CIMS Hospital Pvt. Ltd., Ahmedabad V. The Dy.CIT, Central Circle-2(3), Ahmedabad

ITA 1897/AHD/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6285 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 25-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR ANUPAMA SINGALA
• Keywords: Capital asset; Business income; Earning of tax free income; Proportionate interest; Cost of acquisition; Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA NO. 1897/AHD/2015 (ASSESSMENT YEAR: 2010- 11) CIMS HOSPITAL PVT. LTD., NR. SHUKAN MALL, OFF. SCIENCY CITY ROAD, SOLA, AHMEDABAD APPELLANT VS. DY. COMMISSIONER OF INCOME TAX OFFICER, CENTRAL CIRCLE-2(3), AHMEDABAD RESPONDENT PAN: AABCC6721A /BY ASSESSEE : URVASHI SHODHAN, A.R. /BY REVENUE : DR. ANUPAMA SINGALA, SR. D.R. /DATE OF HEARING : 07.11.2017 /DATE OF PRONOUNCEMENT : 23.01.2018 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2010-11 ARISES AGAINST THE CIT(A)-12, AHMEDABADS ORDER DATED 26.03.2015, IN C ASE NO. CIT(A)- 12/81/DCIT/CC-2(3)/13-14, IN PROCEEDINGS U/S. 143(3 ) R.W.S. 147 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. WE NOTICE AT THE OUTSET THAT THE ASSESSEES FORM ER THREE SUBSTANTIVE GROUNDS RAISE A COMMON ISSUE PERTAINING TO SOFTWARE CT-ANGI O. IT INTER ALIA PLEADS THAT BOTH THE LOWER AUTHORITIES HAVE ERRED IN TREATING THE CO RRESPONDING AMOUNT OF ACQUISITION ITA NO. 1897/AHD/15 [CIMS HOSPITAL PVT. LTD. VS. DC IT] A.Y. 2010-11 - 2 - THEREOF I.E. RS.11,14,000/- AS UNEXPLAINED RECEIPT FROM M/S. VIBGYOR SCIENTIFIC RESEARCH PVT. LTD., DISALLOWANCE OF SHORT TERM LOSS OF RS.5,88,470/- PERTAINING TO THE VERY CAPITAL ASSET AND THE CIT(A)S INACTION IN NOT ADJUDICATING ITS ALTERNATIVE PLEA THAT ITS SPONSORSHIP CLAIM OF THE ABOVE AMOUNT OUGHT TO BE TAXED U/S.28(IV) OF THE ACT. ALL THESE THREE GROUNDS INVOLVE A COMMON SET OF FACTS. THIS ASSESSEE CLAIMED SALE OF THE ABOVE SOFTWARE AMOUNTING TO RS. 11,14,000/- RECEIVED FROM M/S. VIBGYOR SCIENTIFIC RESEARCH PVT. LTD. AS A CAPITAL RECEIPT THEREBY RESULTING INTO SHORT TERM CAPITAL LOSS OF RS.5,88,470/-. THE ASSESSEES CASE WAS THAT THREE PARTIES M/S. VASCULAR, MEDTRONIC & R. R. AGENCY HAD SPONSORED TH E ABOVE SOFTWARE. FORMER TWO OF THEM DENIED ANY SUCH SPONSORSHIP. THE THIRD ENTITY NAMELY M/S. R. R. AGENCY FILED ITS CONFIRMATION OF SPONSORSHIP. THE SAID CONFIRMATION FORMS PART OF CASE RECORDS BEFORE US. THE ASSESSING OFFICER WENT INTO A DETAILED DISCUSSION TO CONCLUDE THAT THE ASSESSEE HAD FAILED TO PROVE RELE VANT SPONSORSHIP IN CASE OF ALL THREE ENTITIES WITH THE HELP OF THE RELEVANT DETAIL S. HE THEREFORE TREATED THE AMOUNT IN QUESTION AS UNEXPLAINED. HE FURTHER DISALLOWED THE ASSESSEES SHORT TERM CAPITAL LOSS CLAIM ARISING FROM SALE THEREOF AMOUNTING TO R S.5,88,470/-. WE FIND THAT THE ASSESSING OFFICER ALSO DID NOT ADJUDICATE ASSESSEE S CLAIM OF BUSINESS INCOME IN CASE OF THE ABOVE SPONSORSHIP WITHOUT ANY DETAILED DISCUSSION IN ASSESSMENT ORDER. THE CIT(A) CONFIRMS ASSESSING OFFICERS THREE FOLDE D ACTION HEREINABOVE. 3. WE HAVE HEARD RIVAL CONTENTIONS REITERATING BOTH THE PARTIES RESPECTIVE STANDS DURING THE COURSE OF HEARING. WE HAVE ALREA DY NARRATED THAT THE INSTANT THREE FOLDED ISSUE EMANATES FROM ASSESSEES SPONSORSHIP C LAIM IN RESPECT OF ITS CT-ANGIO SOFTWARE FROM VARIOUS PARTIES. IT HAS COME ON RECOR D THAT ONLY ONE OF THEM SUPPORTED ITS CASE (SUPRA). WE NOTICE THAT THERE I S NO ELABORATE DISCUSSION EITHER IN ASSESSMENT OR DURING LOWER APPELLATE PROCEEDINGS AS TO HOW THREE PARTIES COULD HAVE ALLEGEDLY SPONSORED THE SAME RELEVANT SOFTWARE. EV EN IF HE ASSUMED THAT THE ASSESSEES ABOVE SPONSORSHIP PLEA WAS NOT LIABLE TO BE ACCEPTED, WE DO NOT SEE ANY JUSTIFICATION AS TO HOW THE RESULTANT CAPITAL LOSS WOULD BE DISALLOWED AS THE SAME WOULD PRIMA FACIE INDICATE A DOUBLE ADDITION OF THE VERY AMOUNT I.E. ACQUISITION COST AS WELL AS LOSS ARISING FROM SALE OF THE RELEVANT C APITAL ASSET. WE THEREFORE ITA NO. 1897/AHD/15 [CIMS HOSPITAL PVT. LTD. VS. DC IT] A.Y. 2010-11 - 3 - DEEM IT APPROPRIATE THAT LD. CIT(A) NEEDS TO ADJUDI CATE THIS ENTIRE THREE FOLDED ISSUE ONCE AGAIN AS PER LAW AFTER AFFORDING ADEQUATE OPPO RTUNITY OF HEARING TO THE ASSESSEE TO PLACE ON RECORD ALL DETAILS. THESE THREE SUBSTA NTIVE GROUNDS ARE THEREFORE TREATED AS ACCEPTED FOR STATISTICAL PURPOSES. 4. THIS LEAVES US WITH ASSESSEES LATTER GRIEVANCE SEEKING TO CHALLENGE SECTION 14A R.W. RULE 8D DISALLOWANCE OF RS.50,822/- MADE I N BOTH THE LOWER PROCEEDINGS. THE ASSESSING OFFICER AS WELL CIT(A) APPLIED RULE 8 D TO DISALLOW PROPORTIONATE INTEREST AS WELL AS ADMINISTRATIVE EXPENDITURE OF R S.936/- & RS.49,886/-; TOTALING TO RS.50,822/- IN ASSESSEES HANDS AS AFFIRMED IN LOWE R APPELLATE PROCEEDINGS. 5. WE HAVE HEARD RIVAL SUBMISSIONS. RELEVANT FINDI NGS PERUSED. WE NOTICE THAT THE ASSESSEES STAND THROUGHOUT HAS BEEN THAT IT HA D RE-INVESTED DIVIDEND RECEIPT FROM ALREADY INVESTED MUTUAL FUNDS FOR THE PURPOSE OF DERIVING EXEMPT INCOME IN QUESTION. IT EMERGES THAT A CO-ORDINATE BENCH OF T HIS TRIBUNAL IN M/S. ACADEMY FOR COMPUTER TRAINING (GUJ) PVT. LTD. VS. DCIT ITA NO. 3065/AHD/2013 DECIDED ON 30.11.2016 HOLDS THAT THE IMPUGNED DISALLOWANCE IS NOT TO BE MADE IN CASE OF MUTUAL FUNDS AS FOLLOWS: 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE SOLITARY ISSUE IN THE PRESENT APPEAL IS DISALLOWANC E OF CERTAIN EXPENDITURE BY RESORTING TO SECTION 14A OF THE ACT. WE FIND THAT A VERMENT MADE ON BEHALF OF THE ASSESSEE THAT THE OWN CAPITAL TOGETHER WITH RESERVE S HELD BY THE ASSESSEE ARE M EXCESS OF CORRESPONDING INVESTMENT IS SUPPORTED BY THE BALANCE-SHEET FILED BY THE ASSESSEE. THERE IS NO REBUTTAL FROM THE REVENUE IN THIS REGARD. IN VIEW OF THE LONG LINE OF JUDICIAL PRECEDENTS ON THE ISSUE, WE FIND M ERIT IN THE CONTENTION OF THE ASSESSEE THAT PROPORTIONATE DISALLOWANCE OF EXPENDI TURE UNDER RULE 8D(2)(II) IS NOT JUSTIFIED WHERE THE INTEREST-FREE OWN CAPITAL TOGET HER WITH RESERVES EXCEEDS THE CORRESPONDING INVESTMENT. WITH REFERENCE TO THE DIS ALLOWANCE MADE BY THE AO UNDER RULE 8D2(III) AGITATED BY THE ASSESSEE, WE NO TICE THE AVERMENTS MADE ON BEHALF OF THE ASSESSEE THAT IN TAX-FREE INCOME BY W AY OF DIVIDEND ARISES ENTIRELY OUT OF MUTUAL FUNDS WHICH ARE ONE TIME SINGLE INVESTMEN TS WITHOUT ANY PROACTIVE INVOLVEMENT OF THE MANAGEMENT PER SE. THE SURPLUS F OND OF THE COMPANY HAS BEEN SIMPLY PARKED IN THE MUTUAL FUNDS. WE TAKE COGNIZAN CE OF THE ARGUMENT ON BEHALF OF THE ASSESSEE THAT MUTUAL FUNDS INVESTMENT BEARS DIFFERENT TRAITS AND IS A DIFFERENT SPECIES OF INVESTMENT. THE MUTUAL FUNDS ARE SUPERVI SED BY THE EXPERTS IN THE FIELD AND MANAGEMENT CHARGES FOR SUCH SUPERVISION IS RECO VERED FROM THE CLIENTS. THIS BEING SO, AN INVESTOR IN THE MUTUAL FUND SEPARATELY PAYS ADMINISTRATIVE AND MANAGERIAL EXPENSES UNLIKE A CASE WHERE ASSESSEE CH OOSES TO MAKE INVESTMENT IN ITA NO. 1897/AHD/15 [CIMS HOSPITAL PVT. LTD. VS. DC IT] A.Y. 2010-11 - 4 - SHARES DIRECTLY. IN THE CASE OF A MUTUAL FUNDS, ADM INISTRATIVE AND MANAGERIAL EXPENSES ARE FACTORED IN THE INVESTMENTS ITSELF. IN SUCH A SCENARIO, THE EXPLANATION OFFERED BY THE ASSESSEE OF NO EXPENDITURE INCURRED APPEARS TO BE IN CONGRUITY WITH THE MARKET PRACTICE. ACCORDINGLY, WE DO NOT FIND IT A FIT CASE FOR RESORTING TO DOUBLE DISALLOWANCE OF THE SIMILAR EXPENDITURE IN THE GARB OF RULE 8D(III) OF THE IT RULES, IT WILL BE PERTINENT TO NOTE THAT A BARE READING OF SECTION 14A OF THE ACT SUGGESTS THAT ITS APPLICABILITY IS NOT AUTOMATIC. IT IS HEDG ED BY CONDITIONS PRESCRIBED THEREIN. SECTION 14A INHERES IN IT THE CONCEPT OF REASONABLE NESS. THE FORMIDABLE AMOUNT OF EXPENDITURE AS COMPUTED BY THE AO CANNOT BE SAID TO BE ATTRIBUTABLE TO TAX-FREE INCOME BY APPLYING A STRAIGHT JACKET FORMULA AS PER RULE 8D(2)(III) OF THE IT RULES IN THE GIVEN FACTS. THUS, WE FIND CONSIDERABLE MERI T IN THE PLEA OF THE ASSESSEE. HENCE, WE ARE DISPOSED TO ADJUDICATE THE ISSUE IN F AVOUR OF THE ASSESSEE. THUS, ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE SEC TION 14A DESERVES TO BE VACATED. WE THEREFORE ADOPT THE ABOVE REASONING TO DELETE T HE IMPUGNED DISALLOWANCE OF RS.50,822/- PERTAINING TO ASSESSEES EXEMPT INCO ME. THIS LATTER SUBSTANTIVE GROUND IS ACCORDINGLY ACCEPTED. 6. THIS ASSESSEES APPEAL IS PARTLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 23 RD DAY OF JANUARY, 2018.] SD/- SD/- ( PRADIP KUMAR KEDIA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 23/01/2018 TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 / GUARD FILE. BY ORDER / . // . /0