1 IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER आयकर अपीऱ सं./I.T.A. No.2718/M/2012 (AY:2004-2005) आयकर अपीऱ सं./I.T.A. No.2719/M/2012 (AY:2005-2006) SKOL Breweries Limited, फनाभ/ ACIT-Range 8(3), Unit No.1021, Survey No.131A, Mumbai. Vs. Solitarire Corporate Park, 10, Chakala Kurla Road, Andheri (E), Mumbai – 400 093. स्थामी रेखा सं ./ PAN : AAICS 2238 R .. (अऩीराथी /Appellant) (प्रत्मथी / Respondent) अऩीराथी की ओय से / Appellant by : Shri Rajan Vora, AR प्रत्मथी की ओय से/ Respondent by : Shri Neil Philip, DR सुनवाई की तायीख / Date of Hearing : 10.3.2015 घोषणा की तायीख /Date of Pronouncement : 18.3.2015 आदे श / O R D E R PER D. KARUNAKARA RAO, AM: There are two appeals under consideration involving AYs 2004-05 and 200506. Both these appeals are filed by the assessee on 23.4.2012 against the different orders of the CIT (A)-18, Mumbai. Since, the assessee raised the identical grounds in both the appeals, therefore, for the sake of convenience, they are clubbed, heard combinedly and disposed of in this consolidated order. Appeal wise adjudication is given in the following paragraphs of this order. 2. Firstly, we shall take up the appeal ITA No.2718/M/2012 for the AY 2004- 2005. In this appeal, assessee raised the following grounds which read as under: “1. That on the facts and in the circumstances of the case and in law, the Assessing Officer and the CIT(A) grossly erred in making an addition under section 14A of the Act without appreciating that no expenditure has been incurred by the appellant for earning exempt income. 2 2. 3. 4. 5. 6. 7. 8. 3. That on the facts and in the circumstances of the case and in law, the Assessing Officer and Ld CIT (A) have grossly erred by assuming that certain expenditure has been incurred for earning exempt income. That on the facts and in the circumstances of the case and in law, the Ld Assessing Officer and Ld CIT (A) have erred by making addition under section 14A of the Act without appreciating that the Tax Audit Report of the appellant clearly provides that no expenditure has been incurred for earning income which is exempt. That on the facts and in the circumstances of the case, the Ld CIT (A) has erred in enhancing the income by making an addition made under section 14A of the Act by invoking provisions of section 251(1)(a) read with section 251(2) of the Act. That on the facts and in the circumstances of the case and in law, the Ld CIT (A) erred by ignoring the settled principle that a proximate connection of expenditure incurred with the exempt income must be established. That on facts and in the circumstances of the case and in law, the Ld CIT (A) erred in making action under section 14A of the Act without any evidence of expenditure being incurred for earning exempt income. That the Ld CIT (A) grossly erred on facts and in law by applying the computation methodology as laid down by Rule 8D of the Income Tax Rules, 1962 r.w.s 14A(2) of the Act without appreciating that the same is appreciable from assessment year 2008-2009 on wards and have no application for the year under consideration. That the Ld CIT (A) erred in directing the Assessing Officer to compute disallowance under section 14A by adopting similar methodology as prescribed by Rule 8D of the Rules which is contrary to the principles laid down by Bombay High Court in the case of Godrej and Boyce vs. DCIT (328 ITR 81).” At the outset, Ld Counsel for the assessee mentioned that these appeals are to be adjudicated together considering the commonality of the issues involved therein. Before us, Ld Counsel for the assessee submitted that during the year under consideration, the assessee earned exempt income of Rs. 4,67,139/- and no expenditure incurred for earning of the said exempt income was debited. In the assessment, Assessing Officer disallowed 5% of the exempt income as disallowable expenditure u/s 14A of the Act. Aggrieved with the said decision of the Assessing Officer, assessee carried the matter in appeal before the CIT (A). In the first appellate proceedings, CIT (A) indirectly applied the provisions of Rule 8D of the Income Tax Rules, 1962. With the background of the above facts, Ld Counsel for the assessee mentioned that the AYs 2004-2005 and 2005-2006, which are under consideration are outside the scope of Rule 8D of the IT Rules and therefore, the CIT (A)‟s decision is not proper, invalid and unsustainable in law. Further, he submitted that a percentage of exempt income also constitutes a „reasonable basis‟ for quantifying the disallowable expenditure. In this regard, Ld Counsel for the assessee relied on the judgment of the Hon‟ble Bombay High Court in the case of 3 Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010) 328 ITR 81(Bom). 4. On the other hand, Ld DR relied on the orders of the Revenue authorities. 5. We have heard both the parties and perused the orders of the Revenue Authorities as well as the relevant material placed before us. It is a settled proposition in law that the relevant assessment year 2004-05 is outside the scope of provisions of newly inserted Rule 8D as they apply prospectively from the AY 20082009 onwards. It is so held by the Hon‟ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT, reported in (2010) 328 ITR 81(Bom). The Hon‟ble Bombay High Court also in the case of CIT vs. M/s. Godrej Agrovet Ltd vide Income Tax Appeal No. 934 of 2011, dated 8.1.2013, has held that percentage of the exempt income can constitute a reasonable estimate for making disallowance for the years earlier to the assessment year 2008-09. The relevant portion of the said judgment of the Bombay High Court (supra) reads as under: "4. So far as question (b) is concerned, the Tribunal in its impugned order dated 17.9.2010 while applying the decision of this court in the matter of Godrej (supra) has disallowed the expenditure only to the extent of 2% of the total exempt income earned by the respondent-assessee on the basis its order dated 27.2.2009 for the assessment year 2002-2003 and order dated 10.9.2009 for the Assessment Years 2003-2004 and 2004-2005 wherein disallowance was restricted to 2% of the exempt income. Further; the Tribunal has remanded the matter to the AO to verify the disallowance claimed and restrict the disallowance only to the extent to 2% of the total exempt income. We find no fault with the order of the Tribunal. " 6. Considering the binding nature of the judgment in the case of Godrej Agrovet (supra) and also the overall factual matrix of the present case, we find that the decision of Assessing Officer in restricting the disallowance to 5% of the total dividend income is proper and sustainable in law. Accordingly, we reverse the decision of the CIT (A) and uphold the decision of the Assessing Officer. Thus, the grounds raised by the assessee are allowed. 7. In the result, appeal of the assessee is allowed. ITA No.2719/M/2012 (AY 2005-2006) 8. This appeal filed by the assessee on 23.4.2012 against the said orders of the CIT(A)-18, Mumbai dated 23.2.2012. In these appeals, assessee raised the identical 4 grounds to that of the ones raised for the AY 2004-2005 vide appeal ITA No. 2718/M/2012 which is adjudicated by us in the above paragraphs of this order. Since, the grounds raised by the assessee in the present appeals are identical to that of the appeal for the AY 2004-2005 (supra), our decision given therein squarely applies to these appeals too. Considering the same, all the grounds raised by the assessee in the appeal are allowed. 9. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 18th March, 2015. Sd/(AMIT SHUKLA) JUDICIA L MEMBER भुंफई Mumbai; ददनांक 18.3.2015 Sd/(D. KARUNAKARA RAO) ACCOUNTANT MEMBER व.नन.स./ OKK , Sr. PS आदे श की प्रतिलऱपि अग्रेपिि/Copy of the Order forwarded to : 1. अऩीराथी / The Appellant 2. प्रत्मथी / The Respondent. 3. आमकय आमक् ु त(अऩीर) / The CIT- 4. आमकय आमक् ु त/ 5. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 6. गार्ड पाईर / Guard file. सत्मावऩत प्रनत //True Copy// आदे शानस ु ार/ BY ORDER, उि/सहायक िंजीकार (Dy./Asstt. Registrar) आयकर अिीऱीय अधिकरण, भंफ ु ई / ITAT, Mumbai