FLAT WORLD PROCESSES P.LTD, MUMBAI V. INCOME TAX OFFICER-9(3)(3), MUMBAI

ITA 1495/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7701 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 09-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAITANYA ANJARIA
• Assessee Lawyers: NAVNIT CHOUDHARY
• Keywords: Opportunity of being heard; Earning of tax free income; Corroborative evidences
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER ITA NO. 1495 / MUM . /2018 ( ASSESSMENT YEAR : 20 13 14 ) M/S. FLAT WORLD PROCESSES PVT. LTD. 301, LEVEL 3, CEEJAY HOUSE SHIV SAGAR ESTATE, DR. A.B. ROAD WORLI, MUMBAI 400 018 PAN AABCF1764G . APPELLANT V/S INCOME TAX OFFICER WARD 9 ( 3 ) (3) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI NAVNIT CHOUDHARY REVENUE BY : SHRI CHAITANYA ANJARIA DATE OF HEARING 02 . 01 .201 9 DATE OF ORDER 16.01.2019 O R D E R A FORESAID APPEAL HA S BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 2 7 TH DECEMBER 2017 , PASSED BY THE LEARNED COMMISSIONER (APPEALS) 16 , MUMBAI, FOR THE ASSESSMENT YEAR 20 13 14 . 2 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF ` 6,46,401, UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT ) R/W RULE 8D OF THE I.T. RULES, 1962, 2 M/S. FLAT WORLD PROCESSES PVT. LTD. 3 . BRIEF FACTS ARE, THE ASSESSEE , A COMPANY , IS IN THE BUSINESS OF PROVIDING MANAGEMENT CONSULTANCY SERVICES. FOR THE ASSESSMENT YEAR UNDER DISPUTE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 30 TH SEPTEMBER 2013 DECLARING LOSS OF ` 2,87,073. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFF ICER NOTICING THA T IN THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 14,29,900, CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE UNDER SECTION 14A R/W RULE 8D SHOULD NOT BE MADE . THOUGH, THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE BY SUBMITTING THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME, HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE. HE OBSERVED THAT THE ASSESSEE HAS DEBITED AN A MOUNT OF ` 48,26,222, TOWARDS EXPENDITURES ON SALARIES, AUDIT FEE, TELEPHONE EXPENSES, OFFICE EXPENSES, BANK CHARGES, ETC. HE OBSERVED , A PART OF THE AFORESAID EXPENDITURE MUST BE HAVING A DIRECT OR INDIRECT NEXUS WITH THE EARNING OF EXEMPT INCOME. ACCORDI NGLY, APPLYING THE PROVISIONS OF RULE 8D(2)(III), HE DISALLOWED AN AMOUNT OF ` 6,46,401, BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT MADE BY THE ASSESSEE. BEING AGGRIEVED OF SUCH DISALLOWANCE, THOUGH, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY, HOWEVER, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS SUSTAINED. 3 M/S. FLAT WORLD PROCESSES PVT. LTD. 4 . CONTESTING THE DISALLOWANCE MAD E UNDER SECTION 14A R/W RULE 8D THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE INVESTMENTS ON WHICH THE ASSESSEE HAS RECEIVED DIV IDEND INCOME IN THE IMPUGNED ASSESSMENT YEAR WERE OLD INVESTMENTS. THEREFORE , THE ASSESSEE DID NOT INCUR ANY EXPENSE EITHER DIRECT OR INDIRECT IN THE IMPUGNED ASSESSMENT YEAR IN RESPECT OF SUCH INVESTMENT S . 5 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , IN THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAS EARNED DIVIDEND IN RESPECT OF EQUITY SHARES OF M/S. BHUSHAN STEEL LTD., AXIS BANK LTD., AND HDFC BANK LTD. T HUS, HE SUBMITTED , THE INVESTMENTS ON WHICH THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR SHOULD BE EXCLUDED FROM THE AVERAGE VALUE OF INVESTMENT FOR COMPUTING DISALLOWANCE UNDER RULE 8D(2)(III). HE SUBMITTED , EVEN WITH REGARD TO THE OTHER EXPENDITURE S DEBITED TO THE PROFIT & LOSS ACCOUNT , THE ASSESSEE CAN ESTABLISH O N RECORD THAT SUCH EXPENDITURES WERE RELATED TO THE BUSINESS ACTIVITIES AND NOT TO THE INVESTMENT ACTIVITY. IN THIS CONTEXT, HE DREW OUR ATTENTION TO THE DETAILS OF HEAD WISE EXPENDITURE INCURRED DURING THE YEAR. THUS, HE SUBMITTED , THE DISALLOWANCE MADE B Y THE ASSESSING OFFICER SHOULD BE DELETED OR BE RESTRICTED TO CERTAIN PERCENTAGE OF THE DIVIDEND INCOME EARNED DURING THE YEAR. 4 M/S. FLAT WORLD PROCESSES PVT. LTD. 