C.D. Integrated Services Ltd., Ahmedabad V. The ACIT, Circle-1(3), Ahmedabad

ITA 2179/AHD/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6366 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 29-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A C SHAH
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

PAGE 1 OF 4 , IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS . MADHUMITA ROY , JUDICIAL MEMBER ./ ITA NO. 2179 /AHD/2017 / ASSTT. YEAR : 2013 - 2014 M/S. C.D. INTEGRATED SERVICES LTD., A - 101/102, B - 802, PREMIUM HOUSE, OPP. GANDHIGRAM RAILWAY STATION, ASHRAM ROAD, AHMEDABAD - 380 009 . PAN: AABCC2483R VS . THE ACIT, CIRCLE - 1(3) , AHMEDABAD. (APPLICANT) ( RESPON D ENT ) ASSESSEE BY : SHRI A. C . SHAH , A. R REVENUE BY : SHRI MUDIT NAGPAL , SR. D.R / DATE OF HEARING : 09 / 07 / 201 9 / DATE OF PRONOUNCEMENT: 25 /07 /2 01 9 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) - 1 0 , AHMEDABAD DATED 07/09 /2017 ( IN SHORT LD.CIT(A) ) ARISING IN THE MATTER OF ASSESSMENT ORDER PASSED UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 ( HERE - IN - AFTER REFERRED TO AS 'THE ACT') DT. 11 / 03/2016 RELEVANT TO THE ASSESSMENT YEAR 2013 - 20 14 . ITA NO.2179/AHD/2017 ASSTT. YEARS 2013 - 14 2 PAGE 2 OF 4 THE SOLITARY ISSUE RAISED BY THE ASSESSEE IS THAT THE ''LD.CIT (A)'' ERRED IN CONFIRMING THE ORDER OF THE AO BY DISALLOWING EXPENSES OF RS.8, 27.764/ - UNDER THE PROVISION OF SECTION 14A R.W.R 8D OF THE INCOME - TAX RULES ON ACCOUNT OF ADMINISTRATIVE EXPENSES. 2. THE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF SHARE BROK ING , TRADING IN SHARES, SECURIT I ES & CURRENCY IN F & O AND PHYSICAL MODE, DEPOSITORY PARTICIPANTS OF NSDL & CDSL FOR D - MAT ACCOU N T, TRADING IN FOREIGN EXCHANGE ( F & O). THE ASSESSEE IN THE YEAR UNDER CONSIDERATION HAS EARNED DIVIDEND INCOME OF RS.11,42,979/ - AND CLAIM T HE SAME AS EXEMPT INCOME U/S 10( 34 ) OF THE ACT. THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS CLAIM ED THAT IT HAS NOT REQUIRED TO MAKE THE DISALLOWANCE OF THE EXPENSES AGAIN S T THE EXE MPTED INCOME AS PER THE PROVISION OF 14A R.W.R. 8D OF THE I.T RULES AS IT IS RUNNING A BUSINESS OF SALE AND PURCHASE OF SHARES/ SECURITIES. 2.1 HOWEVER, THE AO DIS - AGREE D WITH THE CONTENTIONS OF THE ASSESSEE AND INVOKED THE PROVISION OF SECTION 14A R.W.R . 8D OF I.T RULES AND MADE THE DISALLOWANCE OF RS.8,27 ,764/ - BEING ONE - HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENTS OF RS.16,55,52,858/ - AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 3. THE A GGR IE VED ASSESSEE PREFERRED AN APPEAL TO THE ''LD.CIT (A)' '. THE ASSESSEE BEFORE THE ''LD.CIT (A)'' INTER - ALIA S UBMITTED THAT IT HAS ALREADY MAD E SUO MO TO DISALLOWANCE OF RS. 69,262/ - IN THE STATEMENT OF INCOME. HOWEVER, T HE AO , WITHOUT POINTING OUT ANY DEFECT IN THE SAID DISALLOWANCE INVOK ED THE PROVISION OF RULE 8D OF THE I.T RULES. AS SUCH THE AO WAS TO RECORD SATISFACTION BEFORE INVOKING THE PROVISION O F 14A R.W.R 8D OF THE I.T RULES ITA NO.2179/AHD/2017 ASSTT. YEARS 2013 - 14 3 PAGE 3 OF 4 AFTER REJECTING SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE BASED ON COGENT REASONS. 3. HOWEVER THE ''LD.CIT (A)'' DIS - REGA RDED THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER: REGARDING THE ADDITIONS OF 0.5% AVERAGE INVESTMENT UNDER RULE 8D, THE ADDITIONS OF RS.2,27,764/ - MADE BY THE ASSESSING OFFICER IS FOUND JUSTIFIED AS THERE IS NO DISCRETION WITH THE A.O IN THIS REGARD. HENCE, THE ADDITIONS MADE BY THE A.O IS CONFIRMED TO THE EXTENT OF RS.8,27,764/ - . BEING AGGRIEVED BY THE ORDER OF THE ''LD.CIT (A)'' ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD.AR, BEFORE US , FILED A PAPER BOOK RUNNING FROM PAGES 1 TO 22 AND REITERATED THE SUBMISSION MADE BEFORE THE ''LD.CIT (A)''. 5. ON THE OTHER HAND , LD. DR, SUBMITTED THAT THE AO HA D INVOKED THE PROVISION OF SECTION 14A R.W.R . 8D AFTER CONSIDERING THE REPLY OF THE ASSESSEE . THUS IT IS IMPLIED THAT THE CONTENTIONS RAISED BY THE ASSESSEE W ERE REJECTED. THUS IT IMPLIED THAT THE AO WAS NOT SATISFIED WITH THE WORKING OF THE DISALLOWANCE MADE BY THE ASSESSEE. 5.1 THE LD.DR, VEHEMENTLY SUPPORTED THE ORDER OF THE AUTHOR I TIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORDS. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III) OF I.T RULES ON ACCOUNT OF ADMINISTRATIVE EXPE NSES. ADMITTEDLY, THE ASSESSEE H AS MADE THE DISALLOWANCE SUO MO TO IN THE STATEMENT OF INCOME AGAINST THE EXEMPTED INCOME UNDER THE PROVISION OF 14A R.W.R 8 D OF I.T RULE S AMOUNTING TO ITA NO.2179/AHD/2017 ASSTT. YEARS 2013 - 14 4 PAGE 4 OF 4 RS.69,262/ - ONLY. THUS , WE ARE OF THE VIEW THAT THE AO BEFORE RESORTING TO THE PROVISION OF SECTION 14A R.W.R . 8D OF THE I.T. RULES WAS TO REJECT THE DISALLOWANCE MADE BY THE ASSESSEE FOR RS. 69 , 262/ - BASED ON COGENT REASON S . HOWEVER, THE AO HAS MECHANICALLY CONSIDERED THE DISALLOWANCE MADE BY THE ASSESSEE AND ACCORDINGLY REJE CTED WITHOUT AD D U CING ANY REASON THEREON. 6.1 IN OUR CONSIDERED VIEW , THE PROVISION OF SECTION 14A R.W.R . 8D CANNOT BE INVOKED MECHANICALLY . THE PROVISION OF SECTION 14A R.W.R . 8D OF I.T . RULES REQUIRES THE AO TO RECORD SATISFACTION AFTER CONSIDER ING THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE TO REACH TO THE CONCLUSION THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT BEFORE MAKING THE DISALLOWANCE AS PER THE PROVISION OF RULE 8D (2) (II I ) OF RULES . AS THE AO HAS NOT REJECTED THE DISALLOWANCE MADE BY THE A SSESSEE BASED ON COGENT REASON S , WE DO NOT WANT TO UPHOLD THE FINDINGS OF THE AUTHORITIES BELOW. ACCORDINGLY , WE HOLD THAT THE DISALLOWANCE HAS BEEN MADE U/S 14A R.W.R 8D IN A MECHANICAL MANNER WHICH IS AGAINST THE INTENT OF THE PROVISION OF LAW. HENCE, W E REVERSE THE ORDER OF THE AUTHORITIES BELOW AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE BY HIM. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN THE RESULT , THE APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE COURT ON 25 /07 / 2019 AT AHMEDABAD. - SD - - SD - ( MS MADHUMITA ROY ) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (TRUE COPY) A HMEDABAD; DATED 25 / 07 /2019 M ANISH