1 I.T.A No.

5961/ Mum/ 2009

Prodigy Investmen ts P. ltd

IN THE INCOME TAX APPELLATE TRIBUNAL,

“SMC” BENCH, MUMBAI.

[ Before Shri Pramod Kumar, Accountant Member ]

I.T.A No.5961/ Mum/2009

Assessment year: 2005-06

Prodigy Investments P. ltd. ….. Appellant

6-D, 177, Prem Kutir, Marine Drive,
Mumbai-20
PA No.AABCP 7457 J

Vs

Income Tax officer Ward 3(2)(4) ,…. Respondent

New Marine Lines, M.K. Road,
Mumbai.

Appearances:

Govind Aggarwal, for the appellant

Malthi R. Sridharan, for the respondent

ORDER

1. The short issue that I am required to adjudicate in this appeal is whether

or not the CIT (A) was justified in upholding the disallowance of `.9,57,579
u/s.14A of the Income tax Act,1961. The assessment year involved is 2005-06
and the impugned assessment was framed u/s. 143(3) of the Income tax Act.

2. During the assessment proceedings, the Assessing Officer noted that the
managerial or administrative expenses, which can be related to earning of
dividend, incurred by the assessee amounting to Rs.12,89,874, and that 74% of
income of the assessee is by way of dividends. It was in this backdrop that the
Assessing Officer disallowed 74% of `.12,89,874, i.e. `.9,57,579 u/s.14A as
expenses attributable to earning of dividend. Aggrieved, assessee carried the
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Prodigy Investmen ts P. ltd

matter in appeal but without any success. Aggrieved also by the stand so taken
by the CIT (A), assessee is in further appeal before the Tribunal.

3. I have heard the rival contentions, perused the material on record and
duly considered the factual matrix of the case as also the applicable legal
position.

4. I have noticed that the authorities below have disallowed 74% of entire
expenses which have any connection with the earning of dividend income.
Quantum of earning, in my considered view, is not a reasonable basis of
apportioning the expenditure. The apportionment of expenditure must have a
reasonable basis so as to segregate, as much as possible, expenditure incurred
to earn tax exempt income. The emphasis, therefore, has to be on the quantum
of expenditure incurred to earn an income rather than quantum of earning as a
result of the expenditure so incurred. The approach adopted by the authorities
below proceeds on the assumption that the expenditure incurred by the
assessee are proportionate to earnings from all sources, and such an
assumption cannot hold good particularly in the cases of passive incomes like
dividend income. As learned Representatives fairly agree, the issue regarding
apportionment of expenditure to be disallowed u/s.14A is required to be re-
adjudicate in the light of Hon’ble Bombay High Court’s judgement in the case
of Godrej & Boyce Mfg Co Ltd Vs DCIT (328 ITR 81) and other binding judicial
precedents, and after dealing with, by way of a speaking order and in
accordance with the law, such contentions as the assessee may place before the
Assessing Officer in the course of remanded proceedings. I, therefore, remit
the matter to the file of the Assessing Officer for r-adjudication as above.

5. In the result, appeal is allowed for statistical purposes.

Pronounced in the open court on the date of hearing i.e. on 24 t h
January, 2011

Sd/-
(Pramod Kumar)
(Accountant Member)

Mumbai, Dated 24 t h January, 2011

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Prodigy Investmen ts P. ltd

Parida

Copy to:
1. The appellant
2. The respondent
3. Commissioner of Income Tax (Appeals)-III Mumbai
4. Commissioner of Income Tax,3 , Mumbai
5. Departmental Representative, Bench ‘SMC, Mumbai

//TRUE COPY// BY ORDER

ASSTT. REGISTRAR, ITAT, MUMBAI

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Prodigy Investmen ts P. ltd