J.M. FINANCIAL & INVESTMENT CONSULTANTS P.LTD, MUMBAI V. DCIT 3(2), MUMBAI

ITA 1652/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3311 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 19-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 09-03-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: DR K SHIVARAM MR SANJAY PARIKH
• Section: 143(3); 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, M UMBAI !' !' !' !' #$ #$ #$ #$ % % % % &' &' &' &' !' !' !' !' ( ( ( ( BEFORE SHRI B. RAMAKOTAIAH, AM, AND SHRI AMIT SHUKL A, JM /. I.T.A. NO.1652/MUM/2012 ( ) * ) * ) * ) * $+* $+* $+* $+* / ASSESSMENT YEAR: 2006-07) M/S. J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES PVT. LTD., 141, MAKER CHAMBER III, NARIMAN POINT MUMBAI- 400021 ) ) ) ) / VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 3(2), MUMBAI ', /. - /. PAN/GIR NO. : AAACJ1237H ( ,. / APPELLANT ) : ( /0,. / RESPONDENT ) ,. 1 / APPELLANT BY : MR. DR. K. SHIVARAM MR. SANJAY PARIKH /0,. 1 / RESPONDENT BY : MR. MOHIT JAIN )$ % / DATE OF HEARING : 19.06. 2013 4+ % /DATE OF PRONOUNCEMENT : 03.07.2013 !& / O R D E R PER :AMIT SHUKLA , JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER DATED 13.12.2012 PASSED BY CIT(APPEALS)-20, MUMBAI FOR QUANTUM OF AS SESSMENT PASSED U/S 143(3) FOR THE ASSESSMENT YEAR- 2006-07. ONLY ISSUE INVOLVED IS DI SALLOWANCE OF RS. 24,62,494/- MADE U/S 14A. 2 ITA 1652 MUM 2012(AY-2006-07) M/S. J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES VS. DCI T 2. THE ASSESSING OFFICER ON THE PERUSAL OF PROFIT A ND LOSS ACCOUNT NOTED THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1,27,88,488/-. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITTED AS UNDER (I). DURING THE YEAR, THE TOTAL NUMBER OF DIVIDEND WARRANTS RECEIVED AND ACCOUNTED BY THE COMPANY IS 42. (II) NO BANK CHARGES ARE PAID OR DEBITED TO THE ACC OUNT OF THE ASSESSEE AS ALL THE DIVIDEND WARRANTS ARE FULLY REA LIZED. (III) THE WORK OF FOLLOW UP, RECEIPT AND ACCOUNTING OF DIVIDEND WAS DONE BY MRS. KARLE, ACCOUNTANT. ACCORDING TO HER, T HE TIME SPENT ON THIS MATTER WOULD BE AROUND 15 DAYS IN THE FULL YEA R. (IV)THE CONSOLIDATED SALARY OF MRS. KARLE DURING TH E YEAR WAS APPROX RS. 2.25 LACS PER ANNUM. HENCE, THE AMOUNT ALLOCABL E FOR DIVIDEND BASED ON 250 WORKING DAYS WOULD BE AT BEST RS. 15,3 00/- FOR 15 DAYS. (V) THE TOTAL EXPENDITURE OF THE COMPANY AND THE AM OUNT ALLOCABLE TO GENERAL BUSINESS ACTIVITY IS AS UNDER: (RS. IN LACS) SR. PARTICULARS AMOUNT AMOUNT 1. TOTAL EXPENDITURE LESS. DONATION SALARIES/CONT. TO PF/STAFF WELFARE LOSS ON SALE OF ASSETS GENERAL ADMINISTRATION EXPENSES (A) RATIO OF A UPON SALARY OF RS. 39.16 IS 15.00 39.16 0.59 278.51 54.75 223.76 571% THEREFORE, GENERAL ADMINISTRATION EXPENSES ALLOCABL E TO DIVIDEND WILL BE RS. 87,363/-. HENCE, TOTAL EXPENSES ALLOCABLE TO E ARNING DIVIDEND WILL BE RS. 102.663/-. 3. THE ASSESSING OFFICER REJECTED THE ASSESSEES CO NTENTION AND HELD THAT 0.50% OF AVERAGE INVESTMENT AS ON 31 ST MARCH, 2006 AND 31 ST MARCH 2005 IS TO BE TREATED AS EXPENSES RELATABLE TO DIVIDEND INCOME. ACCORDINGLY, HE WORKE D OUT SUCH EXPENSES AT RS. 22,19,528/-, WHICH CANNOT BE HELD TO BE ATTRIBUTABLE TO EARNING OF DIVIDEND INCOME. HE FURTHER NOTED THAT THE ASSESSEE HAS INCURRED INDIRECT INTEREST EXPENSE S OF RS. 9,71,349/- BASED ON TOTAL ASSETS AS ON 31.3.2006 AND 31.3. 2005 HAD WORKED OUT THE D ISALLOWANCE OF RS. 22,42,896/-. THUS, TOTAL DISALLOWANCES AS WORKED OUT BY HIM WAS AT RS. 24,62,494/-. BEFORE THE CIT(APPEALS), 3 ITA 1652 MUM 2012(AY-2006-07) M/S. J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES VS. DCI T ASSESSEE FILED DETAIL REASONING AS TO HOW THE ASSES SEE HAS ATTRIBUTED A SUM OF RS. 1,02,663/- ON ACCOUNT OF DISALLOWANCE U/S 14A AND HOW RULE 8D CANNOT BE APPLIED FOR WORKING OF DISALLOWANCE U/S 14A FOR THE ASSESSMENT YEAR 2006-0 7. LD. CIT(APPEALS) HOWEVER, REJECTED THE ASSESSEES CONTENTION AND UPHELD THE D ISALLOWANCES MADE BY THE ASSESSING OFFICER. ON THE GROUND THAT RULE 8D PROVIDES REASON ABLE BASIS FOR DISALLOWANCES AND THEREFORE, NO INTERFERENCE IS CALLED FOR. 4. BEFORE US, LEARNED COUNSEL SUBMITTED THAT FIRSTL Y, RULE 8D CANNOT BE APPLIED IN THE PRESENT ASSESSMENT YEAR AS THE SAME IS APPLICABLE F ROM ASSESSMENT YEAR 2008-09, IN VIEW OF BOMBAY HIGH COURT DECISION IN THE CASE OF GODREJ & BOYCE MFG. CO. VS. DCIT (2010) 328 ITR 81, SECONDLY, THE ASSESSEE HAD SUFFICIENT O WN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES FOR MAKING THE INVESTMENT AND LASTLY, THE CIT(APPEALS) HAS NOT POINTED OUT ANY SPECIFIC EXPENDITURE INCURRED FOR EARNING THE DIVID END INCOME. THUS, THE ADDITIONAL DISALLOWANCES SHOULD BE DELETED. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON T HE FINDING OF THE CIT(APPEALS). 6. AFTER CAREFULLY CONSIDERING THE RIVAL SUBMISSION S AND PERUSAL OF THE RELEVANT FINDING OF THE CIT(APPEALS) AND THE AO, IT IS SEEN THAT THE AO HAS APPLIED RULE 8D FOR WORKING OUT THE DISALLOWANCE U/S 14A. THE LD. CIT(APPEALS) HAS CONFIRMED DISALLOWANCE EVEN THOUGH HE AGREED THAT RULE 8D CANNOT BE HELD TO BE APPLICA BLE IN THE ASSESSMENT YEAR 2006-07 BUT HE CONFIRMED THE DISALLOWANCE ON THE GROUND THAT I T IS QUITE REASONABLE. THE ASSESSEE HAS WORKED OUT THE DISALLOWANCE OF RS. 1,02,663/- AS PE R WORKING GIVEN BEFORE THE ASSESSING OFFICER, WHICH HAS BEEN INCORPORATED IN THE FORGOIN G PARAGRAPH. SUCH A WORKING HAS NOT BEEN COMMENTED UPON EITHER BY THE CIT(APPEALS) OR B Y THE ASSESSING OFFICER. NO SPECIFIC, EXTRA EXPENDITURE HAS BEEN POINTED OUT. IN ASSESS EES OWN CASE FOR THE ASSESSMENT YEAR 2007-08, IN ITA NO. 3112, WE HAVE HELD THAT DISALLO WANCE OF 5% OF THE DIVIDEND INCOME WOULD BE QUITE REASONABLE FOR WORKING OUT THE DISAL LOWANCE U/S 14A. ACCORDINGLY, FOLLOWING THE SAME PRINCIPLE IN THIS YEAR ALSO, WE HOLD THAT 5% OF THE DIVIDEND INCOME 4 ITA 1652 MUM 2012(AY-2006-07) M/S. J.M. FINANCIAL & INVESTMENT CONSULTANCY SERVICES VS. DCI T WOULD BE REASONABLE FOR MAKING THE DISALLOWANCE U/S 14A. ACCORDINGLY, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE AT 5% OF THE DIVIDEND INCOME. THUS, GROUNDS RAISED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED. %6 ) *% & '$7% % 89 ORDER PRONOUNCED ON 3 RD DAY JULY, 2013 . !& 4+ !)6 03.07.2013 ; SD/- SD/- ( B. RAMAKOTAIAH ) ( AMIT SHUKLA ) !' / ACCOUNTANT MEMBER !' !' !' !' /JUDICIAL MEMBER MUMBAI: !) DATED : 03.07.2013 $ . ) . /. PRAMOD KUMAR, PS !& !& !& !& /% /% /% /% =+% =+% =+% =+% / COPY OF THE ORDER FORWARDED TO : 1. ,. / THE APPELLANT 2. /0,. / THE RESPONDENT 3. > ) ( / THE CIT(A) 4. > / CIT - CONCERNED 5. $?; /%) , , / DR, ITAT, MUMBAI 6. ;@* A / GUARD FILE !&) !&) !&) !&) / BY ORDER, B BB B / 8 8 8 8 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI