Commissioner of Income Tax vs Sintex Industries Ltd.

Revenue is in appeal against the judgment and order of the Income Tax Appellate Tribunal (hereinafter referred to as ''ITAT'') dt. 19-1-2012, raising following substantial question of law for our consideration:

A Whether the Appellate Tribunal is right in law and on facts in deleting the disallowance u/s 14A of the act with respect to appointment of remuneration of the directors, travelling expenses etc.

The issue pertains to disallowance of part of the remuneration paid to the directors. The Assessing Officer noted that the assessee had earned exempt income u/s 10(35) of the income tax Act, 1961, arising out of Mutual Fund Investment. He was therefore of the opinion that the expenditure incurred for earning exempt income should be disallowed u/s 14A of the Act. Since no bifurcation was made by the assessee, the Assessing Officer disallowed the total expenditure under this head. In the result, he added back a sum of Rs. 3,25,868 being the amount of salary.

Commissioner(Appeals) and Tribunal did not approve such decision of the Assessing Officer. The Tribunal, in particular, relied on its earlier decision on the issue. In such decision, the Tribunal had relied on the decision of the Bombay High Court rendered in the case of Godrej and Boyce Mfg. Co. Ltd. Vs. Dy. Commissioner of Income Tax, Range 10(2) and Others, where it was held that Rule 8D is not retrospective. The Tribunal also relied upon the decision of the Kerala High Court rendered in the case of Commissioner of Income Tax Vs. Catholic Syrian Bank Ltd. and Others, , to hold that in absence of Rule 8D of the income tax Rules, no disallowances can be made u/s 14A of the Act.

With respect to proposition that Rule 8D is not retrospective in operation, we have no hesitation in agreeing with the decision of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (supra). Previously also, we had occasion to deal with the said Rule and held as and the Bombay High Court has done. That, however, does not mean in our prima-facie opinion that no disallowances can be made u/s 14A of the Act by bifurcating the expenditure in a reasonable manner towards earning of the taxable income and tax exempt income. In the present case, since the amount involved is not very large, we reserve our final conclusion on such an issue in appropriate case. Therefore, we are not inclined to entertain this Tax Appeal. However, we should not be seen to have confirmed the Tribunals view on the aspect that in absence of Rule 8D, no disallowances can be made u/s 14A of the Act, by proportionate bifurcation of the expenditure.

In the result, Tax Appeal stands dismissed.