ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LIMITED, MUMBAI V. ADDL.C.I.T. 2(2), MUMBAI

ITA 1806/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8322 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 30-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 04-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMIT KUMAR
• Assessee Lawyers: PRAKASH KOTADIA
• Keywords: Opportunity of being heard; Earning of tax free income; Additional evidence
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I, MUMBAI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND DR. S.T.M. PAVALAN, JUDICIAL MEMBER ITA NO. 1806/MUM/2011 ASSESSMENT YEAR: 2007-08 ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD. 2 ND FLOOR, BLOCK B-2, NIRLON KNOWLEDGE PARK, GOREGAON EAST, MUMBAI-400 063 PAN: AAACI 1000 K VS. ADDL. CIT-2(2) AAYAKAR BHAVAN MUMBAI- 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI PRAKASH KOTADIA REVENUE BY : SHRI SUMIT KUMAR DATE OF HEARING : 30.06.2014 DATE OF PRONOUNCEMENT : 22.08.2014 O R D E R PER DR. S.T.M. PAVALAN, JM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT(A)-9, MUMBAI DATED 09.12.2010 FOR THE ASSESS MENT YEAR 2007-08. 2. IN GROUND NO. A, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) CONFIRMING THE DISALLOWANCE OF RS.15,85,347/- MADE BY THE AO ON ACCOUNT OF THE EXPENDITURE RELATABLE TO THE LIABILITY FOR WHICH CH EQUES HAVE BEEN ISSUED BUT PAYMENTS HAVE NOT BEEN CLEARED. 2.1 THE RELEVANT FACTS ARE THAT THE ASSESSEE, A COM PANY, ENGAGED IN THE BUSINESS OF ASSET MANAGEMENT AND PROVIDING PORTFOLIO MANAGEM ENT SERVICES TO CLIENTS, DURING THE YEAR CONSIDERATION, HAD ISSUED VARIOUS CHEQUES TO THE TOTAL AMOUNT OF RS.3,17,91,486/-. FROM THE DETAILS FURNISHED BY THE ASSESSEE, THE AO FOUND THAT THERE WAS HUGE GAP BETWEEN BANK BALANCE AS PER ASSE SSEES BOOKS OF ACCOUNT AND AS PER BANK STATEMENT. THE AO, FURTHER, FOUND THAT MOST OF THE CHEQUES WERE ISSUED BUT NOT PRESENTED HAD BEEN RELATED TO THE PAYMENT O F BROKERAGE WHICH REPRESENTED THE LIABILITY TO THE CREDITORS IN THE NORMAL COURSE OF BUSINESS. THE AO FURTHER FOUND ITA NO. 1806/MUM/2011 ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08 2 THAT IN SOME CASES NEITHER THE CHEQUES ISSUED WERE CLEARED NOR CHEQUES HAD BEEN RE-ISSUED. THE DETAILS OF SUCH CHEQUES AND CORRESPO NDING AMOUNTS ARE AS UNDER:- SR. NO. DATE CHEQUE NO. PARTICULARS AMOUNT 1 19.12.06 73886 KARVY SECURITIES 70934 2 09.01.07 75000 SAKET MOTORS 100000 3 10.03.07 77655 B & P PARIBAS 38 9359 4 10.03.07 77660 KARVY STOCK BROKERS 194679 5 12.03.07 77831 COL. HARJEET SINGH 622974 6 20.03.07 78779 VISHAL MEHTA 118741 7 17.10.06 71456 A.E. 88660 TOTAL 1585347 FROM THE ABOVE DETAILS, THE AO NOTED THAT THE LIABI LITY CORRESPONDING TO WHICH THE ABOVE CHEQUES WERE ISSUED BUT NOT