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , NEITHER BEFORE THE ASSESSING OFFICER NOR BEFORE THE LEARNED COMMISSIONER (AP PEALS) THE ASSESSEE HAS FURNISHED ANY FACTUAL DETAILS TO ESTABLISH THAT THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT WERE PURELY IN RESPECT OF THE BUSINESS ACTIVITIES AND NOT RELATED TO THE INVESTMENT ACTIVITY. HE SUBMITTED , THE FACTUAL AND LEGAL S UBMISSIONS MADE BY THE ASSESSEE NOW BEFORE THE TRIBUNAL , SINCE , WERE NEVER MADE BEFORE THE DEPARTMENTAL AUTHORITIES , THE ISSUE MAY BE RESTORED TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION. 7 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT SINCE THE INVESTMENTS IN EQUITY SHARES WERE MADE IN EARLIER ASSESSMENT YEARS, HENCE, NO EXPENDITURE IS INCURRED , IN MY VIEW , IS A VERY SPACIOUS ARGUMENT. THE ONUS IS ON THE ASSESSEE TO FA CTUALLY ESTABLISH THAT THE EXPENDITURE DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER VARIOUS HEADS , AS REFERRED TO BY THE ASSESSING OFFICER , HAVE NO CONNECTION WITH THE INVESTMENT ACTIVITY. THOUGH, IT MAY BE A FACT THAT THE INVESTMENTS ARE CONTINUING FROM THE PAST YEARS, HOWEVER, THE ASSESSEE MUST BE MONITORING SUCH INVESTMENT AND MUST BE TAKING CERTAIN ADMINISTRATIVE DECISIONS WHETHER TO CONTINUE WITH SUCH INVESTMENT S OR NOT. THIS REQUIRES DEVOTION OF TIME AND ENERGY TO LOOK AFTER THE INVESTMENT ACTIVITIES AS WELL. THEREFORE, EITHER THE 5 M/S. FLAT WORLD PROCESSES PVT. LTD. MANAGEMENT OR SOME OF THE EMPLOYEES MUST ALSO BE MONITORING THE INVESTMENT PORTFOLIOS HELD BY THE COMPA N Y. THE R EFORE, WITHOUT ANY COGENT EVIDENCE BRO UGHT ON RECORD IT CANNOT BE SAID THAT NO PART OF THE EXPENDITURE DEBITED TO TH E PROFIT & LOSS ACCOUNT IS ATTRIBUTABLE TOWARDS EARNING OF EXEMPT INCOME. THOUGH, BEFORE ME, THE LEARNED AUTHORISED REPRESENTATIVE HAS FURNISHED CERTAIN FACTUAL DETAILS RELATING TO EXPENDITURE INCURRED UNDER VARIOUS HEADS TO IMPRESS UPON THE FACT THAT THEY WERE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ACTIVITY, HOWEVER, FROM THE FACTS AND MATERIALS ON RECORD, IT APPEARS THAT SUCH FACTUAL DETAILS WERE NOT FURNISHED BEFORE THE DEPARTMENTAL AUTHORITIES. THEREFORE, THE ASSESSEE IS REQUIRED TO FURNISH A WORKING OF EXPENDITURE WHICH ACCORDING TO IT IS ATTRIBUTABLE TOWARDS EARNING OF EXEMPT INCOME AND NEEDS TO BE DISALLOWED UNDER RULE 8D(2)(III). OF COURSE, I FULLY AGREE WITH THE CONTENTION OF THE LEARNED AUTHORISED REPRESENTATIVE THAT WHILE COMPUTING SUC H DISALLOWANCE THE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR, SHOULD BE REDUCED FROM THE AVERAGE VALUE OF INVESTMENT. ACCORDINGLY, I AM INCLINED TO RESTORE THE ISSUE TO THE ASSESSING OFFICER TO COMPUTE THE DISAL LOWANCE UNDER RULE 8D(2)(III) R/W SECTION 14A AFRESH. THE ASSESSING OFFICER MUST EXAMINE THE WORKING OF ADMINISTRATIVE EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AS PER RULE 8D(2)(III) TO BE FURNISHED BY THE ASSESSEE AND COMPUTE THE DISALLOWANCE UNDER THE SAID RULE AFTER VERIFYING THE CLAIM OF THE 6 M/S. FLAT WORLD PROCESSES PVT. LTD. ASSESSEE. WHILE DOING SO, THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE FROM THE AVERAGE VALUE OF INVESTMENT THE INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. THE ASSESSING OFFICER MUST AFFORD REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE BEFORE DECIDING THE ISSUE. THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 8 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF EXPENDITURE AMOUNTING TO ` 19, 43,926. 