NEHARAJ STOCK BROKERS P.LTD, MUMBAI V. ACIT CIR 4(2), MUMBAI

ITA 1673/MUM/2013

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4298 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-05-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-03-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN VP LD DR
• Assessee Lawyers: NARESH KUMAR LD
• Keywords: Business expenditure
• Section: 143(3); 14A; 37(1)

Judgement Text

ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM I.T.A. NO.1673/MUM/2013 ( ASSESSMENT YEAR: 2009-10) NEHARAJ STOCK BROKERS PRIVATE LIMITED 51, ADVENT, 12-A GEN. JAGANNATHRAO BHOSLE MARG NARIMAN POINT, MUMBAI-400 021 VS. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-4(2) ROOM NO.642, 6 TH FLOOR AAYKAR BHAVAN, M.K.ROAD MUMBAI-400 020 ! ' PAN/GIR NO. AABCN-4279-L ( !# APPELLANT ) : ( $%!# RESPONDENT ) A SSESSEE BY : NARESH KUMAR, LD.AR RE VENUE BY : ASGHAR ZAIN V.P, LD. DR & DATE OF HEARING : 27/09/2018 '() / DATE OF PRONOUNCEMENT : 10/10/2018 O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2009-10 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-8 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-8/CIR.4/179/2011-12 DATED 02/01/2013 BY RAISING THE FOLLOWING GROUNDS OF APPE AL:- ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 2 1. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONF IRMING THE FINDINGS OF THE LD. AO THAT THE PROVISIONS OF SEC 14A ARE APPLICABLE TO THE FACTS OF THE APPELLANT WHEN THE AO HAS NOT GIVEN ANY FINDING WHY THE DISAL LOWANCE OF RS.3,30,594/- MADE BY THE APPELLANT SUO-MOTO IS NOT ACCEPTABLE. 2. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONF IRMING THE DISALLOWANCE OF RS.12,18,970 MADE BY THE AO OUT OF THE OFFICE EXPEN SES INCURRED ON THE HIGHER EDUCATION OF THE SON OF A DIRECTOR TREATING THESE EXPENSES AS PERSONAL EXPENSES WHEN ACTUALLY THESE EXPENSES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE APPELLANT. 3. THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONF IRMING THE DISALLOWANCE OF RS.63,835 MADE BY THE AO OUT OF BUSINESS PROMOTION EXPENSES TREATING THEM AS PERSONAL EXPENSES WHEN ACTUALLY THESE EXPEN SES WERE INCURRED FOR THE PURPOSE OF THE BUSINESS OF APPELLANT. THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-4(2), MUMBAI [AO ] U/S 143(3) OF THE INCOME TAX ACT, 1961 ON 29/11/2011 WHEREIN THE LOSS OF THE ASSESSEE HAS BEEN ASSESSED AT RS.2.43 LACS AFTER CERTAIN DIS ALLOWANCES AS AGAINST RETURNED LOSS OF RS.30.78 LACS E - FILED BY THE ASSESSEE ON 27/09/2009. 