PRIME WOVENS LTD, MUMBAI V. DCIT CIR 3(2), MUMBAI

ITA 1426/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3417 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 10-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ANUJ KISANDWALA
• Keywords: Transactions in derivatives; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

M/S PRIME WOVENS LIM ITED ITA 1426 /M/2014 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A , MUMBAI , , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDICIAL MEMB ER ITA NO. : 1426 /MUM/20 1 4 (ASSESSMENT YEAR: 20 1 0 - 1 1 ) M/S PRIME WOVENS LIMITED , 11 - B, MITTAL TOWER, NARIMAN POINT, MUMBAI - 400 021 .: PAN: AACCP 9493 M VS DCIT - 3(2), AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ANUJ KISANDWALA RESPONDENT BY : SHRI SANDEEP GOEL /DATE OF HEARING : 10 - 0 3 - 201 6 / DATE OF PRONOUNCEMENT : 21 - 03 - 201 6 . ORDER : . . : PER AMIT SHUKLA , JM : THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSES S EE AGAINST IMPUGNED ORDER DATED 18 .12.2013, PASSED BY C OMMISSIONER OF I NCOME T AX (A PPEALS ) - 4 [CIT(A)] MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR 20 1 0 - 1 1 . 2. THE ONLY ISSUE RAISED IN THE GROUNDS OF APPEAL IS DISALLOWANCE OF RS.1,69,744/ - MADE BY THE AO UNDER SECTION 14A R.W. RULE 8D. 3. BRIEF FACTS ARE THAT , THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF RS.14,50,836/ - ON TOTAL INVESTMENT OF RS. 3,21,36,613/ - . M/S PRIME WOVENS LIM ITED ITA 1426 /M/2014 2 I N THE COMPUTATION OF INCOME, THE ASSESSEE HAS DISALLOWED RS.25,000/ - ON ACCOUNT INDIRECT EXPENSES AND RS.5,355/ - ON ACCOUNT OF SECURITIES TRANSACTION T AX CHARGES (STT). IN RESPONSE TO THE SHOW CAUSE NOTICE, AS TO WHY SUCH A DISALLOWANCE SHOULD NOT BE WORKED OUT IN ACCORDANCE WITH RULE 8D(2), THE ASSESSEE SUBMITTED THAT, THE EXPENDITURE INCURRED UNDER HEAD ADMINISTRATION CHARGES WAS IN THE COURSE OF CA RRYING OUT THE BUSINESS AND NOTHING HAS BEEN INCURRED OR CAN BE SAID TO BE ATTRIBUTABLE FOR THE EARNING OF THE EXEMPT INCOME. HOWEVER, THE LD. AO REJECTED THE ASSESSEES CONTENTIONS AND WORKED OUT THE DISALLOWANCE OF INDIRECT EXPENSES AS PER RULE 8D, THA T IS, BY TAKING 0.5% OF THE AVERAGE VALUE OF INVESTMENT AND ACCORDINGLY , DISALLOWANCE WAS WORKED OUT AT RS.1,69,744/ - . 4. THE LD. CIT(A) TOO HAS CONFIRMED THE SAID DISALLOWANCE. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THE ASSESSEE HAD SHOWN INCOME FROM F&O AT MORE THAN RS. 2 CRORES, WHEREAS, ADMINISTRATIVE EXPENDITURE DEBITED IS ONLY AT RS.34,27,247/ - . THE ADMINISTRATIVE EXPENSES MOSTLY PERTAINED TO THIS BUSINESS ONLY AND CANNOT BE HELD TO BE ATTRIBUTABLE FOR EARNING OF EXEMPT INCOM E. HE FURTHER SUBMITTED THAT, IN THE GROUP CASE OF THE ASSESSEE, THE TRIBUNAL HAS CONSIDERED THIS ASPECT, WHEREIN, IT IS HELD THAT AMOUNT WHICH IS DIRECTLY ATTRIBUTABLE TO BUSINESS CANNOT BE DIS ALLOWED. IN SUPPORT, HE FILED THE ORDER OF THE ITAT IN THE CAS E OF DCIT VS JUBLIANT ENTERPRISES PVT LTD, IN ITA NO. 6364/MUM/2012, ORDER DATED 12.03.2014. HE ALSO GAVE THE WORKING OF DISALLOWANCE ON THE BASIS OF PROPORTIONATE OF EXEMPT INCOME TO THE TOTAL INCOME AS PER THE DIRECTION OF THE TRIBUNAL IN THE SAID CASE , WHICH WORKS OUT TO RS.16,640/ - WHEREAS, THE ASSESSEE ITSELF HAS DISALLOWED RS.25,000/ - . 6. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE CIT(A). M/S PRIME WOVENS LIM ITED ITA 1426 /M/2014 3 7. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AND SUBMISSIONS MADE BY THE PARTIES, WE FIND THAT, THE TOTAL EXPENDITURE DEBITED TO THE PROFIT AND LOSS ACCOUNT IS RS.34,24,237/ - OUT OF WHICH SECURITY TRANSACTION TAX ON F&O TRANSACTION WHICH IS NOT RELATED TO THE EXEMPT INCOME WAS SHOWN AT RS.7,86,716/ - AND STT CHARGES RELA TING TO EARNING OF EXEMPT INCOME WA S RS.5,355/ - WHICH HAS BEEN DISALLOWED BY THE ASSESSEE ITSELF. THE BALANCE EXPENDITURE, WHICH CAN BE SAID TO BE INCURRED FOR EARNING OF BOTH THE EXEMPT AND TAXABLE INCOME WORKS OUT TO RS.26,31,266/ - . IF PROPORTIONATE EXPE NDITURE INCURRED VIS - - VIS THE EARNING OF TOTAL INCOME AND THE EXEMPT INCOME, THEN FOLLOWING PROPORTION W IL L BE WORKED OUT: - PARTICULARS AMOUNT TOTAL INCOME EARNED DURING THE YEAR 22,94,22,128 EXPENDITURE INCURRED FOR EARNING BOTH EXEMPT AND TAXABLE I NCOME 26,31,266 EXEMPT INCOME EARNED DURING THE YEAR 14,50,836 DISALLOWANCE U/S 14A 16,640 WHEREAS, THE ASSESSEE ITSELF HAS DISALLOWED RS.25,000/ - . SECTION 14A(2) CONTEMPLATES THAT AO HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME ONLY WHEN HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, T HE AO IS SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH AN EXPENDITURE. HAVING REGARD TO THE ACCO UNTS OF THE ASSESSEE ASSUMES A GREAT SIGNIFICANCE, BECAUSE THE AO HAS TO EXAMINE ALL THE STREAMS AND NATURE OF INCOME AND THE CORRESPONDING EXPENDITURE DEBITED. IF THE ASSESSEES MAJOR INCOME WAS FROM OTHER ACTIVITIES, WHICH ARE TAXABLE, THEN MOST LIKELY T HE PROPORTIONATE EXPENDITURE WOULD ALSO RELATE TO THE EARNING OF SUCH INCOME UNLESS IT IS FOUND FROM THE ACCOUNTS OR THE RECORDS THAT, ASSESSEE HAS INCURRED MORE EXPENDITURE ON WHICH CAN BE SAID TO BE ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INCOME. THE A O CAN RESORT TO RULE 8D(2) TO WORK OUT THE DISALLOWANCE ONLY WHEN FROM THE EXAMINATION OF ACCOUNTS OF THE ASSESSEE H E FOUNDS THAT IT IS DIFFICULT TO WORK OUT THE EXPENDITURE WHICH CAN BE SAID TO BE M/S PRIME WOVENS LIM ITED ITA 1426 /M/2014 4 ATTRIBUTABLE FOR THE EARNING OF THE EXEMPT INCOME. IN ALL SUCH CASE S , ACCOUNT MAINTAINED BY THE ASSESSEE VIS - A - VI S THE INCOME EARNED HAS TO BE ANALYSED. HERE IN THIS CASE, THE ASSES S EES TOTAL INCOME FROM BUSINESS ACTIVITIES WHICH ARE TAXABLE IS APPROXIMATELY RS. 22.94 CRORES, WHEREAS, EXPENDITURE WHICH CAN BE SA ID TO BE INCURRED FOR EARNING SUCH EXEMPT INCOME IS COMPUTED AT RS.36,26,236/ - SO, BASED ON THIS PROPORTION ONLY THE DISALLOWANCE CAN BE WORKED OUT, WHICH CAN BE SAID TO BE REASONABL E ATTRIBUTION. ACCORDINGLY, WE DIRECT THE AO TO EXAMINE THE NA TURE OF ACCOUNTS OF THE ASSESSEE AND THEN WORK OUT THE DISALLOWANCE ON PROPORTIONATE BASIS AND SHOULD NOT BLINDLY RESORT TO RULE 8D(2). THUS, GROUND OF THE ASSESSEE IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, APPEAL OF THE ASS ESSEE STANDS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH , 2016 . SD/ - SD / - ( ) ( ) ( RAJE NDRA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 21 ST MARCH , 2016 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 4 , MUMBAI . 4 ) THE COMMISSIONER OF INCOME TAX - 3 , MUMBAI . 5 ) , , / THE D.R. A BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . .