STOCK TRADERS PRIVATE LIMITED, MUMBAI V. ACIT OSD-2(3), MUMBAI

ITA 2254/MUM/2011

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2900 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 28-02-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 18-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NISHANT SOMAIYA
• Keywords: Business income; Depreciation; Business expenditure; Earning of tax free income; Unabsorbed depreciation; TDS; Rule 8D
• Section: 143(3); 14A; 194C; 250

Judgement Text

1 IN THE INCOME-TAX APPELLATE TRIBUNAL I BENCH MUMB AI BEFORE SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 2254/MUM/2011 (ASSESSMENT YEAR 2007-08 ) STOCK TRADERS PRIVATE LTD. 63, BOMBAY SAMACHAR MARG, FORT, MUMBAI-400001 . PAN: AAACS7235A VS. ACIT (OSD)- 2(3) AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. APPELLANT RESPONDE NT APPELLANT BY : SHRI NITESH JOSHI (AR) RESPONDENT BY : SHRI NISHANT SOMAIYA (SR. DR) DATE OF HEARING : 03.04.2019 DATE OF PRONOUNCEMEN T : 12.04.2019 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-6 [HEREINAFTER REFERRED AS LD CIT (A)], MUMBAI DATED 12.01.2011 FOR ASSESSMENT YEAR 2007-08. THE A SSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: AGGRIEVED BY THE ORDER PASSED BY THE COMMISSIONER O F INCOME-TAX (APPEALS) - 6, MUMBAI [HEREINAFTER REFERRED TO AS 'THE CIT(A)'] , UNDER SECTION 250 OF THE INCOME-TAX ACT, 1961 ('ACT') AND BASED ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, STOCK TRADERS PRIVATE LIMITED [HER EINAFTER REFERRED TO AS 'THE APPELLANT'] RESPECTFULLY SUBMITS THAT THE LEARNED C IT(A) ERRED IN DISPOSING THE APPEAL OF THE APPELLANT, ON THE FOLLOWING GROUNDS: RECLASSIFICATION OF INTEREST INCOME AS INCOME FROM OTHER SOURCES 1. ERRED IN CONFIRMING THE RECLASSIFICATION OF INTE REST INCOME OF RS 96,90,280 UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM PROFITS AND GAINS OF BUSINESS AND PROFESSION; ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 2 2. WITHOUT PREJUDICE TO ABOVE, SHOULD HAVE GIVEN DI RECTIONS TO GRANT DEDUCTION OF EXPENSES UNDER SECTION 57 OF THE ACT: DISALLOWANCE OF PROFESSIONAL FEES PAID 3. ERRED IN CONFIRMING DISALLOWANCE OF PROFESSIONAL FEES EXPENDITURE OF RS 3,98,12,647 PAID TO PREROY AG ('PAG'); DISALLOWANCE OF FOREIGN TRAVELLING EXPENSES 4. ERRED IN CONFIRMING DISALLOWANCE OF FOREIGN AIR TRAVEL EXPENSES AMOUNTING TO RS 10,84,994 IN RESPECT OF THE FOREIGN TRAVEL UN DERTAKEN BY THE WIFE OF THE DIRECTOR; DISALLOWANCE OF PROFESSIONAL FEES PAID TO ERNST AND YOUNG 5. ERRED IN CONFIRMING DISALLOWANCE OF PROFESSIONAL FEES PAID TO ERNST AND YOUNG OF RS 7,18,336 IN CONNECTION WITH SALE OF STA KE IN FEEDBACK VENTURES, CLAIMED AS A DEDUCTION FROM INCOME UNDER THE HEAD ' CAPITAL GAINS' BEING INCURRED TOWARDS TRANSFER OF SHARES; DISALLOWANCE OF CAR HIRE CHARGES 6. ERRED IN CONFIRMING DISALLOWANCE OF CAR HIRE CHA RGES OF RS 50,000 PAID TO AUTORIDERS INTERNATIONAL LTD ON ACCOUNT OF NON-DEDU CTION OF TAX AT SOURCE; DISALLOWANCE UNDER SECTION 14A 7. ERRED IN DIRECTING THE AO TO RE-COMPUTE THE DISA LLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT ON A REASONABLE BASIS, INSTEAD OF DELETING THE SAME AS NO EXPENDITURE ARE INCURRED TO EARN TAX FRE E INCOME; 2. FURTHER, VIDE APPLICATION DATED 04.12.2018, THE ASS ESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLANT PRAYS THAT THE DISALLOWANCE UNDER SECTION 14A OF TH E ACT, IF HELD TO BE APPLICABLE, MAY BE MADE ONLY IN RESPECT OF THOSE IN VESTMENTS WHICH HAVE YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSI DERATION AND THE DISALLOWANCE MAY BE RESTRICTED TO 0.5% OF THE AVERA GE VALUE OF SUCH INVESTMENTS. WITHOUT PREJUDICE TO THE ABOVE ADDITIONAL GROUND, T HE APPELLANT PRAYS THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, IF H ELD TO BE APPLICABLE, MAY ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 3 BE RESTRICTED TO THE EXEMPT INCOME EARNED DURING TH E YEAR UNDER CONSIDERATION. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF FINANCING AND INVESTING IN VARIOUS VENT URES, FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2007-08 DECLARING INCOME NIL INCOME AFTER SETTING OFF OF UNABSORBED DEPRECIATION. THE RETURN OF INCOME WAS SELECTED FOR SCRUTINY. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 17.12.2009. THE ASSESSING OFFICER WHILE P ASSING THE ASSESSMENT ORDER TREATED THE INTEREST INCOME OF RS. 96,90,280/- AS INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM PROFIT & GAINS OF BUSINESS AND PROFESSION, DISALLOWED PROFESSIONA L FEES OF RS. 3,98,12,647/-, DISALLOWED RS. 10,84,994/- ON ACCO UNT OF FOREIGN TRAVELLING EXPENSES OF WIFE OF DIRECTOR, DISALLOWED RS. 7,18,336/- PROFESSIONAL FEES PAID TO EARNEST AND YOUNG (E&Y), DISALLOWED CAR HIRE EXPENSES OF RS. 50,000/- DUE TO NON-DEDUCTION OF TD S AND DISALLOWANCE UNDER SECTION 14A OF RS. 7,08,369/-. ON APPEAL BEFO RE THE LD. CIT(A), ALL THE ADDITIONS/DISALLOWANCE WERE UPHELD. THUS, FURTH ER AGGRIEVED BY THE ORDER OF LD. CIT (A), THE ASSESSEE HAS FILED THE PR ESENT APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSION OF LD. AUTHORIZE D REPRESENTATIVE (AR) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENT ATIVE (DR) FOR THE REVENUE AND HAVE GONE THROUGH THE ORDERS OF AUTHORI TIES BELOW. THE LD. AR OF THE ASSESSEE SUBMITS THAT HE HAS RAISED THE A DDITIONAL GROUND OF APPEAL WITH REGARD TO DISALLOWANCE UNDER SECTION 14 A. THE LD. AR OF THE ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 4 ASSESSEE FURTHER SUBMITS THAT NO NEW FACTS IS REQUI RED TO BE BROUGHT ON RECORD FOR ADDITIONAL GROUNDS OF APPEAL RAISED BY A SSESSEE. THE FACTS ARE EMANATING FROM THE ORDER OF AUTHORITIES BELOW. 5. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE NOT S ERIOUSLY OBJECTED THE ADDITIONAL GROUNDS OF APPEAL RAISED BY ASSESSEE. CO NSIDERING THE SUBMISSION OF LD. AR OF THE ASSESSEE THAT NO NEW FA CTS ARE BROUGHT ON RECORD AND THAT THE FACTS RELATED TO THE ADDITIONAL GROUND OF APPEAL ARE EMANATING FROM THE ORDERS OF LOWER AUTHORITIES, THE ADDITIONAL GROUND OF APPEAL RAISED BY ASSESSEE IS ALLOWED. EVEN OTHERWI SE THE ADDITIONAL GROUNDS OF APPEAL RELATES TO THE DISALLOWANCE UNDER SECTION 14A AND THE ASSESSEE HAS ALREADY RAISED SUBSTANTIAL GROUND TO T HIS DISALLOWANCE VIDE GROUND NO.7. THEREFORE, THE ADDITIONAL GROUNDS OF APPEAL WOULD BE TAKEN ALONG WITH THE GROUND NO.7. 