This appeal is directed against order dated 30.12.2010 of the Income Tax Appellate Tribunal, Ahmedabad Bench ‘C’ passed in ITA NO. 3959 of 2008, which was an appeal preferred by the Revenue. The Tribunal’s order was a common order which dealt with the aforesaid appeal of the Revenue as well as the cross appeal of the assessee being ITA NO. 3963 of 2008. 1.1 The appellant has raised following questions proposing them as substantial questions of law :
[A] “Whether the Appellate Tribunal is right in law and on facts in holding that the Assessing Officer was not justified in making proportionate disallowance out of interest expenses under section 14A of the Act thereby giving relief out of total addition of Rs. 9,27,427/- made by the Assessing Officer under the said Action, without properly appreciating the facts of the case and the material brought on record by the Assessing Officer?”
[B] “Whether the Appellate Tribunal is right in law and on facts in not appreciating that the said proportionate interest expenditure was relatable to the dividend income on sales of shares which was exempt from tax as a portion of the borrowings, on which the said proportionate interest has been worked out, were utilized for the purpose of investment in shares ?”
2. We heard learned advocate Ms. Mauna M. Bhatt for the appellant- department.
3. The relevant facts may be noted in brief. The assessee is engaged in the business of ship breaking at Alang, Bhavnagar. While considering the assessee's return of Income for the Assessment Year 2005-2006, the Assessing Officer disallowed proportionate expenditure to the tune of Rs. 9,27,472/- by assessment order dated 30.11.2007 invoking the provisions of section 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for sake of brevity). The total income shown by the Assesse was Rs. 67,93,404/- and the dividend incocme shown was 6,29,693/-./ The disallowance in question was made out of (i) administrative selling and other expenses (ii) interest expenses; (iii) employees’ costs and (iv) depreciation.
3.1 It was the case of the assessee that it had made investment of Rs.
1,27,34,309/- out of sale of all investments of Rs. 190 crores and earned the dividend amount of Rs. 6,29,693/- . It was the case that administrative and other expenses which were taken into account for proportionate disallowance of expenses by the Assessing Officer were not related in any way to earning the dividend.
3.2 The aggrieved assessee filed appeal before the Commissioner of Income Tax (Appeal) which came to be decided on 28.12.2007. The Appellate Commissioner accepted the assessee’s explanation that the assessee had its own capital and reserve funds which exceeded the investment in shares and therefore there could not be any disallowance out of interest expenses. At the same time, the proportionate disallowance of expenses with regard to the employee’s cost, depreciation and administrative expenses came to be upheld by the CIT(A), observing that when the assessee showed investment and had also purchased new investment, it would have incurred the expenses on those heads for the purpose of such new investment . Therefore, according to CIT(A) that part of proportionate disallowance could be co-related to the investment in shares or earning the dividend income.
3.3 The department as well as assessee both preferred their respective appeals before the Tribunal, which were decided together as per the impugned order. The Tribunal in the impugned order noted and observed as under:
“We find that the assessee’s business is that of ship breaking and it also invests its funds in securities and it is maintaining regular books of account which are duly audited and nothing is reported in the auditor’s report us 44AB to the effect that the expenses are incurred for non business purpose. We find that the assessee has its own capital i.e. share capital plus reserves and surplus totaling to Rs. 5.53 crores, along with it has secured loans amounting to Rs. 2.89 crores and unsecured loans Rs. 2.88 crores, whereas the secured loan can only be used against stock and current assests and unsecured loan has been employed for the purpose of the business. We further find from Schedure-1.6 investment chart attached, that during the assessment year under consideration, the assessee has sold mutual funds and other investments in equity shares amounting to Rs. 1.90 crores and invested the same money in different shares amounting to Rs. 1.27 crores and it is proven fact that no new funds have been invested in the working capital cycle. Therefore, the interest expense of Rs. 54.85 lakhs incurred by the assessee is purely business expenditure and has also nexus with the dividend income and this fat have been verified from the details of dividend income received from various accounts during the assessment year under consideration alongwith the previous year details attached.”
3.4 The assessee had claimed that the administrative cost namely the employees’ cost and depreciation because of the fact that it had been investing in the mutual funds for which the services were rendered by the mutual fund agents of the company concerned and the commission to those agents was paid by the companies and therefore, disallowance of proportionate expenses with reference to that part was not justified on facts and was presumptive basis. The assessee relied on the Bombay High Court decision in Godrej And Boyce Mfg. Co. Ltd. v. DCIT (2010) 328 ITR 81 (Board of Management) .
4. The Tribunal having considered of the case, the explanation of the asseee and the decision in Godrej (supra) finally observed as under :
“…..the fact that the issue in detail has not been considered by the learned CIT(A), we set aside the orders of the authorities below and restore this issue to the file of the AO with direction to re-decide the same afresh as per decision of this Hon'ble Bombay High Court in case of Godrej and Boyce Mfg. Co. Ltd. (supra). The AO shall given reasonable sufficient opportunity to the assessee for presenting the relevant materials before him on the facts and circumstances of the case.”
5. Therefore the ultimate direction by the Tribunal is to remit the matter for a fresh decision to be taken by the Assessing Officer. The issue at large and when it will be reconsidered by the Assessing Officer as per order of the Tribunal, both the parties would have opportunity to put forth respective case and place the relevant material in support.
6. In the above light, the order by the Tribunal is one of remanding the question for fresh consideration. In the circumstance no question of law, much less any substantial question arises in the appeal.
7. Accordingly, the appeal is dismissed.
[ V.M.SAHAI, J.] [N.V.ANJARIA, J.] cmjoshi