. The AO, however, was of

the view that it was not possible to earn dividend income without utilizing

the resources and incurring the cost. The AO accordingly made a

disallowance of Rs.17,64,211 u/s. 14A which was computed as follows:-

1. Amt of expenses directly relating to income which do not form part of total income -

2. Amt of expenses on interest not directly related to particular income 7,22,233

3. 0.5% of average value of investment in shares 0.5% of 20,83,95,649 10,41,978

Total disallowance u/s. 14A 17,64,211

3. On appeal by the assessee, the CIT(Appeals) confirmed the order of

the Assessing Officer. Before the CIT(Appeals), the assessee submitted

that there could be no interest expenses attributable to earning of dividend

income because interest paid on borrowings were for very specific purpose

of the business of the assessee and had to be allowed as a deduction u/s.

36(1)(iii) of the Act. The CIT(A), however, was of the view that in

assessee's own case for A.Y. 2009-10 in his order dated 30.5.2012, he had

confirmed similar addition made by the AO and for the reasons given in the ITA No.602/Bang/2014 Page 3 of 5

said order, the disallowance made by the AO in this assessment year was

also being confirmed.

4. Aggrieved by the order of the CIT(Appeals), the assessee has

preferred the present appeal before the Tribunal.

5. At the time of hearing of the appeal, it was brought to our notice that

the order of CIT(Appeals) for A.Y. 2009-10, based on which the order of

AO in the present A.Y. 2011-12 was confirmed, was subject matter of

appeal before the Tribunal in ITA No.1208/Bang/2012. This Tribunal by

order dated 30.8.2013 set aside the disallowance u/s. 14A of the Act and

remitted the issue to the Assessing Officer for fresh consideration. The

Tribunal held that the requirement of Rule 8D was that the AO should first

come to the conclusion that claim made by the assessee that there was no

expenditure incurred to earn the dividend income was not correct. The

Tribunal further held that the AO did not point out as to how borrowed funds

on which interest was paid were utilised for making investments, which

yielded the tax free income. The Tribunal thereafter referred to the

decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce

Mfg. Co. Ltd., 328 ITR 81 and the decision of the Bangalore Bench of the

Tribunal in ACIT v. Jindal Aluminum Ltd, ITA No.799/Bang/2012, A.Y.

2008-09, order dated 30.4.2013. The Tribunal finally came to the

conclusion that AO has not examined whether interest bearing funds were

utilized for the purpose of earning of exempt income and also as to whether ITA No.602/Bang/2014 Page 4 of 5

indirect expenses were not wholly and exclusively for the purpose of

earning of taxable income.

6. It is not in dispute that the facts and circumstances under which

disallowance was made by the AO and confirmed by the CIT(Appeals) in

the instant case are identical as it prevailed in A.Y. 2009-10. Respectfully

following the decision of the Tribunal cited supra, we set aside the order of

CIT(Appeals) and remand the issue to the AO for fresh consideration on

the issue of disallowance u/s. 14A, keeping in mind the observations of the

Tribunal in ITA No.1208/Bang/2012.

7. For statistical purposes, the appeal by the assessee is treated as

allowed.

Pronounced in the open court on this 26th day of May, 2015.

Sd/- Sd/-

( ABRAHAM P. GEORGE ) ( N.V. VASUDEVAN ) Accountant Member Judicial Member

Bangalore, Dated, the 26th May, 2015.

/D S/ ITA No.602/Bang/2014 Page 5 of 5

Copy to:

1. Appellant 2. Respondents 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. 6. Guard file

By order

Assistant Registrar / Senior Private Secretary ITAT, Bangalore.