6. NOW, WE SHALL PROCEED TO DISCUSS THE MAIN GROUNDS OF APPEAL. GROUND NO.1 RELATES TO TREATING THE INTEREST INCOME OF RS. 96.90 LAKHS UNDER THE HEAD INCOME FROM OTHER SOURCES INSTEAD OF INCOME FROM PROFIT & GAINS OF BUSINESS & PROFESSION. THE LD. AR SUBMITS THAT TWO YEAR PRIOR TO THE ASSESSMENT YEAR UNDER CONSIDERATION AND TWO YEARS SUBSEQUENT TO THIS YEAR, THE ASSESSMENT ORDER WAS PASSED UNDER SE CTION 143(3) AND THE INTEREST INCOME WAS ACCEPTED/ ALLOWED AS INCOME FRO M BUSINESS AND PROFESSION TO THE ASSESSEE. THE LD. AR OF THE ASSE SSEE FILED THE COPY OF ASSESSMENT YEAR 2005-06 DATED 23.12.2009, ASSESSMEN T YEAR 2006-07 ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 5 DATED 01.12.2008, ASSESSMENT YEAR 2008-09 DATED 13. 12.2011 AND ASSESSMENT YEAR 2009-10 DATED 11.11.2011, THE LD AR ALSO DRAWN OUR ATTENTION TO THE PROFIT AND LOSS ACCOUNT OF THE ASS ESSEE FOR ALL THE YEARS WHEREIN THE INTEREST INCOME WAS ACCEPTED AS BUSINE SS AND PROFESSIONS. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT ON SAME SET OF FACT WHEN THERE WAS NO MATERIAL CHANGE IN THE FACTS, THE REVE NUE SHOULD ACCEPT THE INTEREST INCOME AS BUSINESS INCOME ON THE PRINCIP LE OF CONSISTENCY. IN SUPPORT OF HIS SUBMISSION, THE LD. AR RELIED UPON T HE DECISION OF HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. GOPAL PUROHIT ITA NO. 1121/2009 DATED 06.01.2010 [2010] 228 CTR (BOM) 582 ]. 7. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMI TS THAT EVERY YEAR IS SEPARATE AND INDEPENDENT YEAR. THE PRINCIPAL OF RES -JUDICATA IS NOT APPLICABLE ON THE INCOME TAX PROCEEDINGS. THE LD. C IT(A) HAS BROUGHT OUT THE DIFFERENCE FOR THE YEAR UNDER CONSIDERATION . THE LD. DR FURTHER SUBMITS THAT CASE LAW RELIED BY LD. AR IN GOPAL PUR OHIT (SUPRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. 8. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFI CER DURING THE ASSESSMENT NOTED THAT ASSESSEE HAS CHARGED INTEREST ONLY IN RESPECT OF SINGLE LOAN GIVEN BY THE ASSESSEE. THE ASSESSEE WAS ASKED TO SUBSTANTIATE WHETHER IF THE MONEY HAS BEEN ADVANCED FREE OF INTE REST AND ALSO TO FURNISH THE EVIDENCE THAT BUSINESS PURPOSE FOR WHIC H SUCH ADVANCE WAS ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 6 GIVEN. THE ASSESSEE FILED ITS REPLY DATED 15.09.200 9. IN THE REPLY, THE ASSESSEE CONTENDED THAT THE ASSESSEE IS NON-BANKING FINANCIAL COMPANY (NBFC) REGISTERED WITH RESERVE BANK OF INDIA (RBI) AND IT HAD ADVANCED LOAN TO ITS SUBSIDIARY, JOINT VENTURE, GRO UP ENTITIES AND HAD NOT CHARGED INTEREST TO CERTAIN SUBSIDIARIES. THE ASSES SEE ALSO CONTENDED THAT ROUTINE LOAN ADVANCED TO SISTER CONCERN DOES NOT CO NSTITUTE A BUSINESS OF NON-BANKING FINANCIAL COMPANY WHICH WAS GIVEN IN AC CORDANCE WITH CONSISTENT RULES AND TERMS AND CONDITIONS. THE LOAN LENDING TO SELECT FEW GROUP COMPANIES BUT OUTSIDER CUSTOMER AS WELL. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER. THE ASSESSING OFFICER CONCLUDED THAT THE ASSESSEES STATUS OF NON-BANKING FINANCIAL COMPANY IS ONLY ON PAPER. THE ASSESSEE HAS ADVANCED THE LOAN A S PER ITS CONVENIENCE WHICH CANNOT MAKE IT A BUSINESS ACTIVITY. THE ASSES SING OFFICER TREATED THE SAID INTEREST INCOME AS INCOME FROM OTHER SOUR CES IN PLACE OF INCOME FROM BUSINESS AND PROFESSIONS. THE LD. CIT(A) CONCURRED THE FINDING OF THE ASSESSING OFFICER OBSERVING THAT TH E ASSESSEE-COMPANY ADVANCED LOAN OF MORE THAT RS. 16 CRORE ON WHICH NO INTEREST HAS BEEN CHARGED. THE ASSESSEE HAS CHARGED INTEREST ONLY FRO M ONE GROUP OF COMPANIES. THE LD. CIT(A) CONCLUDED THAT THERE IS M ERIT IN THE FINDING OF ASSESSING OFFICER THAT THE ASSESSEE IS NOT IN THE B USINESS OF MAKING LOANS AND ADVANCES AND THE ASSESSING OFFICER CORRECTLY AS SESSED ITS INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 7 9. THE LD. AR OF THE ASSESSEE VEHEMENTLY SUBMITTED THA T FOR TWO PRECEDING YEAR FOR ASSESSMENT YEAR 2005-06 & 2006-07 AND TWO SUBSEQUENT YEAR I.E. FOR ASSESSMENT YEAR 2008-09 & 2009-10, THE INT EREST INCOME OF ASSESSEE WAS ACCEPTED BY REVENUE AS BUSINESS INCOM E. THE LD. AR OF THE ASSESSEE ALSO PLACED ON RECORD THE ASSESSMENT O RDER PASSED UNDER SECTION 143(3) FOR FOUR ASSESSMENT YEARS. WE HAVE A LSO NOTED THAT ONLY FOR THE YEAR UNDER CONSIDERATION, THE INTEREST INCO ME OF ASSESSEE WAS TREATED AS INCOME FROM OTHER SOURCES. THERE IS NO DISPUTE THAT ASSESSEE IS REGISTERED AS A NON-BANKING FINANCIAL COMPANY WI TH REGISTERED WITH RBI. THE ASSESSING OFFICER HAS NOT DISPUTED THE BUS INESS ACTIVITIES OF THE ASSESSEE EXCEPT HOLDING THAT ASSESSEE IS A NON- BANKING FINANCIAL COMPANY (NBFC) ONLY ON PAPERS. THE ASSESSING OFFIC ER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE IS NBFC ONLY ON PAPERS. 10. THE HONBLE JURISDICTIONAL HIGH COURT IN CIT VS. GO PAL PUROHIT (SUPRA) HELD THAT THERE SHOULD BE UNIFORMITY IN TREATMENT A ND CONSISTENCY WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL PARTICULA RLY IN ASSESSEES OWN CASE AND WHEN THE REVENUE DID NOT FURNISH ANY JUSTI FICATION FOR ADOPTING A DIVERGENT APPROACH FOR THE ASSESSMENT YEAR IN QUE STION. THE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO D IFFERENTIATE THE FACTS OF THE YEAR UNDER CONSIDERATION WITH THE EARLIER YEAR. WE HAVE FURTHER NOTED THAT THE LD CIT(A) CONFIRMED THE ACTION OF ASSESSIN G OFFICER VIDE ITS ORDER ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 8 DATED 12.01.2011. HOWEVER, THE ASSESSING OFFICER AL LOWED THE INTEREST INCOME FOR ASSESSMENT YEAR 2008-09 AS INCOME FROM BUSINESS AND PROFESSION IN ASSESSMENT ORDER DATED 13.12.2011 AN D FOR ASSESSMENT YEAR 2009-10, VIDE ASSESSMENT ORDER DATED 11.11.201 1 PASSED UNDER SECTION 143(3). THE LD DR HAS NOT BROUGHT ANY FACT S TO OUR NOTICE THAT THE REVENUE HAS REVERSE THE TREATMENT OF THE SAME I NCOME BY REVISING THE ORDER UNDER SECTION263 OF MAKING RE-OPENING OF THOS E ASSESSMENT ORDERS FOR SUBSEQUENT YEARS. THEREFORE, RESPECTFULLY FOLL OWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN GOPAL PUROHIT (SUPRA), WE DIRECT THE ASSESSING OFFICER TO ALLOW THE INTEREST INCOME EARN ED BY ASSESSEE AS INCOME FROM BUSINESS. 11. IN THE RESULT, GROUND NO.1 OF THE APPEAL IS ALLOWED . 12. GROUND NO.2 RELATES TO GRANTING DEDUCTION OF EXPENS ES UNDER SECTION 57 OF THE ACT. WE HAVE NOTED THAT THIS GROUND OF APPEA L IS IN ALTERNATIVE TO THE GROUND NO.1 OF THE APPEAL, WHICH WE HAVE ALLOWE D, THEREFORE, THE DISCUSSION ON THIS GROUND OF APPEAL HAVE BECOME ACA DEMIC. 13. GROUND NO.3 RELATES TO DISALLOWANCE OF PROFESSIONAL FEES AND GROUND NO.4 RELATES TO FOREIGN AIR TRAVEL EXPENSES OF WIFE OF DIRECTOR AMOUNTING TO RS 10,84,994 . THE LD. AR OF THE ASSESSEE FAIRLY SUBMITTED THAT THESE GROUNDS OF APPEAL ARE COVERED AGAINST TH E ASSESSEE BY THE DECISION OF TRIBUNAL IN ASSESSEES OWN CASE FOR ASS ESSMENT YEAR 1995- 96, 1996-97, 1997-98 IN ITA NO. 2802, 2803, 2804/MU M/2003 DATED ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 9 05.04.2016. THE LD. DR ALSO CONFIRMED THAT THESE GR OUNDS OF APPEAL ARE COVERED AGAINST THE ASSESSEE AND SHOULD BE DISMISSE D. CONSIDERING THE SUBMISSION OF LD. AR OF THE ASSESSEE, THESE GROUNDS OF APPEAL ARE ALSO DISMISSED BY FOLLOWING THE DECISION OF THE TRIBUNAL FOR EARLIER YEARS AS SUBMITTED BY LD. AR FOR THE ASSESSEE. 14. GROUND NO.5 RELATES TO DISALLOWANCE OF PROFESSIONAL FEES. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE INCURRED EXP ENSES FOR TAKING ADVICE FOR VALIDITY OF SALES BY STPL TO DLF AS MUTU ALLY AGREED BETWEEN THE PARTIES. THE ASSESSEE INCURRED EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE LD. AR OF THE ASSESSEE FURTHER SUBMITS THAT INVOICES OF THE EXPENDITURE ARE FILED AS PER PAGE N O.334 & 335 OF THE PAPER BOOK. IN ALTERNATIVE, THE LD. AR OF THE ASSES SEE SUBMITS THAT IT SHOULD BE ALLOWED AS BUSINESS EXPENSES. 15. ON THE OTHER HAND, THE LD. DR FOR REVENUE SUPPORTED THE ORDER OF LD. CIT(A). THE LD. DR SUBMITS THAT THE ASSESSEE HAS OF FERED THE INCOME FROM SALE OF SHARE UNDER THE HEAD CAPITAL GAIN, T HEREFORE, THE EXPENSES PAID TO E& Y CANNOT BE ALLOWED UNDER THE HEAD BUSI NESS INCOME. THE LETTER WRITTEN BY E&Y DATED 11.08.2006 CLEARLY STAT ES THAT THE SAID FEE WAS PAID ON ACCOUNT OF MERGER AND ACQUISITION AND P AID FOR ADVISORY SERVICES. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 10 DISALLOWED THE EXPENSES HOLDING THAT THE INCOME PER TAINING TO THE SALE OF SHARES IS OFFERED UNDER THE HEAD CAPITAL GAIN, TH E EXPENDITURE INCURRED BY ASSESSEE ON TAKING ADVICE FOR SALE CANNOT BE ALL OWED UNDER THE HEAD BUSINESS INCOME, SINCE THE SAME CANNOT BE TREATED AS EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS. THE LD. CIT(A ) CONFIRMED THE ACTION OF ASSESSING OFFICER HOLDING THAT IN THE LET TER DATED 11.08.2006 BY E&Y TO THE BOARD OF DIRECTOR OF FEEDBACK VENTURES P VT. LTD. FILED DURING THE APPELLATE PROCEEDING ALSO STATES THAT TH E FEES WAS PAID TO E&Y RELATED TO THE MERGER AND ACQUISITION OF ADVISORY S ERVICES. 17. WE HAVE NOTED THAT GENUINENESS OF PAYMENT IS NOT DI SPUTED BY THE LOWER AUTHORITIES. THE LOWER AUTHORITIES DISALLOWED THE D EDUCTION OF PROFESSIONAL FEES ON THE GROUND THAT IT WAS INCURRE D FOR TAKING ADVISORY SERVICES FOR MERGER AND ACQUISITION OF ADVISORY SER VICES. IN OUR VIEW ONCE THE GENUINENESS OF ADVISORY FEES IS NOT DISPUT ED BY THE REVENUE, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING O N THE GROUND THAT IT WAS INCURRED UNDER THE HEAD CAPITAL GAIN, WITHOUT SPE CIFYING THAT THE SAME EXPENSES WERE CLAIMED OR NOT BY ASSESSEE UNDER THAT HEAD OF INCOME. THEREFORE, CONSIDERING THE FACTS OF THE CASE, WE DI RECT THE ASSESSING OFFICER TO ALLOW THE PROFESSIONAL FEES PAID TO E & Y, AFTER VERIFICATION OF THE FACT THAT IT WAS NOT CLAIMED AS A DEDUCTION OF COST UNDER THE HEAD CAPITAL GAIN. 18. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWED. ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 11 19. GROUND NO.6 RELATES TO CAR HIRE CHARGES. THE LD. AR OF THE ASSESSEE SUBMITS THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TDS AS THE AMOUNT WAS LESS THAN RS. 1.20 LAKHS AS THE PROVISIONS OF S ECTION 194C IS NOT APPLICABLE, RATHER SECTION 194I IS APPLICABLE. IN S UPPORT OF HIS SUBMISSION, THE LD. AR OF THE ASSESSEE RELIED UPON THE DECISION REPORTED IN THREE STAR GRANITES (P.) LTD. VS. ACIT [266 CTR 326 (KERALA)]. 20. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR OF THE REVENUE FURTHE R SUBMITS THAT SECTION 194-C IS APPLICABLE AND NOT THE SECTION 194I. 21. WE HAVE CONSIDERED THE SUBMISSION OF THE PARTIES AN D HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSING OFFI CER DISCUSSED THE GROUND OF APPEAL THAT DISALLOWANCE OF CAR HIRE CHAR GES IN PARA-6.1 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER NOTED T HAT THE ASSESSEE PAID TRAVELLING EXPENSES OF RS. 51,301/- AS CAR HIRE CHA RGES TO AUTO RIDERS INTERNATIONAL LTD. THE ASSESSING OFFICER FURTHER NO TED THAT NO TDS WAS PAID ON SUCH PAYMENT. THE ASSESSING OFFICER TOOK TH E VIEW THAT THE SAID EXCEED RS. 50,000/- AND DISALLOWED BY APPLYING THE PROVISION OF SECTION 40(A)(IA). THE LD. CIT(A) CONFIRMED THE ACTION OF A SSESSING OFFICER HOLDING THAT THIS IS A CASE OF CONTRACT FOR HIRING OF CARS AND PROVISION OF SECTION 194C ARE CLEARLY APPLICABLE. THE HIRING OF CAR CANNOT BE HELD TO THE RENT TO WHICH THE PROVISION OF SECTION 194-I WO ULD APPLY. ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 12 22. WE HAVE NOTED THAT THE HONBLE KERALA HIGH COURT IN THREE STAR GRANITES (P.) LTD. (SUPRA) HELD THAT WHEN THE ASSES SEE ENTERED INTO AGREEMENT THAT A CONTRACTOR FOR HIRING THE VEHICLES AND MADE USE OF VEHICLES AND EQUIPMENT AND PAID HIRE CHARGES OF NUM BER OF HOURS UNDER SECTION 194-I WOULD BE ATTRACTED AND NOT SECTION 19 4C. WE HAVE FURTHER NOTED THAT THE ASSESSEE HAD PAID ONLY A SUM OF RS. 51,030/- DURING THE YEAR ON ACCOUNT OF CAR HIRING CHARGES. THEREFORE, R ESPECTIVELY FOLLOWING THE DECISION OF HONBLE KERALA HIGH COURT IN THREE STAR GRANITES (P.) LTD. (SUPRA) WHEREIN IT WAS HELD THAT FOR USE OF VEHICLE AND EQUIPMENT AND PAID HIRE CHARGES ON THE BASIS OF NUM BER OF HOURS OF USE SECTION 194-I IS APPLICABLE, THEREFORE, RESPECTFULL Y FOLLOWING THE SAID DECISION, THE ASSESSING OFFICER DIRECTED TO DELETE THE DISALLOWANCE. 23. GROUND NO.7 AND THE ADDITIONAL GROUNDS OF APPEAL RE LATE TO DISALLOWANCE UNDER SECTION 14A. THE LD. AR OF THE ASSESSEE SUBMI TS THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED EXEMP T INCOME OF RS. 6,13,789/- AS DIVIDEND FROM EQUITY SHARE/MUTUAL FUN D. THE ASSESSEE INCURRED NO EXPENDITURE RELATING FOR EARNING THE SA ID EXEMPT INCOME. THE LD. AR OF THE ASSESSEE SUBMITS THAT DISALLOWANCE UN DER SECTION 14A MAY BE RESTRICTED TO THE INVESTMENT WHICH YIELDED EXEMP T INCOME. IN ALTERNATIVE THE LD. AR SUBMITS THAT THE DISALLOWANC ES MAY BE RESTRICTED TO .5% OF THE INVESTMENT WHICH YIELDED THE EXEMPT INCO ME DURING THE YEAR. ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 13 24. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPO RTED THE ORDER OF LOWER AUTHORITIES. 25. WE HAVE CONSIDERED THE SUBMISSION OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE NO TED THAT DURING THE RELEVANT PERIOD UNDER CONSIDERATION, THE ASSESSEE H AS SHOWN TO HAVE EARNED EXEMPT INCOME OF RS. 6,13,789/-. THE ASSESSE E HAS NOT OFFERED ANY SUO-MOTO DISALLOWANCE UNDER SECTION 14A. THE AS SESSING OFFICER ISSUED A SHOW-CAUSE NOTICE TO THE ASSESSEE AS TO WH Y THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME BE NOT DE TERMINED IN ACCORDANCE WITH THE PROVISION OF RULE 8D. THE ASSES SEE FILED ITS REPLY DATED 15.09.2009. IN THE REPLY, THE ASSESSEE CONTEN DED THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO THE EA RNING OF SUCH DIVIDEND INCOME. THE ASSESSEE DOES NOT HAVE BORROWED ON WHIC H ANY INTEREST PAYMENTS WERE MADE. THE INVESTMENT IN MUTUAL FUND B ASED ON PRE- DETERMINED CRITERIA AND NOT OVER HEAD EXPENDITURE I NCLUDING INDIRECT CANNOT SAID TO BE INCURRED FOR EARNING SUCH DIVIDEN D INCOME. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSIN G OFFICER. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D AND MADE DISALLOWANCE UNDER RULE 8D(2)(III) OF RS. 7,08,369/ -. THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE ON THE BASIS OF .5% OF AVERAGE VALUE OF INVESTMENT. THE ASSESSING OFFICER DISALLOWED .5% OF RS. 14,16,73,804/-. ITA NO. 2254 MUM 2011-STOCK TRADERS PRIVATE LTD. 14 26. WE HAVE NOTED THAT RULE 8D IS NOT APPLICABLE FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION. THE SPECIAL BENCH OF DELHI TRI BUNAL IN ACIT VS VIREET INVESTMENT (P) LTD [2017] 82 TAXMANN.COM 415 (SB DELHI TRIB) HELD THAT ONLY THOSE INVESTMENT WHICH HAVE YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSIDERATION BE CONSIDERED F OR DISALLOWANCE UNDER SECTION 14A. THEREFORE, CONSIDERING THE SUBMI SSION OF THE ASSESSEE AND THE DECISION OF SPECIAL BENCH OF DELHI TRIBUNAL IN VIREET INVESTMENT (SUPRA), WE DIRECT THE ASSESSING OFFICER TO WORK OU T THE DISALLOWANCE UNDER SECTION 14A AFRESH BY CONSIDERING ONLY THOSE INVESTMENTS WHICH YIELDED DIVIDEND INCOME DURING THE YEAR UNDER CONSI DERATION. NEEDLESS TO ORDER THAT BEFORE MAKING FRESH DISALLOWANCE, THE ASSESSING OFFICER SHALL GRANT OPPORTUNITY TO THE ASSESSEE. 27. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/04/2019. SD/- SD /- G.S. PANNU PAWAN SINGH VICE-PRESIDENT JUDICIAL MEMBER MUMBAI, DATE: 12.04.2019 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR C BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI