M/s.Vision EL Tech and Services Pvt. ltd., Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1519/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5290 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 22-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH A BEFORE SHRI VIJAYPAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1519 /BANG/2016 (ASST. YEAR 2012-13 ) VISION EL TECH AND SERVICES PVT LTD., 16, II FLOOR, PRANAVA PARK, INFANTRY ROAD, BANGALORE-560 001. . APPELLANT VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE 7(1)(2), BANGALORE. . RESPONDENT APPELLANT BY : MS. GIRIJA, C.A RESPONDENT BY : SMT. SWAPNA DAS, JCIT DATE OF HEARING : 29-5-2017 DATE OF PRONOUNCEMENT : -5-2017 O R D E R PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) -7, BANGALORE DATED 30/6/2016 FOR ASST. YEAR 2012-13. ITA NO.1519/B/16 2 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE AS UND ER:- 2.1 THE ASSESSEE COMPANY, ENGAGED IN FINANCIAL AND OTHER SERVICES, FILED ITS RETURN FOR ASST. YEAR 2012-13 ON 29/9/201 2 DECLARING TOTAL INCOME OF RS.77,19,260/-. THE CASE WAS TAKEN UP FO R SCRUTINY AND THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) VIDE ORDER DATED 25/2/2015, WHEREI N THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.82,83,090/-, IN VIEW OF DISALLOWANCE OF RS.5,63,830/- U/S 14A R.W RULE 8D. THE ASSESSEES APPEAL WAS DISMISSED BY THE LD CIT(A) 7, BANGALORE VIDE THE IMPUGNED ORDER DATED 30/6/2016. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A)-7, BANGALO RE DATED 30/6/2016 FOR ASST. YEAR 2012-13, THE ASSESSEE HAS PREFERRED THIS APPEAL, RAISING THE FOLLOWING GROUNDS CHALLENGING T HE ACTION OF THE AUTHORITIES BELOW IN MAKING AND SUSTAINING THE AFOR ESAID DISALLOWANCE U/S 14A R.W RULE 8D.:- 1 .THAT THE ORDER OF THE ASSESSING OFFICER / CIT(APPEALS) IN SO FAR AS IT IS AGAINST THE APPELLA TE IS AGAINST THE LAW, FACTS, CIRCUMSTANCES, NATURAL JUST ICE, EQUITY AND ALL OTHER KNOWN PRINCIPLES OF LAW. ITA NO.1519/B/16 3 2. THAT THE TOTAL INCOME COMPUTED AND THE TOTAL TAX COMPUTED IS HEREBY DISPUTED. 3. THE LEARNED CIT-APPEALS ERRED IN UPHOLDING THE DISALLOWANCE MADE U/S 14A R.W.R 8D AMOUNTING TO RS. 5,63,830/-. 4. THE AUTHORITIES BELOW ERRED IN INVOKING SEC. 14A WITHOUT RECORDING ANY REASONS. 5. THE AUTHORITIES BELOW ERRED IN HOLDING THAT THE ABOVE SUMS WERE INCURRED FOR PURPOSES OF EARNING NON-TAXABLE INCOME. 6. FOR THE ABOVE AND OTHER GROUNDS AND REASONS WHICH MAY BE SUBMITTED DURING THE COURSE OF HEARING OF THIS APPEAL, THE ASSESSEE REQUESTS THAT THE APPE AL BE ALLOWED AS PRAYED AND JUSTICE BE RENDERED. 3.2 SINCE ALL THE GROUNDS RAISED (SUPRA) PERTAIN TO THE ISSUE OF DISALLOWANCE U/S 14A R.W RULE 8D MADE AND SUSTAINED BY THE AUTHORITIES BELOW, THE SAME ARE TAKEN TOGETHER FOR CONSIDERATION. IN ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (AO ) NOTICED THAT THE ASSESSEE HAD EARNED EXEMPT DIVIDEND OF RS.15,73,300 /- ON ACCOUNT OF INVESTMENT IN EQUITY SHARES. THE ASSESSEE SUBMITTED THAT NO ITA NO.1519/B/16 4 EXPENDITURE WAS INCURRED TO EARN THIS EXEMPT INCOME . THE AO, ON EXAMINATION OF THE ASSESSEES CLAIM WITH RESPECT TO THE EXPENDITURE INCURRED FOR EARNING SUCH EXEMPT INCOME, WAS OF THE VIEW THAT THE ASSESSEE HAD UTILIZED THE COMMON KITTY OF FUNDS FO R INVESTMENT AND SINCE THERE WAS NO PROOF OF DIRECT NEXUS BETWEEN TH E FUNDS AND INVESTMENTS DISALLOWANCE U/S 14A R.W RULE 8D(2) OF IT RULES, 1962 WAS CALLED FOR AND DISALLOWANCE AMOUNTING TO RS.5,6 3,830/- WAS MADE; RS.5,896/- U/R 8D(2)(II) AND RS.5,57,934/- U /R 8D(2)(III) OF THE RULES. ON APPEAL, THE SAID DISALLOWANCE WAS SU STAINED BY THE LD CIT(A). 3.3 AT THE OUTSET OF THE HEARING, THE LD AR FOR THE ASSESSEE SUBMITTED THAT THE GROUNDS RAISED IN RESPECT OF THE DISALLOWANCE U/S 14A R.W RULE 8D, IN AS MUCH AS, IS IN RESPECT OF TH E DISALLOWANCE TO THE EXTENT OF RS.5,896/- U/R 8D(2)(II) IS NOT PRESS ED DUE TO SMALLNESS OF THE AMOUNT INVOLVED. WE, THEREFORE, UPHOLD THE DISALLOWANCE OF RS.5,896/-, MADE BY THE AO U/S 14A R.W RULE 8D(2)( III) OF THE RULES. 3.4 IN RESPECT OF THE DISALLOWANCE U/S 14A R.W RULE 8D(2)(III) AMOUNTING TO RS.5,57,936/-, THE LD AR FOR THE ASSES SEE SUBMITTED THAT ITA NO.1519/B/16 5 THE ASSESSEE HAS NOT INCURRED ANY ADMINISTRATIVE EX PENDITURE FOR EARNING THE EXEMPT DIVIDEND INCOME. IT WAS FURTHER SUBMITTED THAT THE AO HAS NOT POINTED OUT OR IDENTIFIED WHICH EXPENDIT URE INCURRED WAS HAVING NEXUS WITH THE EARNING OF EXEMPT INCOME. IN THIS REGARD, THE LD AR SUBMITTED THAT, AS PER SCHEDULE 11 OF THE FIN ANCIAL STATEMENTS OF THE ASSESSEE (PLACED AT PAGES 39 TO 44 OF PAPER BOO K) AT PAGE 44 THEREOF REFLECTING OTHER EXPENDITURE OF RS.2,11,411 /-, THE BREAK UP AT PAGE 21 OF PAPER BOOK WOULD GO TO SHOW THAT OUT OF THE SUM OF RS.1,54,777/- ON ACCOUNT OF SECURITIES TRANSACTION TAX WAS DISALLOWED SUO MOTO BY THE ASSESSEE AND REFLECTED IN ITS COMPU TATION OF INCOME (PLACED AT PAGE 37 TO 44 OF PAPER BOOK). IT WAS CO NTENDED THAT IF AT ALL THE DISALLOWANCE U/R 8D(2)(III) WAS CALLED FOR, IT OUGHT TO BE RESTRICTED TO EXPENDITURE INCURRED ON BANK CHARGES OF RS.308/- AND MISCELLANEOUS EXPENSES OF RS.2,615/-. RELYING ON T HE DECISION OF A CO-ORDINATE BENCH IN THE CASE OF M/S M.N DASTUR CO. PVT. LTD., IN ITA NO.94/BANG/2014 DATED 7/10/2015 IT WAS SUBMITTED TH AT WHEN THE AO HAS NEITHER RECORDED HIS SATISFACTION NOR IDENTIFIE D THE EXPENDITURE WHICH CAN BE APPORTIONED FOR EARNING EXEMPT INCOME, THEN THE DISALLOWANCE MADE BY THE AO IS NOT SUSTAINABLE. ITA NO.1519/B/16 6 3.5 PER CONTRA, THE LD DR FOR REVENUE PLACED RELIAN CE ON THE DECISION OF THE AUTHORITIES BELOW. 