PARSOLI CORPORATION LTD, MUMBAI V. DCIT 4(2), MUMBAI

ITA 1431/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49260 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 22-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARTHA SARATHI NAIK
• Assessee Lawyers: VINAY SHETTY
• Keywords: Unexplained cash credit; Revenue expenditure; Capital expenditure
• Section: 14A; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 1431/MUM/2010 (ASSESSMENT YEAR: 2006-07) M/S. PARSOLI CORPORATION LTD. D C I T - 4 (2) 121-122, 2ND FLOOR, ASHOK 6TH FLOOR, AAYAKAR BHAVAN SHOPPING CENTRE, L.T. MARG VS. M.K. ROAD, MUMBAI 400020 MUMBAI 400001 PAN - AABLP 9030 F APPELLANT RESPONDENT APPELLANT BY: SHRI VINAY SHETTY RESPONDENT BY: SHRI PARTHASARATHI NAIK O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED CIT(A) VIII, MUMBAI DATED 11.12.2009. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DIS ALLOWANCE OF ` 7,22,619/- MADE BY THE A.O. AND CONFIRMED BY THE LE ARNED CIT(A) UNDER SECTION 14A READ WITH RULE 8D. 3. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE EARNE D DIVIDEND INCOME OF ` 23,289/-, WHICH WAS CLAIMED TO BE EXEMPT FROM TAX. ACCORDING TO THE A.O., CERTAIN PERCENTAGE OF THE EXPENSES CLAIME D BY THE ASSESSEE WOULD DEFINITELY BE ATTRIBUTABLE TO THE SAID TAX FREE INC OME EARNED BY THE ASSESSEE AS IT WAS A COMMON POOL OF HUMAN AND FINANCIAL RESO URCES WHICH WERE UTILISED TO EARN THE INCOME IN VARIOUS FORMS. HE TH EREFORE WORKED OUT THE QUANTUM OF SUCH EXPENSES BY APPLYING RULE 8D OF THE INCOME TAX RULES, 1962 AT ` 7,22,619/- AND MADE A DISALLOWANCE TO THAT EXTENT U NDER SECTION 14A OF THE ACT. ON APPEAL, THE LEARNED CIT(A) CONFI RMED THE SAID DISALLOWANCE. ITA NO. 1431/MUM/2010 M/S. PARSOLI CORPORATION LTD. 2 4. WE HAVE HEARD THE ARGUMENTS OF BOTH PARTIES AND ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE HE JUDGEMENT DE LIVERED IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT (234 CTR 1), THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D OF THE INCOME TAX RULES, 1962 IS APPLICABLE ONLY PROSPECTIVELY, I.E. FROM A.Y. 2008- 09. AS FURTHER HELD BY THE HON'BLE BOMBAY HIGH COURT, THE QUANTUM OF DISALLOWA NCE UNDER SECTION 14A FOR THE YEARS EARLIER TO A.Y. 2008-09 HAS TO BE WORKED OUT BY ADOPTING SOME REASONABLE METHOD. KEEPING IN VIEW THE DECISIO N OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG . CO. LTD. (SUPRA), WE SET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO WORK-OUT THE QUANTUM OF DISALLOWANCE OF EXPENSES TO BE MADE UNDER SECTION 1 4A BY ADOPTING SOME REASONABLE METHOD AFTER AFFORDING THE ASSESSEE AN O PPORTUNITY OF BEING HEARD. GROUND NO. 1 OF ASSESSEES APPEAL IS ACCORDI NGLY TREATED AS ALLOWED. 5. THE ISSUE RAISED IN GROUND NO. 2 RELATES TO DISALLO WANCE OF ` 3,55,000/- MADE BY THE A.O. AND CONFIRMED BY THE LE ARNED CIT(A) ON ACCOUNT OF SEBI REGISTRATION FEES WRITTEN OFF. 6. DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAD W RITTEN OFF SEBI REGISTRATION FEES OF ` 3,55,000/-. THE SAID AMOUNT WAS PAID BY ASSESSEE TO SEBI IN THE YEAR 1998-99 FOR PURCHASE OF LICENCE TO CARRY ON THE ACTIVITY OF PORTFOLIO MANAGEMENT SERVICES (PMS). IT WAS CLAIMED THAT THE SAID LICENCE GRANTED BY SEBI HAD EXPIRED IN THE YEAR UNDER CONSI DERATION AND THEREFORE THE AMOUNT OF ` 3,55,000/- PAID FOR THE SAID LICENCE WAS WRITTEN OF F AND CLAIMED AS DEDUCTION. ACCORDING TO THE A.O., THE AC TIVITY OF PMS WAS COMPLETELY A NEW LINE OF BUSINESS AND EXPENDITURE I NCURRED FOR PURCHASE OF LICENCE TO CARRY ON THE SAID ACTIVITY WAS CAPITAL I N NATURE. HE THEREFORE DISALLOWED THE DEDUCTION CLAIMED BY ASSESSEE ON THI S ISSUE. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAID DISALLOWANCE MADE BY THE A.O. HOLDING THAT THE EXPENDITURE INCURRED BY ASSESSEE ON PURCHA SE OF LICENCE IN THE YEAR 1998-99 WAS A CAPITAL EXPENDITURE AND THE SAME COUL D NOT BECOME A REVENUE EXPENDITURE IN THE YEAR UNDER CONSIDERATION ON EXPIRY OF THE LICENCE. ITA NO. 1431/MUM/2010 M/S. PARSOLI CORPORATION LTD. 3 7. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. ALTHOUGH THE LEARNED C OUNSEL FOR THE ASSESSEE HAS CONTENDED THAT THE ACTIVITY OF PMS CARRIED ON B Y ASSESSEE WAS NOT A NEW LINE OF BUSINESS BUT THE SAME WAS EXTENSION/EXPANSI ON OF ITS EXISTING BUSINESS OF SHARE BROKING, HE HAS NOT BEEN ABLE TO EXPLAIN AS TO HOW THE ACTIVITY OF PMS CAN BE REGARDED AS EXTENSION/EXPANS ION ON THE EXISTING BUSINESS OF THE ASSESSEE OF SHARE BROKING. AS RIGHT LY POINTED OUT BY THE LEARNED D.R., THE NATURE OF SERVICES RENDERED BY PO RTFOLIO MANAGER IS ENTIRELY DIFFERENT FROM THE SERVICES RENDERED BY A SHARE BRO KER IN AS MUCH AS PORTFOLIO MANAGER IS EXPECTED TO GIVE ADVICE TO HIS CLIENTS FOR TAKING INVESTMENT DECISIONS WHEREAS THE SHARE BROKER IS RE QUIRED ONLY TO PURCHASE AND SELL SHARES AS PER THE INSTRUCTION OF HIS CLIEN TS AS A MEMBER OF THE STOCK EXCHANGE. MOREOVER, THE LICENCE FEES IN QUESTION WA S PAID BY ASSESSEE TO SEBI IN THE YEAR 1998-99 AND IF AT ALL THE SAME CON STITUTED REVENUE EXPENDITURE AS NOW CLAIMED BY ASSESSEE, THE DEDUCTI ON SHOULD HAVE BEEN CLAIMED IN THE YEAR OF PAYMENT ITSELF WHEN THE EXPE NDITURE WAS ACTUALLY INCURRED AND NOT IN THE YEAR UNDER CONSIDERATION. A S RIGHTLY OBSERVED BY THE LEARNED CIT(A) IN THIS CONTEXT, THE CAPITAL EXPENDI TURE INCURRED IN EARLIER YEAR ON PAYMENT OF LICENCE FEES WOULD NOT BECOME RE VENUE EXPENDITURE IN THE YEAR UNDER CONSIDERATION ON EXPIRY OF THE SAID LICENCE. IN OUR OPINION, ASSESSEE THUS IS NOT ENTITLED FOR DEDUCTION ON ACCO UNT OF LICENCE FEES IN QUESTION PAID TO SEBI FROM ANY ANGLE AND THE LEARNE D CIT(A) WAS FULLY JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE BY TH E A.O. ON THIS ISSUE. GROUND NO. 2 OF ASSESSEE IS ACCORDINGLY DISMISSED. 8. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO ADDITIO N OF ` 32,28,125/- MADE BY THE A.O. AND CONFIRMED BY THE LEARNED CIT(A ) ON ACCOUNT OF UNEXPLAINED CASH CREDIT UNDER SECTION 68. 9. THE UNSECURED LOAN TAKEN BY THE ASSESSEE FROM HABIB ULLAH AKUDI AND SQUARED OFF DURING THE YEAR UNDER CONSIDERATION WAS TREATED BY THE A.O. AS UNEXPLAINED CASH CREDIT SINCE NO CONFIRMATION OF TH E SAID CREDITOR WAS FILED BY ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEED INGS GIVING THE RELEVANT INFORMATION SUCH AS NAME AND ADDRESS, PERMANENT ACC OUNT NUMBER, ETC. ITA NO. 1431/MUM/2010 M/S. PARSOLI CORPORATION LTD. 4 AND THE AMOUNT THEREOF WAS ADDED TO THE TOTAL INCOM E OF ASSESSEE. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE SAID ADDIT ION MADE BY THE A.O. OBSERVING THAT THERE WAS FAILURE ON THE PART OF ASS ESSEE TO ESTABLISH THE IDENTITY OF THE CREDITOR, GENUINENESS OF THE TRANSA CTION AND CREDITWORTHINESS OF THE CREDITOR. 10. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FO R THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE LOAN OF ` 32,28,125/- WAS RECEIVED BY ASSESSEE COMPANY IN THE EARLIER YEAR AND NOT IN THE YEAR UND ER CONSIDERATION. HE HAS FILED COPIES OF RELEVANT FINANCIAL STATEMENTS TO SU PPORT AND SUBSTANTIATE THIS CONTENTION. HE HAS CONTENDED THAT ASSESSEE WAS NOT GIVEN PROPER AND SUFFICIENT OPPORTUNITY TO PUT FORTH ITS CASE ON THI S ISSUE AND IN THE ABSENCE OF SUCH OPPORTUNITY, THIS MATERIAL ASPECT COULD NOT BE BROUGHT TO THE NOTICE OF THE AUTHORITIES BELOW. IT IS NO DOUBT TRUE, AS H ELD INTER ALIA BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. USHA STUD A GRICULTURAL FARMS LTD. 301 ITR 384(DEL) THAT ADDITION UNDER SECTION 68 CAN BE MADE ONLY IN RESPECT OF CASH CREDITS PERTAINING TO THE RELEVANT YEAR AND NO ADDITION UNDER THE SAID PROVISIONS CAN BE MADE IN RESPECT OF CREDIT BA LANCES WHICH PERTAIN TO THE EARLIER YEARS AND NOT TO THE RELEVANT YEAR UNDE R CONSIDERATION. HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED D.R., THIS ASPE CT THAT THE LOAN IN QUESTION WAS RECEIVED BY THE ASSESSEE FROM HABIBULL AH AKUDI IN THE EARLIER YEAR AND NOT IN THE YEAR UNDER CONSIDERATION HAS BE EN POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE FOR THE FIRST TIME BEFORE THE TRIBUNAL AND AS THE SAME REQUIRES VERIFICATION FROM RECORD, AN OPPO RTUNITY NEEDS TO BE GIVEN TO THE A.O. FOR SUCH VERIFICATION. WE, THEREFORE, S ET ASIDE THE IMPUGNED ORDER OF THE LEARNED CIT(A) ON THIS ISSUE AND RESTORE THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO VERIFY THE STAND OF THE AS SESSEE THAT THE LOAN AMOUNT IN QUESTION TREATED AS UNEXPLAINED CASH CREDIT WAS RECEIVED BY ASSESSEE IN THE EARLIER YEAR AND IF THE SAME IS FOUND TO HAVE R ECEIVED IN THE EARLIER YEAR, THE A.O. IS DIRECTED TO DELETE THE ADDITION MADE UN DER SECTION 68. GROUND NO. 3 OF ASSESSEES APPEAL IS ACCORDINGLY TREATED A S ALLOWED. ITA NO. 1431/MUM/2010 M/S. PARSOLI CORPORATION LTD. 5 11. IN THE RESULT, APPEAL OF ASSESSEE IS TREATED AS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH JUNE 2011. SD/- SD/- (VIJAY PAL RAO) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH JUNE 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VIII, MUMBAI 4. THE CIT IV, MUMBAI CITY 5. THE DR, C BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.