Vini Cosmetics Pvt. Ltd., Ahmedabad V. The DCIT, Circle-4(1)(2), Ahmedabad

ITA 221/AHD/2023

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Vini Cosmetics Pvt. Ltd. appealed against the order of the Commissioner of Income Tax (Appeals), which confirmed the disallowance of expenses under Section 14A read with Rule 8D of the Income Tax Act, 1961. The disallowance pertained to expenses claimed for earning exempt income, which the assessee argued were not incurred. The Tribunal considered the assessee's previous case for A.Y. 2013-14, where a similar disallowance was reduced, and applied the same reasoning to the current assessment year, thereby partly allowing the appeal.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 299925 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 25-06-2023
• Assessment Year: 2014-2015
• Appeal Filed On: 05-04-2023
• Other Referred Cases: PCIT vs. Syntex Industries Ltd. 403 ITR 418 (Guj.), ITA No. 845/Ahd/2018 Vini Cosmetics Pvt. Ltd. vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, AHMEDABAD BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER I .T .A . N o . 2 2 1/ A h d /2 0 23 ( A s se ss m e nt Y e a r : 20 14- 15 ) Vi n i C o s me t ic s Pv t . L td . Ja n k i H o u s e , 2 , S un r is e P a r k So c ie t y, Op p. H i ma la ya Ma ll , Dr i v e i n R o ad , Bo d a kd e v , Ah me da bad - 3 80 05 4 V s . D C I T C ir cl e - 4 ( 1 ) ( 2 ) , A h me da ba d [ P AN N o. A A DC V 1 4 5 4B ] (Appellant) .. (Respondent) Appellant by : Shri Dhinal Shah, A.R. Respondent by : Shri Urjit Shah, Sr. D.R. D a t e of H ea r i ng 26.06.2023 D a t e of P r o no u n ce me nt 05.07.2023 O R D E R The appeal filed by the assessee is against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), National Faceless Appeal Centre (in short “NFAC”), Delhi on 24.03.2023 for A.Y. 2014-15. 2. The grounds of appeal raised by the assessee are as under: “1. The learned CIT(A) has erred in confirming the disallowance of other expenses of Rs. 4,82,612 under Section 14A read with Rule 8D in as much as the assessee has not incurred any expenditure for earning exempt income. 2. The appellant says and submits that the assessee has offered during assessment proceedings Rs. 45,000 for disallowance. However, the AO has added Rs. 30,63,380 instead of Rs. 45,000 offered meaning by even if such expenses are disallowable than such expenses should not exceed Rs. 45,000. It is 0.5% of the average investment as per Rule 8D is not disallowable.” 3. The assessee company is engaged in the business of trading and manufacturing of cosmetic goods. The return of income was filed by the ITA No. 221/Ahd/2023 Vini Cosmetics Pvt. Ltd. vs. DCIT Asst.Year–2014-15 - 2 - assessee on 29.11.2014 declaring total loss of Rs. 44,92,207/-. The case was selected for scrutiny by issuing notice under Section 143(2) of the Income Tax Act, 1961 on 28.09.2015 which was served upon the assessee. In response to the notices the Authorized Representative of the company submitted various details and attended the assessment proceedings. The Assessing Officer observed that from the computation of income, the assessee has earned an amount of Rs. 88,58,283/- as dividend income and the same was claimed as exempt under Section 10(34) and Section 10(35) of the Act. The Assessing Officer after taking consideration of the reply of the assessee disallowed / made addition of Rs. 30,63,680/- in respect of disallowance under Section 14A r.w.s. 8D. The Assessing Officer further made addition of Rs. 16,252/- in respect of Section 2(24)(x) r.w.s. 36(1)(va) of the Act. 4. Being aggrieved by the assessment order the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee. 5. The Ld. A.R. submitted that the CIT(A) was not right in confirming the disallowance of other expenses of Rs. 4,82,612/- under Section 14A r.w.r. 8D in as much as the assessee has not incurred any expenditure for earning exempt income. The Ld. A.R. further submitted that the assessee has offered during the assessment proceedings Rs. 45,000/- for disallowance. However, the Assessing Officer has added Rs. 30,63,680/- instead of Rs. 45,000/- offered. The Ld. A.R. submitted that even if such expenses are disallowable than such expenses should ITA No. 221/Ahd/2023 Vini Cosmetics Pvt. Ltd. vs. DCIT Asst.Year–2014-15 - 3 - not exceed Rs. 45,000/- as it is 0.5% of the average investment as per Rule 8D. The Ld. A.R. relied upon the decision of Hon’ble Gujarat High Court in case of PCIT vs. Syntex Industries Ltd. 403 ITR 418 (Guj.) and the decision of the Tribunal in assessee’s own case for A.Y. 2013-14 being ITA No. 845/Ahd/2018 dated 18.12.2019. 6. The Ld. D.R. submitted that the Assessing Officer has duly recorded satisfaction and further observation made investment in Mutual Funds is a strategic decision and top management is involved in taking such decision, therefore, the expenditure offered by the assessee of only one employee who devoted 10% time to manage the investment is inadequate. The Ld. D.R. further submitted that keeping track of the divided incomes declared and received by the company cannot be left only to junior clerk. Therefore, the Ld. D.R. submitted that disallowance made by the Assessing Officer was in accordance with Section 14A r.w.r. 8D. The Ld. D.R. relied upon the assessment order and the order of the CIT(A). 7. Heard both the parties and perused all the relevant material available on record. It is pertinent to note that the assessee has earned exempt income to the extent of Rs. 88,58,283/-. Though the assessee has not made any corresponding disallowance under Section 14A the contention of the assessee that the assessee invested substantial amount in Mutual Fund after the date of which the assessee has received the amount of share capital, including securities premium of Rs. 74.54 crore and the assessee has securities premium of Rs. 28.17 crore at the ITA No. 221/Ahd/2023 Vini Cosmetics Pvt. Ltd. vs. DCIT Asst.Year–2014-15 - 4 - beginning of the year. So the total amount of securities premium amounts to Rs. 102.72 crore and profit for the year was Rs. 28.38 crore. The assessee invested in Mutual Fund only out of the interest free capital as per the record stand before the Assessing Officer by the assessee. The contention of the assessee that the assessee incurred interest expenditure of Rs. 44.38 lakh only on consignees deposits received from the consignee. The assessee has not incurred any expenditure by way of interest the question of disallowable does not arise. But the alternate explanation of the assessee that assessee has deputed to look after this activity who devoted hardly 10% of this time towards the activity of Mutual Fund and therefore, the assessee company offered to disallow 10% of the salary of said employee and other expense which amounts to Rs. 45,000/- which was totally discarded by the Assessing Officer. In fact, in A.Y. 2013-14 on the same line of argument the Tribunal in assessee’s own case submitted that disallowance of only 10% of one employee as a cost of administrative expenditure to the amount of Rs. 45,000/- is not sufficient and appropriately looking to the size of the investment and the quantum of exempt income earned from the investment which was claimed as exempt. Therefore, the Tribunal observed that involvement of top executives and use of other business office equipment like compute etc. and office premises in respect of investment activities cannot be ruled out. Therefore, the Tribunal in A.Y. 2013-14 restricted the disallowance under administrative expenditure to the amount of Rs. 4,00,000/-. At the time of hearing it appears that the assessee has made investment of RS. 102.72 crore and profit for the year ITA No. 221/Ahd/2023 Vini Cosmetics Pvt. Ltd. vs. DCIT Asst.Year–2014-15 - 5 - was Rs. 28.38 crore. The interest expenditure was Rs. 44.38 lakhs and therefore, in the present case also the calculation of Rs. 4,37,612/- is justifiable under administrative expenditure. Therefore, the appeal of the assessee is partly allowed. 8. In result, appeal of the assessee is partly allowed. This Order pronounced in Open Court on 05/07/2023 Sd/- (SUCHITRA KAMBLE) JUDICIAL MEMBER Ahmedabad; Dated 05/07/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 03.07.2023 2. Date on which the type draft is placed before the Dictating Member 03.07.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S .07.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .07.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 05.07.2023 7. Date on which the file goes to the Bench Clerk 05.07.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................