ITAT MUMBAI BENCH ‘F’
Deputy Commissioner of Income-tax
Versus
Ovira Logistics (P.) Ltd.
IT Appeal Nos. 4567 & 4594 (Mum.) of 2011
OCTOBER 31, 2012
ORDER
Dinesh Kumar Agarwal, Judicial Member
These cross appeals by the Revenue and the assessee are directed against the order dtd. 10-2-2011 passed by the ld. CIT(A) – 17, Mumbai for the A.Y. 2007-08. Both these appeals are disposed of by this common order for the sake of convenience.
2. Briefly stated facts of the case are that the assessee company is a subsidiary company of M/s Infrastructure Leasing & Financial Services Ltd. (IL&FS) and during the year it is engaged in the business of providing Management Consultancy, Business Processes Outsourcing, Car Rental and other ancillary activities. The return was filed declaring total income of at Rs. 4,46,46,873/-. However, the assessment was completed at an income of Rs. Nil under the normal provisions of the Act and book profit u/s 115JB of the Income Tax Act, 1961 (the Act) at Rs. 8,97,48,777/- vide order dtd. 29-12-2009 passed u/s 143(3) of the Act. On appeal, the ld. CIT(A) partly allowed the appeal.
3. Being aggrieved by the order of the ld. CIT(A) the Revenue and the assessee both are in appeal before us.
ITA No. 4567/Mum/2011 (By Revenue)
4. Ground No. is against the part relief allowed by the ld. CIT(A) in respect of dis allowance u/s 14A of the Act.
5. Brief facts of the above issue are that the A.O. observed that the assessee had made investment in shares and also carried out trading in shares on which dividend income of Rs. 12,02,765/- has been earned which was claimed exempt u/s 10(34) of the Act. The A.O. further observed that an expenditure of Rs. 1,13,676/- has been allocated against such exempt income. The A.O. further observed that the company cannot earn dividend without its existence and management. He further observed that investment decisions are very complex in nature and require substantial market research, day-to-day analysis or market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time and hence not correct to say that dividend income can be earned by incurring no or nominal expenditure. Thus, it was difficult to accept that a company can earn substantial dividend income without incurring any expenses whatsoever including management or administrative expenses as investment decisions are generally taken in the meetings of the Board of Directors for which administrative expenses are incurred. The A.O. further observed that the term “expenditure” occurring in section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. With the said observations, the A.O. while applying the provision of section 14A read with Rule 8 D of the Income Tax Rules, 1962 also relied on the decision of the Special Bench of ITAT in the case of ITO v. Daga Capital Management (P.) Ltd. [2009] 117 ITD 169 (Mum.), computed the dis allowance at Rs. 99,56,933/- as per working given at page 5 & 6 of the assessment order. On appeal, the assessee while relying on the decision of the Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. Dy. CIT [2010] 328 ITR 81/194 Taxman 203 (Bom.)submitted that the dis allowance of interest on prorata basis ought to have been made by adopting the value of investment appearing in the balance sheet as under:-
