PRADEEP MALLICK, MUMBAI V. DCIT 12(2), MUMBAI

ITA 1669/MUM/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3730 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Earning of tax free income; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUM BAI BEFORE SHRI D. KARUNAKARA RAO, AM AND SHRI AMARJIT SINGH, JM / I.T.A. NO.1669/MUM/14 ( / ASSESSMENT YEAR: 2009-10) PRADEEP MALLICK A- 2, PALLONJI MANSION, 43, CUFFE PARADE, MUMBAI - 400005 / VS. DEPUTY COMMISSIONER OF INCOME TAX 12(2) MUMBAI ./ ./ PAN/GIR NO. : AAIPM3600N ( / APPELLANT ) .. ( / RESPONDENT ) / DATE OF HEARING: 03.12.2015 /DATE OF PRONOUNCEMENT: 11.03.2016 !' / O R D E R PER AMARJIT SINGH, JM: THIS IS AN APPEAL AGAINST THE ORDER DATED 05.12.20 13 OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-23, MU MBAI [HEREINAFTER REFERRED TO AS THE CIT(A)] FOR THE A SSESSMENT YEAR 2009-10. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES:- (I) ON THE FACTS, AND IN THE CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED COMMISSIONER OF INCOME-TA X (APPEALS) ERRED IN UPHOLDING ACTION OF THE ASSESSIN G OFFICER IN MAKING AD-HOC DISALLOWANCE OF RS.22,551/ - ASSESSEE BY: SHRI MEHUL SHAH DEPARTMENT BY: SHRI SHIDDARAMAPPA K. NAVAR I.T.A. NO.1669/MUM/14 A.Y. 2009-10 2 BEING 10% OF TOTAL EXPENDITURE OF RS.2,25,515/- ON ACCOUNT OF ENTERTAINMENT EXPENSES WITHOUT BRINGING ANY MATERIAL OR EVIDENCE ON RECORD. 2. ON THE FACTS, AND IN CIRCUMSTANCES OF THE CASE, AND IN LAW, LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) ERRED IN UPHOLDING ACTION OF THE ASSESSING OFFICER IN DISALLOWING RS.2,73,561/- INVOKING PROVI SIONS OF RULE 8D READ WITH SECTION 14A AGAINST DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS, IGNORING THE F ACT THAT, THERE WERE NO CORRESPONDING EXPENSES, ESPECIA LLY EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME, INCURRED OR CLAIMED BY THE APPELLANT TO SUSTAIN THE DISALLOWANCE. 3. ON THE FACTS, AND IN CIRCUMSTANCES OF THE CASE, AN IN LAW, LEARNED COMMISSIONER OF INCOME-TAX (APPEAL) ERRED IN MAKING AD-HOC DISALLOWANCE OF RS.1,34,832/- BEING 20% OF TOTAL EXPENDITURE OF RS.6,74,160/- ON ACCOUNT OF MEMBERSHIP FEES, AFTER DELETING DISALLOWANCE BY THE ASSESSING OFFICER ON T HE PRETEXT OF DIFFERED REVENUE EXPENDITURE, WITHOUT BRINGING ANY MATERIAL OR EVIDENCE ON RECORD. ISSUE NO. 1:- 3. THE ASSESSEE HAS RAISED THE OBJECTION IS IN CONN ECTION WITH THE DISALLOWANCE OF ENTERTAINMENT EXPENSES TO THE E XTENT OF RS.22,551/- BEING 10% OF THE AMOUNT OF RS.2,25,515/ -. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED T HAT THE ASSESSEE WAS ENGAGED IN THE PROFESSION OF MANAGEMENT CONSULT ANT TO MANY BIG CORPORATE AND HE HAS TO MEET WITH VARIOUS HIGH PROFILE CLIENTS, THEREFORE, HE HAS TO VISIT GOOD HOTELS TO ENTERTAIN PEOPLE OVER LUNCH AND DINNER DIPLOMACY THEREFORE THE WHOLE EXPENSES A RE LIABLE TO BE ALLOWED. IT IS ALSO CONTENDED THAT IN CONNECTION W ITH THE EXPENDITURE THE ASSESSEE HAS GIVEN THE DETAILS OF E XPENSES WHICH I.T.A. NO.1669/MUM/14 A.Y. 2009-10 3 HAS BEEN REFLECTED AT PAGE 24 OF THE PAPER BOOK BUT THE LEARNED CIT(A) HAS WRONGLY CONFIRMED THE DISALLOWANCE TO TH E EXTENT OF 10% WITHOUT ANY REASONABLE GROUND THEREFORE THE SAI D EXPENSES IS FULLY REQUIRED TO BE ALLOWED IN THE INTEREST OF JUS TICE. HOWEVER, ON THE OTHER HAND THE LEARNED REPRESENTATIVE OF THE DE PARTMENT HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE LEARNE D CIT(A) IN QUESTION. THE ASSESSING OFFICER DISALLOWED THE 10% OF THE TOTAL EXPENDITURE ON THE GROUND OF THAT IT WAS DIFFICULT TO IDENTIFY AND DETERMINE THE EXPENDITURE RELATED TO THE BUSINESS O F ASSESSEE OR NOT. THE ASSESSEE HAS GIVEN THE DETAILS OF BILLS AS WELL AS OF THE CONCERNED HOTELS WHICH HAS BEEN REFLECTED AT PAGE 2 4 OF THE PAPER BOOK. THE SAID DETAILS PERUSED WHICH SPEAKS THE DA TE AND HOTELS NAME AND BILLS. THESE DETAILS NOWHERE SPEAKS ABOUT THE CLIENTS OF THE ASSESSEE SINCE THE ASSESSEE HAS CLAIMED THESE B ILLS / EXPENDITURE IN CONNECTION WITH HIS BUSINESS THEREFORE FIRSTLY I T IS UPON THE ASSESSEE TO PROVE THESE EXPENDITURE IN CONNECTION W ITH HIS BUSINESS. NO EVIDENCE HAS BEEN PRODUCED BEFORE US . THE ASSESSEE MAY PRODUCED THE EVIDENCE SUCH AS LIST OF APPOINTEE , ANY RECORD OF APPOINTMENT OR ANY LETTER ETC. TO CONNECT THE SAID EXPENDITURE WITH HIS BUSINESS. NO DOUBT, THE ASSESSING OFFICER NOWH ERE RECORDED THE REASONS TO DECLINE THE SAME BUT WHEN THE ASSESS EE HIMSELF DID NOT DISCHARGE HIS DUTY TO PROVE THE SAID EXPENDITUR E THEN IN THE SAID CIRCUMSTANCES THE ASSESSING OFFICER HAS DECLINED TH E 10% EXPENDITURE OF THE TOTAL EXPENDITURE TO THE TUNE OF RS.2,25,515/- WHICH SEEMS UNJUSTIFIABLE. THEREFORE, IN THE SAID CIRCUMSTANCES WE ARE INCLINED TO HELD THIS FACT THAT THE ASSESSING O FFICER HAS RIGHTLY I.T.A. NO.1669/MUM/14 A.Y. 2009-10 4 DISALLOWED THE 10% EXPENDITURE OF THE TOTAL EXPENDI TURE OF RS.2,25,515/- AND THE LEARNED CIT(A) HAS RIGHTLY CO NFIRMED THE SAME. ACCORDINGLY, IT IS APPARENT ON RECORD THAT T HE LEARNED CIT(A) HAS PASSED THE ORDER JUDICIOUSLY AND CORRECT LY WHICH DOES NOT REQUIRE TO BE INTERFERE AT THIS APPELLATE STAGE . ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE REVENUE AND AGAIN ST THE ASSESSEE. ISSUE NO. 2:- 4. THE SECOND ISSUE IS IN CONNECTION WITH THE DISAL LOWANCE OF AN AMOUNT OF RS.2,73,561/- U/S. 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT). THE ASS ESSEE EARNED THE DIVIDED INCOME OF RS.46,233/- FROM SHARES AND D IVIDEND INCOME FROM MUTUAL FUNDS OF RS.6,02,095/- THE SAID INCOME WAS CLAIMED TAX EXEMPT U/S. 10(34) AND 10(35) OF THE AC T. IT IS ASSERTED THAT NO EXPENDITURE OF ANY KIND WAS INCURRED TO EAR N THE DIVIDEND INCOME AND THE ASSESSEE PLACED RELIANCE ON THE LAW SETTLED IN THE CASE OF CIT VS. HERO CYCLES (P&H HIGH COURT) ITA 331 OF 2009 (O &M) DATED NOVEMBER 4, 2009 AND ALSO RELIED UPON THE LAW SETTLED IN HONBLE INCOME TAX APPELLATE TRIBUNA L, MUMBAI BENCH IN THE CASE OF YATISH TRADING CO. (P). LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, 1(3), MUMBAI [2011] 9 TAXMANN.COM 164. IT IS ALSO ARGUED THAT THE MATTER OF CONTROVERSY HAS ALREADY BEEN ADJUDICATED BY THE INCOME TAX APPELLATE TRIBUNAL WHILE DECIDING IN ITA NO.2811/M/12 DATED 1 7.05.2013 IN CASE OF ASSESSEE HIMSELF. HOWEVER, ON THE OTHER HAND LEARNED REPRESENTATIVE OF THE DEPARTMENT HAS STRONGLY RELIE D UPON RELIED I.T.A. NO.1669/MUM/14 A.Y. 2009-10 5 UPON THE ORDER PASSED BY THE LEARNED CIT(A) IN QUES TION. KEEPING IN VIEW OF THE ARGUMENTS ADVANCED BY THE PARTIES AN D PERUSED THE RECORD CAREFULLY; IT IS OBSERVED THAT THE ASSESSEE CARRIED OUT ITS ACTIVITIES OF INVESTMENT THROUGH PMS. IT IS ALSO A DMITTED THAT THE EXPENDITURE INCURRED ON ACCOUNT OF PORTFOLIO MANAGE MENT TO THE TUNE OF RS.17,515/- WAS NOT CLAIMED AS DEDUCTION. DEMET CHARGES AND S.T.T PAID WERE SEPARATELY ATTACHED TO THE CAPI TAL ACCOUNT MEANING THEREBY NOTHING WAS CLAIMED AS EXPENDITURE. MOREOVER, THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ASSE RTED THAT ASSESSEE HIMSELF DISALLOWED 20% OF THE DIVIDEND INCOME AS EX PENDITURE. NO DOUBT IT DOES NOT COME INTO THE NOTICE THAT THE ASSESSEE INCURRED ANY EXPENDITURE TO EARN THE DIVIDEND INCOME. MOREO VER, NEXUS WITH THE EXPENDITURE TO THE TUNE OF 20% TO EARN THE DIVIDEND INCOME IS ALSO SEEMS DOUBTFUL. THEREFORE, IN VIEW OF THE SAID CIRCUMSTANCES WE ARE OF THE VIEW THAT THE MATTER IS REQUIRED TO BE AGAIN CONSIDERED IN ACCORDANCE WITH LAW. THEREFORE THIS ISSUE IS HEREBY ORDERED TO BE RESTORED TO THE FILE OF ASSESS ING OFFICER WHO WILL DECIDE THE MATTER IN ACCORDANCE WITH LAW AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORD INGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST TH E REVENUE. ISSUE NO. 3:- 5. IN THE ISSUE NO. 3 ASSESSEE HAS CHALLENGED THE A D-HOC DISALLOWANCE OF RS.1,34,832/- BEING 20% OF THE TOTA L EXPENDITURE OF RS.6,74,160/- ON ACCOUNT OF MEMBERSHIP FEES TO T HE TUNE OF RS.6,74,160/- TO TAJ, THE CHAMBER. THE ASSESSEE HA S ARGUED THAT I.T.A. NO.1669/MUM/14 A.Y. 2009-10 6 BUSINESS CLUB ARE HAVING CERTAIN FACILITY TO PROVID E MEMBERS OF THE SAID CLUB. THE CONDITIONS ARE HEREBY REPRODUCED BE LOW:- THE CHAMBERS IS A BUSINESS CLUB AND ISSUE BY INVITATION ONLY AT THE DISCRETION OF MANAGING COMMITTEE OF THE CHAMBERS. THE COMPANY TO WHOM MEMBERSHIP IS ISSUED (COMPANY) SHALL NOMINATE A REPRESENTATIVE FROM ITS COMPANY WHO SHALL BE CONSIDERED A MEMBER FOR ALL PURPOSES OF UTILIZING THE CHAMBERS BENEFITS AND PRIVILEGES. THE MEMBERSHIP TO THE CHAMBERS IS IN FAVOUR OF A COMPANY, CORPORATION OR BUSINESS AND IS NON TRANSFERABLE FROM ONE COMPANY TO OTHER. THE MEMBERSHIP TO THE CHAMBERS IS IN FAVOUR OF A COMPANY, CORPORATION OR BUSINESS AND IS NOT TRANSFERABLE FROM ONE COMPANY TO OTHER. THE MEMBERSHIP TO THE CHAMBERS IS CORPORATE IN NATURE AND THE STATUS FOR THE SAME CANNOT BE CHANGED TO PERSONAL. I.T.A. NO.1669/MUM/14 A.Y. 2009-10 7 THE CHAMBERS CAN BE USED BY THE MEMBERS FOR ALL BUSINESS MEETINGS AND DINING. HOWEVER, IT IS ESSENTIAL FOR THE MEMBER TO BE PRESENT WHILE CONDUCTING THE MEETING OR DINING WITH GUESTS. GUEST BELOW THE AGE OF 21 YEARS OF AGE IS REFRAINED FROM USING THE FACILITIES OF THE CHAMBERS. DUE TO THE APPLICABLE LIQUOR LAWS, IT IS ONLY PERMITTED TO SERVE LIQUOR BOUGHT FROM CHAMBERS. DRESS CODE: FORMAL OR SMART CASUALS. IT IS SPECIFICALLY ARGUED THAT THE ASSESSING OFFICE R AND THE LEARNED CIT(A) HAS WRONGLY DECLINED THE CLAIM OF THE ASSESS EE IN CONNECTION OF MEMBER SHIP FEES TO THE TUNE OF RS.6, 74,160/- AND THE LEARNED CIT(A) DISALLOWED THE SAID EXPENDITURE TO THE TUNE OF RS.1,34,832/- BEING 20% OF TOTAL EXPENDITURE OF RS. 6,74,160/-. THE LEARNED REPRESENTATIVE OF THE ASSESSEE HAS ALSO PLACED RELIANCE UPON THE LAW SETTLED IN DY. COMMISSIONER OF INCOME TAX CIRCL E 3(1) VS. M/S. BANC OF AMERICA SECURITIES (INDIA) PV T. LTD. IN ITA NO. 6611/MUM/2008 BY INCOME TAX APPELLATE TRIBU NAL, MUMBAI BENCH . BY GOING THROUGH THE ORDER IN QUESTION IT IS OBSERVED THAT THE ASSESSING OFFICER DID NOT DISPUTE UPON THE SAID EXPENDITURE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS OF ASSESSEE. I.T.A. NO.1669/MUM/14 A.Y. 2009-10 8 HOWEVER, THE PARAMETERS OF ASSESSING OFFICER AS WE LL AS THE LEARNED CIT(A) ARE DIFFERENT FOR THE DISALLOWANCE O F SAID EXPENDITURE. IN VIEW OF THE LAW SETTLED IN DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1) VS. M/S. BANC OF AMERICA SEC URITIES (INDIA) PVT. LTD. IN ITA NO. 6611/MUM/2008 BY INCOM E TAX APPELLATE TRIBUNAL, MUMBAI BENCH IT IS NOT DISPUTED THAT IF THE EXPENDITURE HAS BEEN INCURRED ONLY FOR THE BUSINESS PURPOSE THE SAME IS REQUIRED TO BE WHOLLY ALLOWED. IN VIEW OF THE OBSERVATIONS MADE ABOVE AND BY HONOURING THE DECISION IN LAW SETTLED IN DY. COMMISSIONER OF INCOME TAX CIRCLE 3(1) VS. M/S. BAN C OF AMERICA SECURITIES (INDIA) PVT. LTD. IN ITA NO. 6611/MUM/2008 BY INCOME TAX APPELLATE TRIBUNAL, MUM BAI BENCH WE ALLOWED THE SAID EXPENDITURE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE R EVENUE. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH , 2016. SD/- SD/- (D.KARUNAKARA RAO) (AMARJIT SINGH) ! / ACCOUNTANT MEMBER $% ! /JUDICIAL MEMBER & ' MUMBAI; (! DATED : 11 TH MARCH, 2016 MP MP MP MP I.T.A. NO.1669/MUM/14 A.Y. 2009-10 9 !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ) ( ) / THE CIT(A)- 4. ) / CIT 5. *+, %%-. , -. , & ' / DR, ITAT, MUMBAI 6. ,/0 1 / GUARD FILE. / BY ORDER, * % //TRUE COPY// % / & ' (DY./ASSTT. REGISTRAR) , & ' / ITAT, MUMBAI