2.1 THE ASSESSEE BEING RESIDENT CORPORATE ENTITY WAS ENGAGED IN TRADING OF SHARES, BROKERAGE AND INVESTMENT ACTIVIT IES. THE FOLLOWING DISALLOWANCES MADE BY LD. AO ARE THE SUBJECT MATTER OF THIS APPEAL: NO. NATURE OF ADDITION AMOUNT (RS. ) 1. DISALLOWANCE U/S 14A RS. 13,55,911 / - 2. DISALLOWANCE OUT OF OFFICE EXPENSES RS.12,18,970/- 3. DISALLOWANCE OUT OF BUSINESS PROMOTION EXPENSES RS.63,835/- TOTAL RS. 26,38,716/ - 2.2 FACTS QUA DISALLOWANCE U/S 14A ARE THAT THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.8.86 LACS DURING IMPUG NED AY AND OFFERED SUO-MOTO DISALLOWANCE OF RS.3.30 LACS AGAINST THE SAME WHIL E COMPUTING ITS INCOME / LOSS. HOWEVER, LD. AO, APPLY ING RULE 8D COMPUTED AGGREGATE DISALLOWANCE OF RS.16.86 LACS WH ICH COMPRISED-OFF OF INTEREST DISALLOWANCE OF RS.11.74 LACS U/R 8D (2 )(II) & EXPENSE ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 3 DISALLOWANCE OF RS.5.11 LACS U/R 8D (2)(III). AFTER ADJUSTING SUO-MOTO DISALLOWANCE OF RS.3.30 LACS AS OFFERED BY THE ASSE SSEE, THE NET ADDITIONAL DISALLOWANCE WORKED OUT TO RS.13.55 LACS . 2.2 THE SECOND ADDITION OF RS.12.18 LACS REPRESENTS EXPENDITURE INCURRED BY ASSESSEE TOWARDS HIGHER EDUCATION EXPEN SES OF THE DIRECTORS SON NAMELY NEERAJ ANIL MUTHA . THE SAID PAYMENT WAS MADE TO DREXEL UNIVERSITY, PHILADELPHIA AND CLAIMED AS BUSINESS EXPENDITURE ON THE UNDERSTATING THAT AFTER COMPLETION OF STUDIES, THE CANDIDATE SHALL COME BACK AND JOIN THE COMPANY. HOWEVER, FINDING TH E SAME TO BE PERSONAL IN NATURE IN TERMS OF SECTION 37(1), THE S AME HAS BEEN DISALLOWED. 2.3 THE LAST ADDITION OF RS.0.63 LACS OUT OF BUSINESS PROMOTION EXPENSES HAS BEEN MADE SINCE THE SAME, IN THE OPINION OF LD . AO, WERE PERSONAL EXPENDITURE. THE DETAILS OF THE SAME HAVE ALREADY BEEN EXTRACTED AT PARA-6.1 OF THE QUANTUM ASSESSMENT ORDER. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH PARTIAL SUCCESS BEFORE LD. CIT(A) VIDE IMPUGNED ORDER DATED 02/01/2 013 WHEREIN DISALLOWANCES LISTED AT SERIAL NUMBER 2 & 3 AS WELL AS EXPENSE DISALLOWANCE U/R 8D(2)(III) FOR RS.5.11 LACS GOT CO NFIRMED. THE INTEREST DISALLOWANCE MADE BY LD. AO U/R 8D(2)(II) HAS BEEN REMITTED BACK TO THE FILE OF LD. AO TO CONSIDER THE ASSESSEES SUBMISSIO NS THAT ENTIRE INTEREST EXPENDITURE WAS RELATED TO WINDMILL BUSINESS. AGGRIEVED, THE ASSESSEE IS IN THE FURTHER APPEAL BEFORE US. 4. THE LD. AUTHORIZED REPRESENTATIVE [AR] FOR ASSES SEE, SHRI NARESH KUMAR , DRAWING OUR ATTENTION TO THE DOCUMENTS PLACED IN THE PAPER BOOK ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 4 AGITATED THE ADDITIONS WHICH HAVE BEEN CONTROVERTED BY LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI ASGHAR ZAIN. 5.1 WE HAVE CAREFULLY HEARD THE RIVAL CONTENTIONS A ND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING MATERIAL PLACED BEFORE US. FROM THE PERUSAL OF RECORD, IT IS OBSERVED THAT THE ASSESSEE HAS MAD E SUO-MOTO EXPENSE DISALLOWANCE OF RS.3,30,594/- U/S 14A READ WITH RULE 8D(2)(III), BEING 0.5% OF AVERAGE VALUE OF INVESTMENT IN SHARES [0.5% OF AVERAGE OF RS.646.96 LACS & 675.41 LACS]. THIS BEING THE CASE, THE LEGAL GROUNDS AS TO APPLICABILITY OF RULE 8D AS RAISED BY LD. AR FAILS SINCE THE ASSESSEE, HIMSELF, HAS COMPUTED DISALLOWANCE U/R 8D AND THERE WAS NO QUESTION OF SATISFACTION BY LD. AO BEFORE PROCEEDIN G TO COMPUTE THE DISALLOWANCE IN TERMS OF RULE 8D. THE ADDITIONAL DI SALLOWANCE IS ARISING ONLY OUT OF THE FACT THAT LD. AO HAS ADDED THE VALU E OF INVENTORIES ALSO WHILE WORKING OUT THE SAID DISALLOWANCE. THE SAME I S WELL IN LINE WITH RECENT DECISION OF HONBLE SUPREME COURT RENDERED I N MAXOPP INVESTMENT LTD. VS CIT [12/02/2018 91 TAXMANN.COM 1 54]. THEREFORE, WE FIND NO REASON TO DEVIATE FROM THE STAND OF LOWE R AUTHORITIES SO FAR AS DISALLOWANCE U/R 8D(2)(III) IS CONCERNED. 5.2 FURTHER, THE INTEREST DISALLOWANCE U/R 8D(2)(II ) HAS ALREADY BEEN SET ASIDE BY LD. FIRST APPELLATE AUTHORITY TO THE FILE OF LD. AO TO ASCERTAIN THE FACTUAL MATRIX OF ASSESSEES SUBMISSIONS THAT INTER EST EXPENDITURE PERTAINED ONLY TO WIND MILL BUSINESS CARRIED OUT BY THE ASSESSEE. SINCE THE SAME IS FACTUAL IN NATURE AND SET ASIDE TO LD. AO, WE SEE NO REASON TO INTERFERE WITH THE SAME AT THIS STAGE. GROUND NU MBER-1 STANDS DISMISSED. ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 5 6. SO FAR AS DISALLOWANCE OF EDUCATION EXPENSES INC URRED BY ASSESSEE TOWARDS DIRECTORS SON EDUCATION IS CONCER NED, LD. AR HAS SUBMITTED THAT THE SAME IS ALLOWABLE TO THE ASSESSE E IN TERMS OF SECTION 37(1) ON THE PREMISE THAT THE CANDIDATE WAS UNDER O BLIGATION TO JOIN THE ASSESSEE AFTER COMPLETION OF STUDIES. WE DO NOT AGR EE WITH THE SAME SINCE THE PREMISE IS FAR-FETCHED. NO SUCH GENERAL S CHEME WAS FLOATED BY THE ASSESSEE FOR THE OTHER EMPLOYEES AND NO COMMERC IAL EXPEDIENCY AS TO ALLOWABILITY OF THE SAME HAS BEEN DEMONSTRATED B EFORE US. THE PERUSAL OF VARIOUS CLAUSES OF THE AGREEMENT DATED 2 4/06/2008 ENTERED INTO BY THE ASSESSEE WITH NEERAJ ANIL MUTHA REVEAL THAT THE CANDIDATE WAS UNDER NO OBLIGATION TO JOIN THE ASSESSEE & SERV E FOR ANY STIPULATED PERIOD OF TIME. FURTHER, THE AGREEMENT DID NOT PROV IDE FOR ANY SECURITY / SAFEGUARDS FOR THE ASSESSEE IN CASE THE VARIOUS TER MS OF THE AGREEMENT WERE NOT ABIDED BY THE CANDIDATE AT LATER STAGE OR IN CASE THE CANDIDATE DECIDED NOT TO JOIN THE ASSESSEE AT A LATER STAGE. THEREFORE, FINDING NO SUBSTANCE IN THE SUBMISSIONS, THE GROUND STAND DISM ISSED. 7. THE LAST ADDITION OF RS.0.63 LACS HAS BEEN MADE BY LD. AO SINCE THE SAME, IN THE OPINION OF LD. AO, WERE PERSONAL E XPENDITURE IN NATURE. THE DETAILS OF THE SAME HAVE ALREADY BEEN EXTRACTED IN THE QUANTUM ASSESSMENT ORDER. NOTHING ON RECORD CONTROVERT THE FINDINGS OF LD. AO AND THE SUBMISSIONS OF LD. AR DO NOT PERSUADE US TO DELETE THE IMPUGNED ADDITIONS. THIS GROUND STAND DISMISSED. 8. RESULTANTLY, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2018. ITA NO.1673/MUM/2013 NEHARAJ STOCK BROKERS PRIVATE LIMITED ASSESSMENT YEAR-2009-10 6 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER *& MUMBAI; DATED :10.10.2018 SR.PS:-THIRUMALESH ! COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - -) *& / DR, ITAT, MUMBAI 6. , ./0 & GUARD FILE ' / BY ORDER, # '$% (DY./ASSTT.REGISTRAR) *& / ITAT, MUMBAI