KALVA MARKETING & SERVICES LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 1216/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70758 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 22-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K C P PATNAIK
• Assessee Lawyers: KETAN PANCHMIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI . , !'# $ $ $ $ %& ' , () %*+ ( %# BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM %./ I.T.A. NO.1216/MUM/2012 ( - $.- - $.- - $.- - $.- / / / / ASSESSMENT YEAR: 2007-08) KALVA MARKETING & SERVICES LTD. REGENT CHAMBERS, 7 TH FLOOR, NARIMAN POINT, MUMBAI-400 021 / VS. DY. CIT, RANGE 3(2), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI +/ () % ./ &0 % ./ PAN/GIR NO. AAACK 4401 A ( /1 / APPELLANT ) : ( 23/1 / RESPONDENT ) /1 4 %( / APPELLANT BY : SHRI KETAN PANCHMIA 23/1 5 4 %( / RESPONDENT BY : SHRI K. C. P. PATNAIK %$ 5 6) / // / DATE OF HEARING : 06.08.2013 7. 5 6 ) / DATE OF PRONOUNCEMENT : 16.08.2013 *(8 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI (CIT(A) FOR SHO RT) DATED 20.12.2011, DISMISSING THE ASSESSEES ARISING OUT OF THE ORDER GIVING EFFE CT TO THE ORDER PASSED U/S.250(6) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) BY THE FIRST APPELLATE AUTHORITY FOR THE ASSESSMENT YEAR (A.Y.) 2007-08 VIDE ORDER DATED 06. 11.2009. 2 ITA NO.1216/MUM/2012 (A.Y. 2007-08) KALVA MARKETING & SERVICES LTD. VS. DY. CIT 2. THE APPEAL RAISES TWO ISSUES PER ITS TWO GROUNDS , WHICH WE SHALL TAKE UP IN SERIATIM. THE ASSESSEE-COMPANY HAVING EARNED DIVIDE ND TO THE EXTENT OF RS.21.28 LACS, THE QUESTION OF THE QUANTUM OF DISALLOWANCE U/S.14A CAME UP FOR CONSIDERATION IN THE COURSE OF ASSESSMENT PROCEEDINGS U/S.143(3). THE AS SESSEE HAD SUO MOTU DISALLOWED RS.1 LAC, I.E., APART FROM RS.8,22,133/-, BEING THE PORT FOLIO MANAGEMENT SERVICE (PMS) EXPENSES RELATABLE TO THE TAX-EXEMPT DIVIDEND INCOM E. THE ASSESSING OFFICER (A.O.), HOWEVER, FOLLOWING THE DECISION IN ITO VS. DAGA CAPITAL MANAGEMENT PVT. LTD. [2009] 312 ITR (AT) 1 (MUM.) (SB), WAS OF THE VIEW THAT RU LE 8D WOULD APPLY AND, ACCORDINGLY, WORKED OUT THE DISALLOWANCE AT RS.13,2 2,199/-. DEDUCTING THE AMOUNT DISALLOWED SUO MOTU , AN AMOUNT OF RS.4,00,086/- WAS ADDITIONALLY DISAL LOWED BY HIM. THE SAME STOOD CONFIRMED IN APPEAL; THE LD. CIT(A) FINDING THE DISALLOWANCE AS EFFECTED REASONABLE, THE BASIS ADVOCATED BY THE HONBLE JURI SDICTIONAL HIGH COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DY. CIT [2010] 328 ITR 81 (BOM), I.E., FOR YEARS PRIOR TO A.Y. 2008-09, W.E.F. WHICH R.8D BECOMES MA NDATORY IN ITS APPLICATION. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. BEFORE US, THE ASSESSEES CASE WAS THAT R.8D HAD BEEN MECHANICALLY APPLIED, WITHOUT REFERENCE TO THE FACTS OF ITS CASE, WITH IT HAVING IN FACT DISALLOWED THE ENTIRE PMS EXPENDITURE. THE LD. DR, ON THE OTHER HAND, WOULD R ELY ON THE ORDERS OF THE AUTHORITIES BELOW, CLAIMING THE DISALLOWANCE TO BE THOUGH GUIDE D BY R.8D, REASONABLE, THE RELEVANT CRITERION PRESCRIBED BY THE HONBLE COURT. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE FIND THE CASE OF BOTH THE PARTIES AS INFIRM. BOTH STATE TO HAVE FOLL OWED, I.E., IN PRINCIPLE, THE DECISION BY THE HON'BLE JURISDICTIONAL HIGH COURT IN GODREJ & BOYCE (SUPRA), WITHOUT REFERENCE AND DE HORS THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS R EGARD, THE FOLLOWING PASSAGE FROM THE SAID DECISION WOULD BE RELEVANT: (PG. 109) THE SATISFACTION ENVISAGED BY SUB-SECTION (2) OF S ECTION 14A IS AN OBJECTIVE SATISFACTION THAT HAS TO BE ARRIVED AT BY THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SAFEGUARD INTRODUCED BY 3 ITA NO.1216/MUM/2012 (A.Y. 2007-08) KALVA MARKETING & SERVICES LTD. VS. DY. CIT SUB-SECTION (2) OF SECTION 14A FOR A FAIR AND REASO NABLE EXERCISE OF POWER BY THE ASSESSING OFFICER, CONDITIONED AS IT IS BY T HE REQUIREMENT OF AN OBJECTIVE SATISFACTION, MUST, THEREFORE, BE SCRUPUL OUSLY OBSERVED. AN OBJECTIVE SATISFACTION CONTEMPLATES A NOTICE TO THE ASSESSEE, AN OPPORTUNITY TO THE ASSESSEE TO PLACE ON RECORD ALL THE RELEVANT FACTS INCLUDING HIS ACCOUNTS AND RECORDING OF REASONS BY THE ASSESSING OFFICER IN THE EVENT HE COMES TO THE CONCLUSION THAT HE IS NOT SATISFIED WI TH THE CLAIM OF THE ASSESSEE. A REASONABLE DISALLOWANCE HAS TO BE MADE; R.8D THOU GH NOT MANDATORY, COULD YET ACT AS A GUIDEPOST, HAVING BEEN CONSIDERED AS REASO NABLE BY THE HON'BLE COURT IN GODREJ & BOYCE (SUPRA). HOWEVER, THE SAME (REASONABILITY) HAS NEC ESSARILY TO BE WITH REFERENCE TO THE EXPENDITURE INCURRED, TO WHICH THERE IS, AS AFO RESAID, NO REFERENCE, MUCH LESS AS TO HOW IT COULD BE CONSIDERED AS HAVING BEEN INCURRED IN RELATION TO THE TAX-EXEMPT INCOME NOT FORMING PART OF THE TOTAL INCOME. THE MATTER, T HUS, IS ESSENTIALLY FACTUAL. EXPLAINING THE RATIONALE OF THE DISALLOWANCE OF IND IRECT EXPENDITURE AS STIPULATED U/R.8D(2)(III), I.E., QUA INDIRECT EXPENDITURE, ITS STANDS EXPLAINED BY THE HONBLE COURT, DRAWING SUPPORT FROM THE PRONOUNCEMENTS BY THE CBDT IN THE MATTER, THAT THE PMS EXPENSES BEING GENERALLY IN THE RANGE OF 2% (OF THE INVESTMENT BEING MANAGED), OF WHICH 50% (I.E., 1% OF THE INVESTMENT) COULD BE REASONABL Y CONSIDERED AS TOWARD THE PROFIT OF THE SERVICE PROVIDER, LEAVING A BALANCE OF 1%, INFO RMS THE PRESCRIPTION OF 0.5% OF SUCH INVESTMENTS TOWARD INDIRECT EXPENDITURE UNDER R.8D( 2)(III). IN THE INSTANT CASE, THE ASSESSEE HAS ALREADY DISALLOWED RS.8.22 LACS TOWARD S PMS EXPENDITURE, CONSIDERING THE SAME THOUGH AS DIRECT EXPENDITURE, ON WHICH ASPECT WE OBSERVE NO QUARREL. ESTIMATION TOWARD INDIRECT EXPENDITURE HAS BEEN MADE IN THE IN STANT CASE WITHOUT REGARD TO THE SAME, EXHIBITING A CLEAR LACK OF APPLICATION OF MIND. THE MATTER IS, ACCORDINGLY, RESTORED BACK TO THE FI LE OF THE A.O. TO ALLOW THE ASSESSEE AN OPPORTUNITY TO STATE ITS CASE WITH REFE RENCE TO ITS ACCOUNTS AND OTHER RELEVANT RECORDS. THE A.O. SHALL VERIFY THE ASSESSEES CLAIM IN LIGHT THEREOF, DECIDING THE MATTER IN CONSISTENCE WITH THE OBTAINING FACTS AND CIRCUMSTAN CES OF THE CASE, ISSUING DEFINITE FINDINGS OF FACT. WE DECIDE ACCORDINGLY. 4 ITA NO.1216/MUM/2012 (A.Y. 2007-08) KALVA MARKETING & SERVICES LTD. VS. DY. CIT 5. THE SECOND GROUND OF APPEAL IS IN RESPECT OF THE ADJUSTMENT TO THE BOOK PROFIT U/S.115JB ON ACCOUNT OF THE DISALLOWANCE U/S.14A. T HERE COULD BE NO DISPUTE WITH REGARD THERETO INASMUCH AS THE SAID ADJUSTMENT IS PROVIDED FOR BY LAW UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB. THE MATTER WITH REGARD TO THE D ISALLOWANCE U/S.14A HAVING BEEN RESTORED BY US BACK TO THE ASSESSING AU THORITY, THIS MATTER WOULD SIMILARLY ALSO REQUIRE BEING SET ASIDE TO HIS FILE FOR DETERM INATION IN CONSISTENCE WITH HIS FINDINGS QUA THE DISALLOWANCE U/S.14A. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 9 6: -96 5 %;5 !<(= ( +$ >6 5 &6 ? ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 16, 20 13 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) !'# / VICE PRESIDENT () %*+ / ACCOUNTANT MEMBER MUMBAI; @* DATED : 16.08.2013 $..%./ ROSHANI , SR. PS *(8 5 26A B(A.6 *(8 5 26A B(A.6 *(8 5 26A B(A.6 *(8 5 26A B(A.6/ COPY OF THE ORDER FORWARDED TO : 1. /1 / THE APPELLANT 2. 23/1 / THE RESPONDENT 3. C ( ) / THE CIT(A) 4. C / CIT CONCERNED 5. A$FG 26 , , / DR, ITAT, MUMBAI 6. G- H / GUARD FILE *(8% *(8% *(8% *(8% / BY ORDER, ! !! !/ // /% & % & % & % & (DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI