MITSUTOR SHIPPING AGENCY P. LTD,MUMBAI vs. JT CIT (OSD) 2(2), MUMBAI

The assessee has raised the following grounds:-

The brief facts of the case are that the assessee company filed the return of income declaring total income to the tune of Rs.4,35,67,765/- on 24.09.2009. The return was processed u/s.143(1) of the Income Tax Act, 1961 (in short “the Act”) on 21.02.2011. The case was selected for scrutiny by issuance of notice u/s.143(2) of the Act on 24.08.2010 which was duly served upon the assessee on 08.09.2010. Thereafter, notice u/s. 142(1) dated 14.02.2011 was issued and served upon the assessee. The assessee is in the business of agency of shipping lines and it also derives income by way of providing services like transportation, clearing and forwarding etc. During the year under assessment the assessee declared dividend income of Rs.4,54,057/- u/s.10(34) of the Act. The Assessing Officer 2 A.Y. 2009-10 applied the provision u/s.14A r.w.r.8D of the Act and assessed the expenditure to the tune of Rs.5,56,135/-. Feeling aggrieved the assessee filed the appeal before the CIT(A) but the CIT(A) has also confirmed the said expenses, therefore the assessee has filed the present appeal before us.

We have heard the arguments advanced by the learned representative of the parties and perused the record carefully. At the very outset the learned representative of the assessee has argued that during the relevant assessment year the assessee did only eight transactions and earned the dividend (income) to the tune of Rs.4,54,057/- but the Assessing Officer assessed the expenditure more than the dividend income which is wrong against law and facts. It is also argued that the assessee was having reserve and surplus funds more than the investment, therefore, no expenses of any kind is required to be disallowed in view of the law settled in CIT Vs. Hero Cycles, decided by P&H High Court, on November 4, 2009. It is also argued that the assessee did not claim any expenditure towards earning exempt income, therefore, in the said circumstances no disallowance of any expenditure is required, hence the order in question is liable to be set aside in the interest of justice.

On the other hand the learned representative of the department has strongly relied upon the order passed by the learned CIT(A) in 3 A.Y. 2009-10 question. Before discussing the matter further it is necessary to advert the balance sheet on record MITSUTOR SHIPPING AGENCY PRIVATE LIMITED BALANCE SHEET AS AT 31ST MARCH, 2009 SOURCE OF FUNDS SCH March 31, 2009 March 31, 2008 (Rupees) (Rupees) 1. SHARE HOLDERS FUND a. Share Capital A 1,30,000.00 1,30,000.00 b. Reserve & Surplus B 90.524,518.67 70,345,810.72 TOTAL FUNDS EMPLOYED (Rs.) 90,654,518.67 70,475,810.72 APPLICATION OF FUNDS 1. Fixed Assets C Gross Block 72,062,363.81 68,730.433.80 Less: Depreciation 43,786,071.12 42,598,581.11 Net Block 28,276,292.69 26,131,852.69 2. Investments D 103,379,670.01 119,074,395.75 3. Current Assets, Loans & E 107,088,133.28 68,740,425.91 Advances Less: Current Liabilities & Provisions F 148,089,577.31 143,470,863.63 Net Current Assets (Rs.) (41,001,444.03) (74,730,437.72) 4.PRELIMINARY EXPENSES (To the extent not written off) TOTAL APPLICATIONS (Rs.) 90,654,518.67 70,475,840.72 Notes to the Accounts “L” As per our reports of even date 5.1 On appraisal of the balance sheet mentioned above it is apparent on record that the assessee was having sufficient reserve and 4 A.Y. 2009-10 surplus funds i.e. Rs.90,524,518.67 and the share capital of the assessee is to the tune of Rs.1,30,000.00. No doubt in view of the said circumstances it is assumed that the assessee invested in the share capital from his own funds. No disallowance of any expenditure is required to be done. In this regard we also found support of law settled in CIT Vs. Hero Cycles (Supra). Further the assessee earned the dividend income to the tune of Rs.4,54,057/- and disallowed the expenditure to the tune of Rs.5,56,135/- which is more than the earning. It is also not proper and justifiable. Nothing came into notice that the assessee has claimed the expenditure for the investment in the shares to earn the dividend income. In view of the said circumstances, it is quite clear that the order passed by the learned CIT(A) is wrong against law and facts and is liable to be set aside being it is not a case which falls within the purview of section 14A r.w. rule 8D of the Act. Accordingly, we delete the said expenditure to the tune of Rs.5,56,135/- u/s.14A r.w.rule 8D of the Act.

In the result, the appeal filed by the assessee is hereby allowed.