9 . BRIEF FACTS ARE, IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 19,43,926, TO THE PROFIT & LOSS ACCOUNT TOWARDS ASSETS WRITTEN OFF. BEING OF THE VIEW THAT THE EXPENDITURE CLAIME D BY THE ASSESSEE IS CAPITAL IN NATURE, HE DIRECTED THE ASSESSEE TO SHOW CAUSE WHY IT SHOULD NOT BE DISALLOWED AS IT IS NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT. AS OBSERVED BY THE ASSESSING OFFICER , VIDE LETTER DATED 16 TH DECEMBER 2015, THE ASSESSEE S IMPLY SUBMITTED A GENERAL REPLY WHICH ACCORDING TO THE ASSESSING OFFICER WAS NOT SATISFACTORY. THEREFORE, HE DISALLOWED THE AMOUNT OF ` 19,43,926. THOUGH, THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, IT WAS UNSUCCESSFUL. 7 M/S. FLAT WORLD PROCESSES PVT. LTD. 10 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , DURING THE SHIFTING OF OFFICE PREMISES, CERTAIN FIXED ASSETS IN THE NATURE OF OFFICE EQUIPMENT WERE EITHER DESTROYED AND DAMAGED OR RENDERED UNUSABLE. FURTHER, CERTAIN ASSETS COULD NOT BE SHIFTED DUE TO THEIR PERMANENT NATURE. HE SUBMITTED , SINCE THE FIXED ASSETS BECAME UNUSABLE AND COULD NO LONGER BE USED FOR BUSINESS , THE MANAGEMENT DECIDED TO DISCARD / WRITE OFF THE FIXED ASSETS DURING THE YEAR. HE SUBMITTED , SINCE SUCH WRITE OFF WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS IT IS ALLOWABLE. 11 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSERVATIONS OF THE ASSESSING OFFICER AND THE LEARNED COMMISSIONER (APPEALS) SUBMITTED , SINCE, THE ASSES SEE HAS NEITHER FURNISHED ANY FACTUAL DETAILS RELATING TO THE WRITE OFF NOR ANY COGENT EXPLANATION TO JUSTIFY ITS CLAIM , THE DISALLOWANCE OF EXPENDITURE WAS PROPER. 12 . I HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THOUGH, THE ASSESSEE H AS CLAIMED DEDUCTION OF ` 19,43,926, ON ACCOUNT OF ASSETS WRITTEN OFF, HOWEVER, THE DETAILS OF SUCH ASSETS HAVE NEITHER BEEN FURNISHED IN THE AUDITED ACCOUNTS NOR THE ASSESSEE HAS FURNISHED ANY COGENT EXPLANATION BEFORE THE ASSESSING OFFICER JUSTIFYING THE CLAIM. THERE IS NOTHING ON RECORD TO DEMONSTRATE THE EXACT NATURE OF ASSETS WRITTEN OFF BY THE ASSESSEE EXCEPT THE NARRATION IN THE PROFIT & LOSS ACCOUNT ASSETS WRITTEN OFF . EVEN IN THE REPLY 8 M/S. FLAT WORLD PROCESSES PVT. LTD. DATED 16 TH DECEMBER 2015 FILED BEFORE THE ASSESSING OFFICER , A COPY OF WHICH IS AT PAGE 26 OF THE PAPER BOOK, THE ASSESSEE HAS NEITHER FURNISHED ANY FACTUAL DETAILS RELATING TO THE NATURE OF ASSETS NOR ANY COGENT EXPLANATION JUSTIFYING ITS CLAIM. THEREFORE, IN SUCH CIRCUMSTANCES, THE DEPARTMENTAL AUTHORITIES COULD N OT HAVE ALLOWED ASSESSEES CLAIM. THOUGH, BEFORE ME, THE LEARNED AUTHORISED REPRESENTATIVE HAS SUBMITTED THAT THE ASSETS WRITTEN OFF ARE CERTAIN OFFICE EQUIPMENTS WHICH GOT DESTROYED OR DAMAGED OR RENDERED UNUSABLE DUE TO SHIFTING OFFICE PREMISES, HOWEVER, NEITHER SUCH SUBMISSIONS WERE MADE BEFORE THE DEPARTMENTAL AUTHORITIES NOR ANY SUPPORTING EVIDENCE HAS BEEN FILED BY THE ASSESSEE IN THIS REGARD. THEREFORE, I AM INCLINED TO AFFORD ANOTHER OPPORTUNITY TO THE ASSESSEE JUSTIFY ITS CLAIM BY PRODUCING COGENT EVIDENCE. ACCORDINGLY, THE ISSUE IS RESTORED TO THE ASSESSING OFFICER FOR DE NOVO ADJUDICATION AFTER DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 13 . IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PU RPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 9 M/S. FLAT WORLD PROCESSES PVT. LTD. COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI