HITCO INVESTMENTS PRIVATE LIMITED, MUMBAI V. INCOME TAX OFFICER 2(1)(4), MUMBAI

ITA 2306/MUM/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5772 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 13-04-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K BEPARI
• Assessee Lawyers: V MOHAN
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI N.K. PRADHAN, ACCOUNTANT MEMBER ITA NO. 2306 / MUM . /2018 ( ASSESSMENT YEAR : 20 12 13 ) HITCO INVESTMENTS PVT. LTD. 5 TH FLOOR, BHARAT HOUSE 104, MUMBAI SAMACHAR MARG FORT, MUMBAI 400 001 PAN AAACH2047M . APPELLANT V/S INCOME TAX OFFICER WARD 2 ( 1 ) (4) , MUMBAI . RESPONDENT ASSESSEE BY : SHRI V. MOHAN REVENUE BY : SHRI S.K. BEPARI DATE OF HEARING 06 . 1 2 .201 8 DATE OF ORDER 30.01.2019 O R D E R PER SAKTIJIT DEY, J.M. THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE CHALLENGING THE ORDER DATED 23 RD FEBRUARY 2018, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 4 , MUMBAI, PERTAINING TO ASSESSMENT YEAR 2012 13 . 2 . IN GROUND NO.1, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF ` 8,82,310, UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2 HITCO INVESTMENTS PVT. LTD. 3 . BRIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN INVESTMENT ACTIVITY. FOR THE ASSESSMENT YEAR UNDER DISPUTE, TH E ASSESSEE FILED ITS RETURN OF INCOME ON 12 TH SEPTEMBER 2012, DECLARING TOTAL INCOME OF ` 2,81,229. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER WHILE EXAMINING THE COMPUTATION OF INCOME FILED BY THE ASSESSEE NOTICED THAT THE ASSESSEE HAS CLAIMED SHARE IN PROFIT OF PARTNERSHIP FIRM AMOUNTING TO ` 6,00,790, AS EXEMPT. WHEREAS, IT HAS NOT DISALLOWED ANY EXPENDITURE UNDER SECTIO N 14A OF THE ACT FOR EARNING THE EXEMPT INCOME. THEREFORE, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE UNDER SECTION 14A R/W RULE 8D SHOULD NOT BE MADE. THOUGH, THE ASSESSEE SUBMITTED THAT NO EXPENDITURE IS ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME, HOWEVER, THE ASSESSING OFFICER DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED AN AMOUNT OF ` 8,82,310, UNDER SECTION 14A R/W RULE 8D, WHICH COMPRISED OF DIRECT EXPENDITURE OF ` 2,00,000 U/R 8D(2)(I) , INDIRECT INTEREST EXPENDI TURE OF ` 6,19,683 U/R 8D(2)(II) , AND ADMINISTRATIVE EXPENDITURE OF ` 62,627 U/R 8D(2)(III) . BEING AGGRIEVED WITH SUCH DISALLOWANCE, THE ASSESSEE PREFERRED APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 4 . THE LEARNED COMMISSIONER (APPEALS), HOWEVER, GRANTED P ARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE ASSESSING OFFICER TO EXCLUDE THE INVESTMENT OF ` 1.60 LAK H MADE IN THE EQUITY SHARES OF M/S. BATLIBOI 3 HITCO INVESTMENTS PVT. LTD. ENVIRONMENTAL ENGINEERING LTD., WHICH HAS NOT YIELDED ANY EXEMPT INCOME DURING THE YEAR. 5 . THE LEARNED AUTHO RISED REPRESENTATIVE SUBMITTED , ON THE SHARE CAPITAL INVESTMENT MADE IN THE PARTNERSHIP FIRM THE ASSESSEE HAS RECEIVED INTEREST INCOME OF ` 10,99,593, WHICH HAS BEEN OFFERED TO TAX. HE SUBMITTED THAT INTEREST INCOME FROM INTER CORPORATE DEPOSITS HAVE ALSO BEEN OFFERED TO TAX. ONLY EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR IS SHARE IN PROFIT OF THE PARTNERSHIP FIRM. THEREFORE, HE SUBMITTED , NO DISALLOWANCE UNDER RULE 8D(2)(I) AND RULE 8D(2)(II) CAN BE MADE. HE SUBMITTED , DISALLOWANCE UNDER SECTION 14A OF THE ACT MAY BE RESTRICTED TO THE AMOUNT DISALLOW ED UNDER RULE 8D(2)(III). 6 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 7 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPUTEDLY, ONLY EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE YEAR IS THE SHARE IN THE PROFIT OF PARTNERSHIP FIRM AMOUNTING TO ` 6,00,790. WHEREAS, THE INTEREST EARNED ON THE SHARE CAPITAL IN PARTNERSHIP FIRM HAS BEEN O FFERED TO TAX. THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME ON THE INVESTMENT IN EQUITY SHARES. IN THE AFORESAID FACTS AND CIRCUMSTANCES, THE ONLY EXPENDITURE WHICH CAN BE 4 HITCO INVESTMENTS PVT. LTD. DISALLOWED UNDER SECTION 14A OF THE ACT IS THE AMOUNT ATTRIBUTABLE TO THE EARNING O F SHARE IN THE PROFIT OF THE PARTNERSHIP FIRM. THAT BEING THE CASE, WE FIND MERIT IN THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS TO BE RESTRICTED TO THE ADMINISTRATIVE EXPENDITURE UNDER RU LE 8D(2)(III). ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO ` 62,627. GROUND RAISED IS PARTLY ALLOWED. 8 . IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF CONSULTANCY CHARGES PAID OF ` 2,00,000. 9 . BRIEF FACTS ARE, DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICING THAT THE ASSESSEE HAS CLAIMED DEDUCTION OF ` 2,00,000 TOWARDS CONSULTANCY CHARGES PAID CALLED FOR NECESSARY DETAILS. ON VERIFYING THE DETAILS FURNISHED BY THE ASS ESSEE, THE ASSESSING OFFICER OBSERVED THAT THE AFORESAID AMOUNT WAS PAID TO MS. FARAH BHOGILAL, WHO IS RELATED TO THE DIRECTORS OF THE COMPANY. HE ALSO OBSERVED THAT SUCH PAYMENT HAS BEEN MADE FOR THE FIRST TIME IN THE IMPUGNED ASSESSMENT YEAR BEGINNING FR OM THE MONTH OF JUNE , 2011 @ ` 20,000 PER MONTH. WHEN THE ASSESSING OFFICER CALLED UPON THE ASSESSEE TO FURNISH THE DETAILS OF SERVICES OBTAINED FROM THE SAID CONSULTANT, IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT WAS PAID FOR DOING EQUITY RESEARCH. THE ASSESSING OFFICER OBSERVED , THE INVESTMENT PORTFOLIO OF 5 HITCO INVESTMENTS PVT. LTD. THE ASSESSEE REFLECTS INVESTMENT IN SHARE CAPITAL OF THE PARTNERSHIP FIRM AMOUNTING TO ` 1,17,69,940, AND EQUITY SHARE OF M/S. BATLIBOI ENVIRONMENTAL ENGINEERING LTD. AMOUNTING TO ` 1,60,000. THE ASSESSING OFFICER, THEREFORE, HELD THAT SINCE THE ASSESSEE HAS FAILED TO ESTABLISH THAT SERVICES WERE ACTUALLY RENDERED TO JUSTIFY THE PAYMENT MADE , THE EXPENDITURE IS NOT ALLOWABLE AS BUSINESS EXPENDITURE. THEREFORE, HE HELD THAT THE CONSULTANCY FEES PAID TO THE DIRECTORS RELATIVE BEING UNREASONABLE AND EXCESSIVE HAS TO BE DISALLOWED. HOWEVER, SINCE THE SAID AMOUNT WAS ALREADY DISALLOWED BY HIM UNDER SECTION 14A OF THE ACT, NO SEPARATE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER. 10 . THOUGH, THE ASSESSEE CHALLENGED THE DISALLOWANCE BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER, LEARNED COMMISSIONER (APPEALS) ALSO SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 11 . THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED , THE CONCERNED PERSON WAS APPOINTED AS A CONSULTANT BY THE COMPANY AND THE AMOUNT WAS PAID IN TERMS WITH THE CONDITION OF HER APPOINTMENT. IN THIS CONTEXT, HE DREW OUR ATTENTION TO A COPY OF THE LETTER DATED 29 TH JUNE 2011, PLACED AT PAGE 13 OF THE PAPER BOOK. THE LEARNED AUTHORISED REPRESENTA TIVE SUBMITTED , THOUGH , THE PERSON CONCERN ED IS A RELATIVE OF THE ASSESSEE, HOWEVER, THE PAYMENT MADE CANNOT BE HELD TO BE UNREASONABLE AND EXCESSIVE WITHOUT BRINGING ANY MATERIAL ON RECORD TO 6 HITCO INVESTMENTS PVT. LTD. HOLD SO. THEREFORE, HE SUBMITTED , THE PROVISIONS OF SECTION 40A (2)(B) OF THE ACT IS NOT APPLICABLE. FURTHER, HE SUBMITTED , THE CONSULTANT HAS RENDERED SERVICES WITH REGARD TO THE INVESTMENT ACTIVITIES, THEREFORE, IT HAS TO BE ALLOWED AS EXPENDITURE SINCE IT IS FOR THE PURPOSE OF BUSINESS. 12 . THE LEARNED DEPARTMENTAL RE PRESENTATIVE RELIED UPON THE OBSERVATIONS OF THE LEARNED COMMISSIONER (APPEALS). 13 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THOUGH, THE ASSESSING OFFICER HAS NOT SPE CI FICALLY REFERRED TO PROVISIONS OF SECTION 37(1) OF THE ACT WHI LE DISALLOW INGTHE AMOUNT OF ` 2,00,000, HOWEVER, HE HAS RECORDED A FINDING THAT THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE EXPENDITURE WAS FOR THE PURPOSE OF BUSINESS. THEREFORE, THE OBSERVATION OF THE LEARNED COMMISSIONER (APPEALS) THAT THE DISALLOWANC E HAS BEEN MADE UNDER SECTION 37(1) OF THE ACT APPEARS TO BE CORRECT. IN ANY CASE OF THE MATTER, APART FROM SUBMITTINGTHE APPOINTMENT LETTER, THE ASSESSEE HAS NOT PROVED THE BUSINESS EXPEDIENCY OF THE AFORESAID PAYMENT BY FU RNISHING ANY COGENT EVIDENCE TO DEMONSTRATE THAT SERVICES WERE ACTUALLY RENDERED BY THE CONSULTANT. THAT BEING THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) ON THIS ISSUED. GROUND RAISED IS DISMISSED. 7 HITCO INVESTMENTS PVT. LTD. 14 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.01. 2 0 19 SD/ N.K. PRADHAN ACCOUNTANT MEMBER SD/ SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.01.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI