Career Forum Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 156/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9431 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 09-01-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 09-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Cost of acquisition
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE , , , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI , AM . / ITA NO.156/PUN/2015 / ASSESSMENT YEAR : 2008 - 09 CAREER FORUM LIMITED. 110/10/111/10, OFF. NH - 4, BANER, NEAR SADANAND RESORT, PUNE - 411 045. / APPELLANT PAN : AAACC7425N / V/S. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 (1), PUNE. / RESPONDENT APPELLANT BY : NONE RESPONDENT BY : SHRI AJAY MODI, JCIT / DATE OF HEARING : 09.01.2018 / DATE OF PRONOUNCEMENT : 25 .01.2018 / ORDER PER SUSHMA CHOWLA , JM T HE APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A) - I , PUNE DATED 31.07.2014 RELATING TO ASSESSMENT YEAR 2008 - 09 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 . THE HON'BLE CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF EXPENSES OF RS.4,63,273/ - AS RELATED TO EXEMPT INCOME OF RS.1,80,49,944/ - UNDER SECTION 14A R.W. RULE 8D OF THE I.T RULES. THE APPELLANT PLEADS THAT THE DISALLOWANCE MADE BY THE AO IS NOT JUSTIFIED AND IS NOT VALID. 2 ITA NO.156 /PUN/2015 A.Y.2008 - 09 2 . THE APPELLANT PLEADS FOR DIRECTIONS ALLOWING THE APP EAL AND CRAVES LEAVE TO ADD TO, AMEND, OR WITHDRAW ANY OR ALL GROUNDS OF APPEAL. 3. THE APPEAL OF ASSESSEE WAS FIXED FOR HEARING ON 10.08.2017 AND 26.10.2017. NOTICES FOR HEARING WERE ISSUED VIDE RPAD AND THE SAME ON BOTH THE OCCASIONS HAVE BEEN RETURNED BY POSTAL AUTHORITIES WITH THE REMARK LEFT. NO OTHER ADDRESS IS AVAILABLE ON RECO RD. ON THE APPOINTED DATE OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY APPLICATION WAS MOVED FOR ADJOURNMENT. ACCORDINGLY, WE PROCEED TO DECIDE THE APPEAL AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE. 4. THE ONLY ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (IN SHORT THE RULES). 5. MR. AJAY MODI APPEARED ON BEHALF OF THE REVENUE AND PUT FORWARD HIS CONTENTIONS. 6. ON PERUSAL OF RECORD AND AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE, WE FIND THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 2,89,49,810/ - . THE CASE OF THE ASSES SEE WAS TAKEN UP FOR SCRUTINY. THE ASSESSING OFFICER ON PERUSAL OF COMPUTATION OF INCOME NOTED THAT THE ASSESSEE HAD CLAIMED EXEMPT INCOME UNDER SECTION 10(38) OF THE ACT AMOUNTING TO RS.1,78,24,944/ - ON ACCOUNT OF LONG TERM CAPITAL GAINS AND INCOME EXEMP T UNDER SECTION 10(33) OF THE ACT AMOUNTING TO RS.2,25,000/ - . THE ASSESSEE HAD NOT ATTRIBUTED ANY EXPENDITURE TOWARDS EARNING OF SUCH EXEMPT INCOME. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY SUCH EXPENDITURE 3 ITA NO.156 /PUN/2015 A.Y.2008 - 09 CORRESPONDING TO EXEMPT INCOME SHOULD NOT BE DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. THE ASSESSEE CLAIMS THAT INVESTMENTS WERE MADE OUT OF ITS OWN CAPITAL AND RESERVES AND WAS NOT OUT OF BORROWED FUNDS. HE FURTHER POINTED OUT THAT THE ASSESSEE HAD INCURRED BROKERAGE AND COMMISSION EXPENSES FOR ACQUISITION OF SAID SHARES WHICH HAS BEEN TREATED AS COST OF ACQUISITION OF SHARES. THE ASSESSEE DURING THE YEAR HAD SHOWN LONG TERM CAPITAL GAINS ON SALE OF SHARES OF ONE SCRIP ONLY AT RS.1.78 CRORES AND DIVIDEND OF RS.2,25,0 00/ - COMPRISING OF TWO TRANSACTIONS CREDITED DIRECTLY TO ASSESSEES BANK ACCOUNT. THE BROKERAGE AND COMMISSION EXPENSES TOWARDS SALE OF SHARES WERE ADJUSTED AGAINST SALE CONSIDERATION RECEIVED. THE ASSESSEE THUS, CLAIMED THAT DIRECT EXPENSES RELATING TO SALE OF SHARES WERE ALREADY NETTED OF AGAINST EXEMPT INCOME AND HENCE, NO MERIT IN ANY DISALLOWANCE. HE ALSO POINTED OUT THAT ADMINISTRATIVE AND GENERAL EXPENSE INCURRED AND RELEVANT TO THE TRANSACTIONS IN SHARES AND DIVIDEND WAS NOT MORE THAN RS.1000/ - . THE ASSESSEE ALSO EXPLAINED THE BUSINESS ACTIVITY CARRIED ON BY IT AND THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER HOWEVER, WAS OF THE VIEW THAT IN VIEW OF VARIOUS EXPENDITURE DEBITED AND INTEREST PAID, THE PROVISIONS OF SECTIO N 14A OF THE ACT ARE ATTRACTED AND HE WORKED OUT THE DISALLOWANCE UNDER RULE 8D( II) OF THE RULES AT RS.3,57,438/ - AND UNDER RULE 8D(III) OF THE RULES AT RS.1,05,835/ - , TOTALING RS.4,63,273/ - . THE ASSESSING OFFICER ALSO NOTED THE EXPENDITURE WHICH WAS DIRE CTLY ATTRIBUTABLE TO EXEMPT INCOME AS PER RULE 8D(I) OF THE RULES AT RS.1,80,49,944/ - . HOWEVER, DISALLOWANCE WAS MADE OF RS.4,63,273/ - . 7. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER, AGAINST WHICH THE ASSESSEE IS IN APPEAL. 4 ITA NO.156 /PUN/2015 A.Y.2008 - 09 8. DESPITE DIFFERENT NOTICES OF HEARING BEING SENT TO AVAILABLE ADDRESS OF THE ASSESSEE, THE SAME WERE RETURNED BY POSTAL AUTHORITIES. ACCORDINGLY, WE HAVE NO OTHER OPTION BUT TO DECIDE THE APPEAL EXPARTE THE ASSESSEE. THE ONLY ISSUE RAISED IN THE PRESENT A PPEAL IS AGAINST DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES AT RS.4,63,273/ - . WITH REGARD TO FIRST DISALLOWANCE MADE UNDER RULE 8D(II) OF THE RULES I.E. INTEREST EXPENDITURE, WRITTEN SUBMISSIONS FILED BEFORE THE ASSESSIN G OFFICER ARE REPRODUCED IN THE ASSESSMENT ORDER, IN WHICH IT IS CLARIFIED THAT AS ON 31.03.2000, THE PAID - UP CAPITAL OF SAID COMPANIES STOOD AT RS.5,06,89,500/ - AND THE RESERVES & SURPLUS AT RS.5,45,87,918/ - AND THE ACCUMULATED LOSSES WERE TO THE TUNE OF RS.3.28 CRORES. THE NET WORTH WORKED OUT AS ON CLOSE OF THE YEAR AT RS. 7,24,07,521/ - . THE TOTAL INVESTMENT MADE BY THE ASSESSEE IN THREE SCRIPS W ERE TO THE TUNE OF RS.2,56,23,561/ - . THE CASE OF ASSESSEE WAS THAT INVESTMENT WAS MADE OUT OF ITS OWN CAPITA L AND RESERVES AND HENCE, NO MERIT IN DISALLOWING ANY PART OF THE INTEREST EXPENDITURE, WHICH, IN ANY CASE WAS USED FOR THE PURPOSE OF BUSINESS I.E. ADDITION TO THE FIXED ASSETS OF THE BUSINESS PREMISES OF PROVIDING COACHING CLASSES. WE FIND MERIT IN THE PLEA OF ASSESSEE THAT NO DISALLOWANCE MERITS TO BE MADE UNDER RULE 8D(II) OF THE RULES IN RESPECT OF INTEREST EXPENDITURE, IN VIEW OF INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COUR T IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) IN THIS REGARD. ACCORDINGLY, WE DELETE DISALLOWANCE OF RS.3,57,438/ - MADE UNDER RULE 8D(II) OF THE RULES. HOWEVER, IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(III) OF THE RULES I.E. 0.5% OF AVERAGE V ALUE OF INVESTMENT AT RS.1,05,835/ - THOUGH THE ASSESSEE CLAIMS THAT TOTAL ADMINISTRATIVE AND GENERAL EXPENSES INCURRED WERE TO THE TUNE OF RS.1000/ - . HOWEVER, IT IS POINTED OUT THAT THE ASSESSEE WAS CARRYING ON ITS BUSINESS AND THE DETAILS OF EXPENSES ARE NOT AVAILABLE BEFORE US. 5 ITA NO.156 /PUN/2015 A.Y.2008 - 09 ACCORDINGLY, WE UPHOLD THE DISALLOWANCE OF RS.1,05,835/ - . THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED. 9. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JANUARY , 201 8 . SD/ - SD/ - ( ANIL CHATURVEDI ) ( SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE; / DATED : 25 TH JANUARY , 2018 GCVSR / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 1, PUNE. 4. THE CIT - 1, PUNE. 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE