KARGIL HOLDING PVT. LTD.,AHEMDABAD vs. DCIT CIRCLE 3(3), MUMBAI

The appellant, M/s. Kargil Holding Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal, sought to set aside the impugned order dated 17.01.2003 passed by Commissioner of Income Tax (Appeals), Mumbai [hereinafter referred to as the CIT(A)] qua the assessment year 1998-99 on the grounds inter-alia that :- “1. In law and in facts and circumstances of the Appellant's case, the learned Commissioner of Income-tax (Appeals), Mumbai has erred in points of law and facts. 2 M/s. Kargil Holding Pvt. Ltd.

Declining the contentions raised by the assessee, the AO proceeded to hold that since the interest expenses claimed by the assessee are same in both the years i.e. A.Y. 1997-98 and year under consideration i.e. 1998-99 he has disallowed the expenses of Rs.7,12,274/- and thereby treated dividend income as exempt under section 10(33) of the Act to the tune of Rs.42,89,351/-.

Assessee carried the matter before the Ld. CIT(A) by way of filing appeal who has confirmed the addition by dismissing the appeal. Feeling aggrieved the assessee has come up before the Tribunal by way of filing present appeal.

This appeal pertains to A.Y. 1998-99 and was instituted in the Tribunal vide but this appeal was dismissed twice on account of non prosecution by the assessee and was subsequently restored and now it is being disposed of on merits.

We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto.

At the very outset, the Ld. A.R. for the assessee contended that not even a single penny has been incurred by the assessee 4 M/s. Kargil Holding Pvt. Ltd.

We have perused the balance sheet and schedule 14 available at page 12, 13 & 17 respectively. As per balance sheet assessee was having sources of funds to the tune of Rs.3,22,35,223/- as on 31.03.1998 (Rs.20,00,000/- share capital + reserves & surplus Rs.71,60,633/- + unsecured loan of Rs.50,74,589/-). When we peruse the schedule 14 we find that the assessee has recorded administrative & general expenses as under: Administrative & General Expenses Service Charges - Rs. 50,000 Selling Expenses - Rs.6,373,527 Payment to Auditors – Audit Fees - Rs. 2,500 Rates & Taxes - Rs. 149,387 Other Expenses - Rs.1,925,321 Preliminary Expenses - Rs. 3,981

When the assessee has brought on record all the financials showing sufficient surplus funds at its disposal and all these documents were brought before the AO as well as Ld. CIT(A) as is evident from page 1 to 3 of the paper book vide letter addressed to the Ld. CIT(A) explaining facts as to acquiring the shares in A.Y. 1988-89, dividend received on these shares and has categorically pleaded that the acquisition of shares were made out of its own share capital and not against the borrowed funds.

Perusal of balance sheet of the assessee company, profit & loss account of the assessee company as on 31.03.1989 available at page 6 & 7 of the paper book, the date of acquiring shares in 5 M/s. Kargil Holding Pvt. Ltd.

However, at the same time, we are of the considered view that under section 14A of the Act when the assessee company has earned dividend income of Rs.50,01,625/- during the year under assessment, administrative expenses for the purpose of investment and its follow up must have been incurred. So we find Rs.1,00,000/- as expenses incurred by the assessee for earning the dividend income as fair and reasonable one. So we direct the AO to disallow Rs.1,00,000/- as expenses to earn dividend income during the year under assessment subject to verification of the financials relied upon by the assessee.

Resultantly, appeal filed by the assessee is allowed for statistical purposes.