Arun Nathani, Pune V. Joint Commissioner of Income-tax,

ITA 2007/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7747 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-03-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 12-11-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Business expenditure; Maximum Marginal Rate; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . .. . / ITA NO.2007/PUN/2014 / ASSESSMENT YEAR : 2010-11 SHRI ARUN NATHANI, PLOT NO.60/61, AROMA BUNGLOW, HINDUSTAN ESTATE, KALYANI NAGAR, PUNE 411 006 PAN : AAKPN7869E . APPELLANT VS. JOINT COMMISSIONER OF INCOME-TAX, RANGE-7, PUNE . RESPONDENT / APPELLANT BY : SHRI ADITYA AJGAONKAR / RESPONDENT BY : SHRI MUKESH JHA, JCIT DATE OF HEARING : 02.08.2017 / DATE OF PRONOUNCEMENT: 09.08.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-III, PUNE DATED 08-08-2014 FOR THE ASSESSMENT YEAR 2010-11. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS UNDER : 1. THE HON'BLE CIT (A) HAS ERRED IN NOT ALLOWING T HE COMMISSION OF RS. 46,21,887/- PAID TO MR. VIJAY LALWANI FOR MANAG ING THE BUSINESS OF THE APPELLANT OF TRADING IN STOCKS FUTURES AND OPTIONS AS A BONAF IDE EXPENSE OF THE APPELLANT. 2. THE HON'BLE CIT (A) HAS ERRED IN UPHOLDING THAT THE AMOUNT PAID TO MR. VIJAY LALWANI WAS PAID TO REDUCE THE TAX LIABILITY OF THE APPELLANT. 3. THE HON'BLE CIT (A) HAS ERRED IN UPHOLDING THE DISALLOWANCE OF RS.5,98, 417/ - U/S. 14A AS EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. 4. THE HON'BLE CIT (A) HAS ERRED IN NOT APPRECIATIN G THE FACT THAT THE EXPENDITURE CLAIMED BY THE APPELLANT IN HIS PROFIT AND LOSS ACCOUNT WAS DIRECTLY ATTRIBUTABLE TO HIS BUSINESS OF FUTURE AND OPTIONS TRADING AND THEREFORE NO EXPENDITURE OUT OF THE SAME COULD HAVE BEEN DISALLO WED U/S14A. ITA NO.2007/PUN/2014 ARUN NATHANI 2 5. THE HON'BLE CIT (A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE TOT AL EXPENDITURE INCURRED AND CLAIMED AS BUSINESS EXPEND ITURE, WHICH WAS NOT DIRECTLY ATTRIBUTED TO THE STOCK FUTURES AND OPTIONS TRADING BUSINESS OF THE APPELLANT WAS ONLY RS. 1,575/- AND THEREFORE DISALLOWANCE OF RS. 5,98,417/- U/S. 14A WAS NOT JUSTIFIED. 3. BRIEFLY STATED RELEVANT FACT ARE THAT THE ASSESS EE IS ENGAGED IN TRADING IN FUTURES AND OPTIONS AND FILED THE RETURN OF INCOME DECLARING TOTAL INCOME OF RS.4,65,97,220/-. IN THE ASSESSMENT PROCEEDINGS U/ S.143(3) OF THE ACT, AO DETERMINED THE ASSESSED INCOME AT RS.5,18,17,520/- AFTER MAKING ADDITION ON ACCOUNT OF DISALLOWANCE OF COMMISSION OF RS.46,21,8 87/ PAID TO SHRI VIJAY LALWANI. FURTHER, AO ALSO MADE ANOTHER ADDITION ON ACCOUNT O F DISALLOWANCE U/S.14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D (2)(III) OF THE INCOME TAX RULES, 1962 AMOUNTING TO RS.5,98,417/-. CIT(A) CONFIRMED THE S AME IN THE FIRST APPELLATE PROCEEDINGS. THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE US WITH THE GROUNDS EXTRACTED ABOVE. 4. REGARDING GROUND NOS. 1 & 2 ABOVE, LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT THESE GROUND REVOLVE AROUND THE ALLOWABILITY O F COMMISSION OF RS.46,21,887/- PAID TO SHRI VIJAY LALWANI WHO MANAGES THE SAID BUS INESS OF FUTURES AND OPTIONS FOR THE ASSESSEE. CONSIDERING THE ABSENCE OF THE D ETAILS ON THE LIST OF SERVICES RENDERED BY SHRI VIJAY LALWANI, AO DISMISSED THE AS SESSEES CLAIM AND HELD THAT THE SAID EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLU SIVELY FOR THE BUSINESS PURPOSES OF THE ASSESSEE. FURTHER, HE HELD THAT THE SAID PA YMENT WAS MADE TO SHRI VIJAY LALWANI WITH A VIEW TO REDUCE THE TAX LIABILITY OF THE ASSESSEE. 5. RELEVANT FACTS RELATING TO THE SAID COMMISSION I NCLUDE THAT THE ASSESSEE REPORTED NET PROFIT OF RS.4,24,95,451/- ON ACCOUNT OF THE FUTURES AND OPTION BUSINESS. THE ASSESSEE IS THE MANAGING DIRECTOR OF M/S. CYBAGE SOFTWARE PVT. LTD., AND THE EXCESS FUNDS OF THE ASSESSEE WERE UND ISPUTEDLY UTILISED FOR THE SAID ITA NO.2007/PUN/2014 ARUN NATHANI 3 BUSINESS OF FUTURES AND OPTIONS. ASSESSEE OUTSOURC ED SHRI VIJAY LALWANI, WHO IS ASSESSEES BROTHER-IN-LAW AND CONSIDERED HIM AS A F UND MANAGER/CONSULTANT AND CLAIMED TO HAVE RECEIVED FUND MANAGEMENT SERVICES O F SHRI VIJAY LALWANI. AS A RESULT OF THIS BUSINESS, ASSESSEE EARNED THE NET PR OFIT OF RS.4,24,95,451/- IN THE YEAR UNDER CONSIDERATION. IN THE ASSESSMENT PROCEE DINGS, AO REQUIRED THE DETAILS AND THE SERVICES RENDERED BY SHRI VIJAY LALWANI. A O ALSO ANALYSED THE BUSINESS EXPERTISE OF SHRI VIJAY LALWANI IN THE SAID BUSINES S OF FUTURES AND OPTIONS. IN THIS REGARD, AO ISSUED A LETTER DATED 18-03-2013 CALLING FOR THE DETAILS. IN RESPONSE, ASSESSEE FILED A PROFIT SHARING AGREEMENT EXECUTED ON 15-03-2010 ON THE STAMP PAPER DATED 01-04-2009. ON GOING THROUGH THE VARIO US CLAUSES OF THE SAID AGREEMENT, AO HELD THAT THE SAID AGREEMENT IS THE P RODUCT OF AN AFTERTHOUGHT AS THE ASSESSMENT YEAR IN QUESTION IS 2010-11 AND THE AGREEMENT WAS EXECUTED AT THE END OF THE YEAR ON 15-03-2010. AO REJECTED THE EXP LANATION OF THE ASSESSEE AND PROCEEDED TO DISALLOW THE CLAIM OF THE ASSESSEE IN FULL. FURTHER, THE AO HELD THAT THE AGREEMENT SUFFERS FROM VAGUENESS AS THE SAME IS INCOMPLETE IN CERTAIN RECEIPTS. AO DISTINGUISHED THE SUPREME COURT JUDGM ENT IN THE CASE OF LACHMINARAYAN MADAN LAL VS. CIT (1972) 86 ITR 439 ( SC) AND HELD THAT THE SAID EXPENDITURE IS NOT ALLOWABLE UNDER THE PROVISIONS O F SECTION 37(1) OF THE ACT. THE FIRST FEW OPERATING LINES FROM PARA NO.6.4 OF THE A SSESSMENT ORDER ARE EXTRACTED AS UNDER : 6.4 HENCE, KEEPING IN VIEW THE TOTALITY OF THE FAC TS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED ABOVE, IT IS HELD THAT THE ASSESS EE HAS FAILED TO DISCHARGE HIS ONUS OF ESTABLISHING THAT THIS EXPENDITURE OF RS.46,21,8 87/- HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OF THE ASSESSEE. ACCORDINGLY, THIS EXPENDITURE OF RS.46,21,887/- BEING NOT ALLOWABLE A S PER THE PROVISIONS OF SECTION 37(1), IS DISALLOWED AND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. . . . . . . . . . . 6. IN THE FIRST APPELLATE PROCEEDINGS, THE ASSESSEE COULD NOT IMPROVE HIS CASE. HOWEVER, HE MADE A WRITTEN SUBMISSIONS, THE EXTRACT OF WHICH IS AVAILABLE AT PAGES ITA NO.2007/PUN/2014 ARUN NATHANI 4 3 TO 6 OF THE ORDER OF CIT(A). IN THE SAID SUBMISS IONS, THE ASSESSEE SUBMITTED THAT SHRI VIJAY LALWANI IS AN EXPERIENCED ONE IN THE BUS INESS OF DERIVATIVES SUCH AS FUTURES AND OPTIONS. THE ASSESSEE ALSO FURNISHED T HE COMPUTATION OF INCOME OF SHRI VIJAY LALWANI WHEREIN SHRI VIJAY LALWANI REFLE CTED HIS BUSINESS PROFITS OF RS.49,61,290/- WHICH INCLUDES PRESENT COMMISSION RE CEIPT OF RS.46,21,887/- RECEIVED FROM THE ASSESSEE. HE ALSO DEMONSTRATED T HAT SHRI VIJAY LALWANI IS NOT A SPECIFIED PERSON WITHIN THE MEANING OF SECTION 40A( 2)(B) OF THE ACT. HE ALSO DEMONSTRATED THE FACT OF CONDUCTING THE BUSINESS OF FUTURES AND OPTIONS FOR THE ASSESSEE ON THE PORTALS OF RELIANCE SECURITIES LTD. (IN SHORT RSL. RSL RECEIVED THE BROKERAGE/LIMIT CARD CHARGES OF RS.22.8 LAKHS. THE CIT(A) CONSIDERED THE ABOVE ARGUMENTS AND ALSO DISCUSSED VARIOUS CASE LAWS BEFO RE GIVING ADVERSE CONCLUSION AGAINST THE ASSESSEE. THE DISCUSSION GIVEN IN PARA NOS. 3.3 AND 3.3.1 OF HIS ORDER IS RELEVANT. ESPECIALLY, IT IS THE CASE OF THE CIT (A) THAT THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE REGARDING THE ADVISORY SERVI CES PROVIDED BY SHRI VIJAY LALWANI TO THE ASSESSEE. HE HELD THE AOS OBSERVAT ION THAT THE PAYMENT OF COMMISSION TO SHRI VIJAY LALWANI CONSTITUTES AN ARR ANGEMENT AIMED AT DEDUCTION OF TAX LIABILITY IN THE HANDS OF THE ASSESSEE. THERE WAS ALSO SOME REFERENCE TO SUSPECTED INSIDER TRADING INVOLVING STOCKS OF M/S. CYBAGE SOFTWARE PVT. LTD. WHERE THE ASSESSEE IS A MANAGING DIRECTOR. EVENTUALLY, T HE CIT(A) DISMISSED THE ARGUMENTS OF THE ASSESSEE AND HELD MERE PAYMENT OF TAXES ON THE COMMISSION BY SHRI VIJAY LALWANI DOES NOT PROVE RENDERING OF SERV ICES TO THE ASSESSEE. ACCORDINGLY, HE CONFIRMED THE ADDITION MADE BY THE AO. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE ASSESSEE IS THE CEO/MD OF M/S. CYBAGE SOFTWARE PVT. LTD. AND HE IS COMPLETELY BUSY WITH HIS COMPANY AFFAIRS. THE EXCESS FUNDS WHICH HE HAD TO BE UTILISED FOR THE BUSINESS OF FUTURES AND OPTIONS FOR WHICH SERVICES OF SHRI VIJA Y LALWANI WERE AVAILED. THE ITA NO.2007/PUN/2014 ARUN NATHANI 5 PAYMENT OF COMMISSION TO SHRI VIJAY LALWANI CONSTIT UTES NORMAL BUSINESS EXPENDITURE. THE ASSESSEE HAD TO PAY THE SAID AMOU NT AS PER THE SPECIFICATIONS PROVIDED IN THE PROFIT SHARING AGREEMENT REFERRED A BOVE. IT WAS ALSO DEMONSTRATED THAT THE PAYMENT OF RS.46,21,887/- TO SHRI VIJAY LA LWANI CONSTITUTES A BUSINESS EXPENDITURE. THE FACT OF SHRI VIJAY LALWANI OFFERI NG THE SAID COMMISSION INCOME AS PART OF HIS INCOME WAS ALSO MENTIONED. BUT FOR THE SERVICES OF SHRI VIJAY LALWANI THE ASSESSEE WOULD NOT HAVE EARNED THE NET PROFIT O F RS.4,24,95,451/-. CONSIDERING THE SAME, IT IS PRAYED FOR REVERSING THE ORDER OF T HE AO AND THE CIT(A) AND IN FAVOUR OF THE ASSESSEE. 8. BRINGING OUR ATTENTION TO THE COPY OF CERTIFICAT E OF REGISTRATION ISSUED BY SEBI DATED 17-06-2010 (PAGE 13 OF THE PAPER BOOK), LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT SHRI VIJAY LALWANI IS A MEMBER OF N ATIONAL STOCK EXCHANGE OF INDIA WHICH SUPPORTS THE ASSESSEES SUBMISSION ON THE EXP ERTISE OF SHRI VIJAY LALWANI IN THE TRADING ACTIVITY. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE HEAVILY RELIED ON THE ORDERS OF THE AO AND THE CIT(A). LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED ON THE CONTENTS OF PARA NO. 3.3 AND 3.3.1 OF THE ORDER OF CIT(A). 10. WE HEARD BOTH THE PARTIES ON THE ISSUE OF ALLOW ABILITY OF COMMISSION OF RS.46,21,887/-. THE UNDISPUTED FACTS INCLUDE THAT T HE ASSESSEE IS BUSY WITH THE BUSINESS MATTERS OF M/S. CYBAGE SOFTWARE PVT. LTD. IN THE CAPACITY OF MD/CEO OF THE COMPANY. ASSESSEE WAS IN NEED OF SERVICES OF S HRI VIJAY LALWANI TO USE HIS FUNDS FOR BUSINESS PURPOSES. ASSESSEE HAS EXCESS F UNDS WHICH ARE AVAILED IN THE SAID BUSINESS OF FUTURES AND OPTIONS. THE PAYMENT OF COMMISSION WAS MADE BY THE ASSESSEE THROUGH BANKING CHANNELS. SHRI VIJAY LALWANI OFFERED THE SAID COMMISSION IN HIS RETURN OF INCOME AND PAID THE TAX ES AT MAXIMUM MARGINAL RATE AS IN CASE OF THE ASSESSEE. AS SUCH, THE AO DID NOT G ATHER ANY EVIDENCE TO ITA NO.2007/PUN/2014 ARUN NATHANI 6 DEMONSTRATE THAT THE CLAIMS MADE BY THE ASSESSEE IN THIS REGARD ARE NOT GENUINE. IT IS A FACT THAT SHRI VIJAY LALWANI IS PRESENTLY A MEMBER OF THE NATIONAL STOCK EXCHANGE OF INDIA WHICH GOES TO DEMONSTRATE HIS EXP ERTISE IN THE FIELD OF TRADING ACTIVITIES OF FUTURE AND OPTIONS. CONSIDERING THE ABOVE FACTUAL MATRIX FAVOURABLE TO THE ASSESSEE, WE ARE OF THE OPINION THAT THE FINDIN G OF THE AO/CIT(A) THAT SHRI VIJAY LALWANI IS NOT EXPERT IN THE FIELD OF TRADING ACTIV ITY IS NOT SUSTAINABLE IN LAW. IT IS A FACT THAT THE ASSESSEE EARNED NET PROFIT OF RS.4,24 ,95,451/- BY INCURRING ONLY AN EXPENDITURE OF RS.71,20,105/- WHICH INCLUDES THE CO MMISSION PAYMENT OF RS.46,21,887/-. IN OUR VIEW, THERE IS NO CASE OF M AKING DISALLOWANCE ON THE GROUND OF THE PROVISIONS OF SECTION 37(1) OF THE AC T. ACCORDINGLY, WE ARE OF THE VIEW THAT GROUND NOS. 1 AND 2 BY THE ASSESSEE ARE A LLOWED IN FAVOUR OF THE ASSESSEE. 11. GROUND NOS. 3 TO 5 RAISED BY THE ASSESSEE RELAT E TO DISALLOWANCE U/S.14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE REPORTED E ARNING OF EXEMPT INCOME, I.E., DIVIDEND INCOME AND INCOME FROM MUTUAL FUNDS AMOUNT ING TO RS.13,65,55,295/-. ASSESSEE DID NOT DISALLOW SUO MOTO ANY EXPENDITURE U/S.14A OF THE ACT. MOST OF THE DIVIDENDS EARNED BY THE ASSESSEE IS FROM HIS CO MPANY M/S. CYBAGE SOFTWARE PVT. LTD. AND ACCORDING TO ASSESSEE, NO SPECIFIC EX PENDITURE WAS INCURRED FOR EARNING OF THE DIVIDEND, THE EXEMPT INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO APPLIED THE PROVISIONS OF RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 AND HELD THAT AN AMOUNT OF RS.5,98,417/ - @ 0.5% OF AVERAGE VALUE OF INVESTMENTS OF RS.11,96,83,493/- IS REQUIRED TO BE DISALLOWED. 12. DURING THE COURSE OF FIRST APPELLATE PROCEEDING S, THE CIT(A) CONSIDERED THE WRITTEN SUBMISSIONS AS EXTRACTED IN PARA NO.4.3 OF HIS ORDER AND CONFIRMED THE DISALLOWANCE DETERMINED BY THE AO. THE DISCUSSION GIVEN IN PARA NO.4 ALONG WITH ITA NO.2007/PUN/2014 ARUN NATHANI 7 ITS SUB-PARAGRAPH NOS. 4.2.1 TO 4.2.4 IS RELEVANT. AGGRIEVED WITH THE SAME, ASSESSEE RAISED GROUND NOS. 3 TO 5 STATING THAT THE SAID DISALLOWANCE OF RS.5,98,417/- IS NOT ATTRIBUTABLE TO THE EXEMPT INC OME CLAIMED BY THE ASSESSEE. 13. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, AN AMOUNT OF RS.1,575/- ONLY SHOULD BE DISALLOWED AND NOT DISALLOWANCE OF RS.5,9 8,417/-. BRINGING OUR ATTENTION TO THE DETAILS OF DEBITS TO THE PROFITS AND LOSS AC COUNT, CONTENTS OF PARA NO.4.2 OF THE ORDER OF CIT(A), LD. COUNSEL FOR THE ASSESSEE M ENTIONED THAT THE SUM OF RS.22,80,000/- WAS PAID TO THE RELIANCE INDUSTRIES LIMITED TOWARDS LIMIT CARD CHARGES. THE SUM OF RS.46,21,887/- WAS INCURRED TO WARDS COMMISSION PAYMENTS TO SHRI VIJAY LALWANI. REFERRING TO THE SUM OF RS.2,0 7,957/- INCURRED BY THE ASSESSEE TOWARDS STT PAYMENTS, LD. COUNSEL FOR THE ASSESSEE MENTIONED THAT ALL THESE EXPENSES ARE NOT ATTRIBUTABLE TO THE DIVIDEND EARNE D BY THE ASSESSEE. THE ENTIRE EXPENDITURE CLAIMED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE TOTALLING TO RS.71,20,105/-, THE DISALLOWANCE OF RS.5,98,417/- @ 0.5% OF THE AVERAGE VALUE OF THE INVESTMENTS IS ON THE HIGHER SIDE. 14. ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTAT IVE FOR THE REVENUE SUBMITTED THAT THE AO FOLLOWED THE PRINCIPLES LAID DOWN IN THE PROVISIONS OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE INCOME TAX RUL ES. AO HAS NO DISCRETION TO DILUTE THE SAID PROVISIONS, THEREFORE, HE CALLS FOR AFFIRMING THE ENTIRE DISALLOWANCE. 15. WE HEARD BOTH THE PARTIES ON THIS ISSUE AND PER USED THE ORDERS OF THE REVENUE AND THE PAPERS FILED BEFORE US. IT IS A FA CT THAT ASSESSEE EARNED DIVIDEND INCOME OF RS.13,65,55,259/- FROM M/S. CYBAGE SOFTWA RE PVT. LTD., WHICH IS HEADED BY THE ASSESSEE HIMSELF. THE TOTAL EXPENDITURE DEB ITED IN THE PROFIT AND LOSS ACCOUNT AMOUNTS TO RS.71,20,105/-. THE DISALLOWANC E MADE BY THE AO IS ONLY RS.5,98,417/-. WE HAVE ALSO EXAMINED THE PROVISION S OF SECTION 14A READ WITH RULE 8D(2)(III) OF THE I.T. RULES AND FIND THAT OUT OF T HE SAID EXPENDITURE, AN AMOUNT OF ITA NO.2007/PUN/2014 ARUN NATHANI 8 RS.46,21,887/- AND RS.22.80 LAKHS WERE SPENT ON COM MISSION PAYMENTS AND LIMIT CARD EXPENDITURE PAID TO SHRI VIJAY LALWANI AND RSL RESPECTIVELY. THESE EXPENSES ARE FOUND TO HAVE NO NEXUS TO THE EXEMPT INCOME IN QUESTION. THEREFORE, NO PART OF THESE EXPENDITURE MUST BE SUBJECTED TO ANY DISAL LOWANCE U/S.14A OF THE ACT. OUT OF THE BALANCE EXPENDITURE OF RS.2,18,218/- IT IS THE CLAIM OF THE ASSESSEE THAT ONLY AN AMOUNT OF RS.1,575/- IS ATTRIBUTABLE TO THE EXEMPT INCOME. WE FIND THE SAME ON LOW SIDE. ON EXAMINING THE REST OF THE EXP ENDITURE, IN PRINCIPLE, WE FIND, THE SAME ARE ALSO NOT INCURRED EXCLUSIVELY FOR EARN ING THE EXEMPT INCOME. THEREFORE, CONSIDERING THE EXTENT OF EXEMPT INCOME ON ONE SIDE AND THE INAPPLICABILITY OF PROVISIONS OF CLAUSE (III) OF RU LE 8D(2) TO THE FACTS OF THIS CASE ON THE OTHER SIDE, WE ARE OF THE OPINION, THE DISALLOW ANCE OF NOMINAL AND A ROUND SUM EXPENDITURE OF RS.25,000/- SHOULD MEET THE ENDS OF JUSTICE. THEREFORE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO RS.25,000/-. ACCORDINGLY, GROUND NOS. 3 TO 5 BY THE ASSESSEE ARE PARTLY ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED ON THIS 09 TH DAY OF AUGUST, 2017. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 09 TH AUGUST, 2017. SATISH COPY OF THE ORDER IS FORWARDED TO : THE APPELLANT; THE RESPONDENT; ( ) THE CIT(A)-III, PUNE / TH E CIT - III, PUNE / DR A, ITAT, PUNE; GUARD FILE . / BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, ITAT, PUNE BENCHES, PUNE