CLEARED HAD BEEN CLAIMED BY THE ASSESSEE AS EXPENDITURE. ACCORDINGLY, THE AO DISALLOWED THE COR RESPONDING EXPENDITURE AS THE CORRESPONDING LIABILITY DID NOT SEEM TO BE EXISTING FOR THE REASONS THAT EVEN AFTER EXPIRY OF MORE THAN 2 YEARS, THE CORRESPONDING AMO UNTS HAD NOT BEEN CLAIMED BY THE PAYEES. FURTHER, THE AO WAS OF THE VIEW THAT M ERELY CREATING LIABILITY IN THE ACCOUNTS WOULD NOT BE ENOUGH TO ESTABLISH THAT THE CORRESPONDING AMOUNT IN REALITY WAS BEING PAID. ACCORDINGLY, AN AMOUNT OF RS.15,85, 347/-, BEING EXPENDITURE RELATABLE TO THE LIABILITY CORRESPONDING TO THE PAY MENTS BY CHEQUE WHICH HAD NOT BEEN REALIZED WAS DISALLOWED BY THE AO AS THE LIABI LITY WAS SEIZED TO THE EXTENT U/S 41(1) OF THE INCOME TAX ACT. ON APPEAL, THE LD.CIT( A), AFTER OBSERVING THAT THE LIABILITY FOR THE UN ENCASHED CHEQUES WERE UNASCERT AINED AND CONTINGENT IN NATURE, HELD THAT THE SAME COULD NOT BE RECOGNIZED AS EITHE R INCOME OR EXPENDITURE AND THEREBY UPHELD THE DISALLOWANCE MADE BY THE AO. AGG RIEVED BY THE IMPUGNED DECISION, THE ASSESSEE HAS RAISED THIS GROUND IN TH E APPEAL BEFORE US. 2.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS RELEVANT TO STATE THAT IT IS THE CLAIM OF THE ASSESSEE THAT AT THE TIME OF ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS, THE ASSESSEE HAS BEEN ASKED TO SUBMIT THE COPIES OF THE AGREEMENT TO PROVE THE EXPENSES HAVE NOT BEEN BOOKE D ON ESTIMATE BASIS. ITA NO. 1806/MUM/2011 ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08 3 HOWEVER, SINCE THE SAME HAVE NOT BEEN FILED BEFORE THE LOWER AUTHORITIES, THE ASSESSEE, VIDE LETTER DATED 23.06.2014, HAS FILED T HE RELEVANT AGREEMENTS BY WAY OF ADDITIONAL EVIDENCES BEFORE US. FURTHER, IT IS THE CONTENTION OF THE ASSESSEE THAT OUT OF THE SAID DISALLOWANCE OF RS.15,85,347/-, CREDITO RS FOR SUCH EXPENSES AGGREGATING TO RS.8,62,373/- HAVE BEEN RETURNED BACK IN A.Y. 20 11-12 SUBSEQUENT TO THE DATE OF PASSING OF THE ORDER BY THE LD.CIT(A). AS THE CREDI TORS FOR EXPENSES HAVE BEEN RETURNED BACK SUBSEQUENT TO THE DATE OF PASSING OF THE ORDER BY THE LD.CIT(A), THE ASSESSEE HAS PRAYED FOR ADMISSION OF ADDITIONAL EVI DENCE WHEREIN THE DETAILS OF AMOUNTS RETURNED BACK AND OFFERED FOR TAXATION IN T HE SAID YEAR ARE STATED. CONSIDERING THE FACT THAT THE SAID ADDITIONAL EVIDE NCES RELIED BY THE ASSESSEE WILL HAVE THE IMPACT ON THE ALLOWABILITY OF THE CLAIM OF THE ASSESSEE, WE SET ASIDE THE ENTIRE ISSUE BACK TO THE FILE OF THE AO FOR FRESH A SSESSMENT ON THIS ISSUE. NEEDLESS TO EMPHASIS THAT IN THE SAID PROCESS, THE AO SHALL AFF ORD REASONABLE OPPORTUNITY OF BEING HEARD THE ASSESSEE PLACING ALL THE MATERIALS TO SUBSTANTIATE ITS CLAIM. WE DIRECT AND ORDER ACCORDINGLY. GROUND NO A IS ALLOWED FOR S TATISTICAL PURPOSE. 3. IN GROUND NO. B, THE ASSESSEE HAS AGITATED THE D ECISION OF THE LD.CIT(A) DIRECTING THE AO TO WORK OUT THE EXPENSES DISALLOWA BLE U/S 14A TOWARDS ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO THE EXEMPT INCOME ON REASONABLE BASIS. 3.1 BRIEFLY STATED, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD INVESTMENT IN MUTUAL FUND ETC , WHICH WERE CAPABLE OF GENERATING EXEMPT INCOME OF RS.1,45,79,566/-. THIS WAS CLAIMED EXEMPT U/S 10(35) OF THE ACT. ACCORDINGLY, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY DISALLOWANCE OF EXPENSES CORRESPONDING TO THE INVESTMENT RESULTING INTO TAX FREE INCOME SHOULD NOT BE MADE U/S 14A. IN RESPONSE, IT WAS SUBMITTED BY T HE ASSESSEE THAT INVESTMENT MADE BY THE ASSESSEE WAS OUT OF RETAINED EARNINGS & INTERNAL ACCRUALS AND THEREFORE NO EXPENSES HAD BEEN SPECIFICALLY INCURRED FOR EARN ING DIVIDEND INCOME. ALTERNATIVELY, THE ASSESSEE PLEADED THAT IF AT ALL EXPENSES DISALLOWABLE, THE SAME COULD NOT BE MORE THAN 1% OF THE GROSS DIVIDEND REC EIVED. THE AO DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND INVOKED THE PRO VISIONS OF SECTION 14A R.W. RULE 8D AND THEREBY DISALLOWED A SUM OF RS.4,75,705/-. I T WAS HIS VIEW THAT EXPENSES ON EXEMPT INCOME WERE INEVITABLE IN MANAGING THE ASSES SEES PORTFOLIO. ON APPEAL, THE ITA NO. 1806/MUM/2011 ICICI PRUDENTIAL ASSET MANAGEMENT COMPANY LTD. ASSESSMENT YEAR: 2007-08 4 A.Y. BEING 2007-08, THE LD.CIT(A) DIRECTED THE AO T O WORK OUT THE DISALLOWANCE IN TERMS OF THE DIRECTIONS OF THE HONBLE BOMBAY HIGH COURT GODREJ & BOYCE MFG. CO. LTD. AGGRIEVED BY THE IMPUGNED DECISION, THE ASSESS EE HAS RAISED THIS GROUND IN THE APPEAL BEFORE US. 3.2 HAVING HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD, IT IS PERTINENT TO MENTION THAT THE ASSESSEE HAS NOT BROU GHT ANYTHING SPECIFIC ON RECORD TO SUBSTANTIATE THAT THE INVESTMENT MADE WAS OUT OF RETAINED EARNINGS. AS POINTED OUT BY THE LOWER AUTHORITIES, NO WORKING HAS BEEN G IVEN ON THE NEXUS BETWEEN EXPENDITURE AND EXEMPT/NON-EXEMPT INCOME. IN VIEW O F THIS, SECTION 14A COMES INTO PLAY IN THE CASE AS OBSERVED BY THE LD.CIT(A). THEREFORE, THE DISALLOWANCE U/S 14A IN THE CASE IN HAND, BEING RELATABLE TO A.Y. 20 07-08, HAS TO BE WORKED OUT ON A REASONABLE BASIS AND NOT ON THE BASIS OF RULE 8D. I N VIEW OF THE FACT THAT THE LD.CIT(A) HAS CORRECTLY APPRECIATED THE FACTS AND L AW ON THIS ISSUE, WE DO NOT FIND ANY INFIRMITY IN THE DIRECTION GIVEN BY THE LD.CIT( A) AND THUS THE SAME IS UPHELD ON THIS COUNT. GROUND NO B IS DISMISSED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22TH DA Y OF AUGUST, 2014. SD/- SD/- (N.K. BILLAIYA) (DR. S.T.M. PAVALAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.08.2014 *SRIVASTAVA COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR I BENCH //TRUE COPY// BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.