3.5.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD; INCLUDING THE JU DICIAL PRONOUNCEMENTS CITED. FROM THE DETAILS FILED IT IS OBSERVED THAT THERE ARE SEVERAL INSTANCES OF FRESH INVESTMENT AS WELL A S SALE OF INVESTMENT IN SHARES, EVIDENCING FREQUENT MOVEMENT IN THE ASSE SSEES INVESTMENT PORTFOLIO AND ACCORDINGLY IT CANNOT BE ACCEPTED THA T NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE FOR EARNING EXEMP T INCOME, THEN THE EXPENDITURE INCURRED IN RELATION TO THE SALARY/REMU NERATION ETC. OF TOP MANAGEMENT AND HIGHER EXECUTIVES INVOLVED IN THE PR OCESS OF TAKING DECISIONS OF PURCHASE/SALE OF INVESTMENTS HAVE AN A PPROXIMATE NEXUS WITH THE INVESTMENT MADE BY THE ASSESSEE FOR EARNIN G EXEMPT INCOME. THEREFORE, IT IS A MATTER OF FINDING OF FACT AS TO WHICH OF THE EXPENDITURE CAN BE ATTRIBUTABLE, BEING INDIRECT EXP ENDITURE INCURRED FOR AN ACTIVITY, WHICH RESULTED IN EARNING OF EXEMP T AS WELL AS TAXABLE INCOME. SINCE THERE IS FREQUENT MOVEMENT IN THE IN VESTMENT PORTFOLIO OF THE ASSESSEE, THEREFORE, QUESTION WHICH REQUIRES TO BE ASCERTAINED IS THOSE PARTICULAR ITEMS OF EXPENDITURE DEBITED BY TH E ASSESSEE IN ITS ITA NO.1519/B/16 7 PROFIT AND LOSS ACCOUNT WHICH CAN BE APPORTIONED AN D COMPUTED U/S 8D(2)(III) OF THE RULES. IN THIS FACTUAL MATRIX OF THE CASE, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE OF DISALLOWAN CE U/S 14A R.W RULE 8D(2)(III) REQUIRES PROPER EXAMINATION OF THE FACT ON THE ASPECT OF IDENTIFYING THE EXPENDITURE ATTRIBUTABLE THEREUN DER AND, THEREFORE, SET ASIDE THIS ISSUE TO THE FILE OF THE AO FOR EXAM INATION AND COMPUTATION OF THE ADMINISTRATIVE EXPENDITURE INCUR RED FOR EARNING THE EXEMPT INCOME FOR MAKING THE DISALLOWANCE U/S 8 D(2)(III). WE MAKE IT CLEAR THAT THE DISALLOWANCE MADE U/S 14 R.W RULE 8D(2)(III) CANNOT EXCEED THE ACTUAL EXPENDITURE DEBITED BY THE ASSESSEE TO THE PROFIT AND LOSS ACCOUNT WHICH HAS A NEXUS FOR EARNI NG OF THE EXEMPT INCOME. THE AO IS DIRECTED TO EXAMINE AND ADJUDICA TE THE ISSUE OF DISALLOWANCE U/S 14A R.W RULE 8D(2)(III) AFTER AFFO RDING THE ASSESSEE ADEQUATE OPPORTUNITY OF BEING HEARD. WE HOLD AND D IRECT ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL FOR THE ASS T. YEAR 2012-13 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1519/B/16 8 ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST MAY, 2017 . SD/- SD/- (VIJAYPAL RAO) (JAS ON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEM BER BANGALORE DATED : 31/5/2017 VMS COPY TO :1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REG ISTRAR, ITAT, BANGALORE.