FALI S. NARIMAN, MUMBAI V. ADDL CIT RG 11(2), MUMBAI

ITA 2368/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88089 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 26-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 26-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PAWAN KU MAR BEERLA
• Keywords: Depreciation; Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 2368/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) FALI S. NARIMAN 126, HAMPTON COURT, WODEHOUSE ROAD, COLABA, MUMBAI-400 005 / VS. ADDL. CIT, RANGE-11(2), ROOM NO. 435, 4 TH FLOOR, AAYAKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ! ./' ./PAN/GIR NO. AAAPN 4141 R ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# & ' / APPELLANT BY : SHRI APURVA SHAH $%!# & ' / RESPONDENT BY : SHRI PAWAN KUMAR BEERLA ( )*+ & ,- / DATE OF HEARING : 26.11.2014 ./0 & ,- / DATE OF PRONOUNCEMENT : 30.01.2015 1 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHO RT) DATED 18.02.2013, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING HIS ASSES SMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMEN T YEAR (A.Y.) 2009-10 VIDE ORDER DATED 20.12.2011. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, AN ADVOCATE BY PROFESSION, WAS OBSERVED DURING THE COURSE OF ASSESSMENT PROCEEDING S TO HAVE SUBSTANTIAL INVESTMENTS IN SECURITIES/INVESTMENTS YIELDING, OR LIABLE TO YIELD , INCOME NOT FORMING PART OF THE TOTAL 2 ITA NO.2368/MUM/2013 (A.Y. 2009-10) FALI S. NARIMAN VS. ADDL. CIT INCOME, I.E., AT AN AVERAGE OF RS.21.71 CRORES FOR THE RELEVANT YEAR; THE ASSESSEE HAVING FOR THE CURRENT YEAR EARNED TAX-FREE INCOME BY WAY OF DIVIDEND (RS.3.23 LACS) AND INTEREST (AT RS.39.96 LACS). EVEN THOUGH THE ASSESSEE SOUGHT TO JUSTIFY ITS SUO MOTU DISALLOWANCE U/S.14A, MADE AT RS.1 LAC, THE ASSESSING OFFICER (A .O.), UNSATISFIED THEREWITH, PROCEEDED WITH THE DISALLOWANCE BY APPLYING RULE 8D, EFFECTIN G A DISALLOWANCE OF RS.9,85,283/-. THE SAME BEING CONFIRMED IN APPEAL BY THE LD. CIT(A ), RELYING ON THE DECISIONS IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V. DY. CIT [2010] 328 ITR 81 (BOM) AND ASST. CIT V. CITICORP FINANCE (INDIA) LTD . [2007] 108 ITD 457 (MUM), FORMS THE SUBJECT MATTE R OF APPEAL BEFORE US, OR THE PRINCIPAL GROUND/S THEREOF . 3.1 BEFORE US, THE ASSESSEES SOLE CHARGE WAS OF TH E REVENUE AUTHORITIES HAVING INVOKED AND APPLIED RULE 8D MECHANICALLY, I.E., WIT HOUT REGARD TO THE QUANTUM AND THE NATURE OF ADMINISTRATIVE EXPENDITURE QUA WHICH DISALLOWANCE HAS BEEN MADE IN TERMS OF R.8D(2)(III). THE A.O. HAD IN FACT NOT RECORDED HIS DISSATISFACTION WITH THE ASSESSEES CLAIM FOR THE DISALLOWANCE, AS MADE SUO MOTU , SO THAT HE COULD RATHER HAVE NOT PROCEEDED TO MAKE THE SAME IN VIEW OF SECTION 14A(2). ON BEIN G ENQUIRED AS TO THE BASIS OF THE ASSESSEES DISALLOWANCE AT RS.1 LAC, THE LD. AUTHOR IZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, WOULD TAKE US THROUGH THE WORKI NG, FORMING PART OF THE COMPUTATION OF INCOME (PB PGS.11-13, ALSO SEE PAGES 1-4). EXCLU DING THE EXPENSES WHICH WERE OF WHOLLY PROFESSIONAL IN NATURE, AS WELL AS DISALLOWA NCES, I.E., OUT OF THE TOTAL EXPENDITURE DEBITED IN ACCOUNTS, LEFT A BALANCE OF RS.9,15,770/ -. THE ASSESSEE HAS TAX-EXEMPT INCOME OF RS.52.44 LACS FOR THE CURRENT YEAR AS AGAINST PR OFESSIONAL RECEIPT OF RS.1267.85 LACS. THE ASSESSEE, HE CLARIFIED, IN THE ABSENCE OF ANY O THER BASIS, HAS ALLOCATED THE SAID EXPENDITURE ON THE BASIS OF THE SAID INCOMES. THE A SSESSEES MAIN ASSET, I.E., QUA HIS PROFESSION, HE WOULD FURTHER EXPLAIN, IS HIS MIND . ACCORDINGLY, THE EXPENDITURE COULD NOT BE APPORTIONED ON THE BASIS OF THE QUANTUM OF I NVESTMENT IN TAX-FREE INVESTMENTS VIS- -VIS THE TOTAL ASSETS. 3.2 THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON TH E OTHER HAND, WOULD RELY ON THE ORDERS OF THE AUTHORITIES BELOW, STATING THAT THE A SSESSEES METHOD IS ARBITRARY IN-AS-MUCH 3 ITA NO.2368/MUM/2013 (A.Y. 2009-10) FALI S. NARIMAN VS. ADDL. CIT AS INCOME COULD NOT BE THE BASIS OF THE ALLOCATION OF THE EXPENDITURE. THE REVENUE WAS THUS JUSTIFIED IN APPLYING RULE 8D, WHICH ONLY SEEK S TO, IN THE ABSENCE OF THE ASSESSEES ACCOUNTS FORMING THE BASIS OF THE SUO MOTU DISALLOWANCE U/S. 14A, THE CORRECTNESS OF WHICH COULD THUS BE VERIFIED WITH REFERENCE THERETO , INVOKE THE STATUTORY ESTIMATE PRESCRIBED PER R. 8D, WHICH IS ONLY TOWARD PROVIDIN G A UNIFORM, NON-ARBITRARY METHOD OF ESTIMATING SUCH EXPENDITURE, AND WHICH IS IN FACT F OR BOTH DIRECT AND INDIRECT EXPENDITURE, EVEN AS THE DISALLOWANCE IN THE INSTANT CASE IS ONL Y TOWARD INDIRECT ADMINISTRATIVE EXPENDITURE, COVERED U/R. 8D(2)(III). 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE ARE WHOLLY UNIMPRESSED WITH THE ASSESSEES ARGUM ENT SUPPORTING HIS WORKING OF THE EXPENDITURE RELATABLE TO INCOME NOT FORMING PART OF TOTAL INCOME UNDER THE ACT ON THE GROUND THAT MIND IS HIS PRINCIPAL ASSET. SO B E IT; EVERY ECONOMIC ACTIVITY, PARTICULARLY IN TODAYS EXTREMELY COMPETITIVE ENVIR ONMENT, ENTAILS SOME DEGREE OF CEREBRAL ACTIVITY. THERE IS, HOWEVER, NO CORRESPOND ING EXPENDITURE, OR CLAIM IN ITS RESPECT, WHILE THE ISSUE AT HAND IS THE APPORTIONMENT OF SUC H EXPENDITURE. INCOME, WHICH MAY OR MAY NOT ARISE ON INCURRING EXPENDITURE, AND AGAIN W ITH NO CERTAINTY AS TO ITS QUANTUM, CANNOT BY ITSELF FORM THE BASIS OF EITHER INCURRING OR ALLOCATION OF EXPENDITURE. SO, HOWEVER, WE CONSIDER THE REVENUES READING OF R. 8D AS EQUALLY MISPLACED. THE ESTIMATE PER R. 8D(2) IS ONLY QUA EXPENDITURE RELATABLE TO TAX EXEMPT INCOME/S. THE EXPENDITURE CLAIMED STANDS DEBITED IN THE ASSESSEE S ACCOUNTS, WHICH COULD BE INQUIRED IN TO AS TO THEIR PURPOSE. FOR ALL WE KNOW, THE ASSESS EE MAY BE MANAGING HIS INVESTMENTS IN INSTRUMENTS YIELDING TAX EXEMPT INCOMES, WHICH ARE AT A HEALTHY SUM OF RS. 21.71 CR., I.E., ON AN AVERAGE FOR THE YEAR, ON HIS OWN, OR CO ULD ALSO BE ASSISTED BY PERSONNEL, WHO STAND REMUNERATED. NO INQUIRY IN THIS REGARD STANDS MADE, WHILE THE ASSESSEE HAS MAINTAINED PROPER ACCOUNTS, DULY AUDITED AND, FURTH ER, BASES HIS CLAIM OF HAVING INCURRED A LOWER EXPENDITURE THAN THAT PER THE STATUTORY PRE SCRIPTION OF R. 8D, THEREON. THE EXPENDITURE OBSERVED AS RELATABLE TO THE INCOME NOT FORMING PART OF THE TOTAL INCOME BY THE REVENUE ARE: SALARY (RS. 3.54 LACS); PRINTING & STATIONERY (RS. 0.11 LACS); AND BANK 4 ITA NO.2368/MUM/2013 (A.Y. 2009-10) FALI S. NARIMAN VS. ADDL. CIT CHARGES (RS. 0.10 LACS), WITHOUT SPECIFYING THE REL ATIONSHIP, SO THAT THE SAME IS INFERABLY CASUAL. EVEN THE CLAIM FOR DEPRECIATION (RS. 7.26 L ACS) WE OBSERVE AS PRINCIPALLY ON LAW BOOKS. THE INGREDIENTS OF S. 14A(2) R/W R. 8D(1) ARE CLEAR LY NOT SATISFIED IN THE INSTANT CASE. WE, ACCORDINGLY FIND NO INFIRMITY IN THE ASS ESSEES CLAIM OF DISALLOWANCE U/S. 14A(1) AT RS. 1,00,000/-. WE DECIDE ACCORDINGLY. 5. THE ASSESSEES GROUND # 2 AGITATES THE DISALLOWA NCE OF EXPENDITURE BY WAY OF, AS CLAIMED, CHANDLA, GIVEN TO THE FAMILY OF AN EMPLOYE E WORKING AT THE BAR ASSOCIATION, ON THE GROUND OF BEING A DONATION. NO ARGUMENTS QUA THIS GROUND WERE RAISED BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. WE HO LD ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. 20,3 )452, & 1 * 6 , & , 7 ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 30, 2 015 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( 8+ MUMBAI; 9) DATED : 30.01.2015 *.). ./ ROSHANI , SR. PS !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( :, ( ) / THE CIT(A) 4. ( :, / CIT - CONCERNED 5. =*> $,)4 , - 40 , ( 8+ / DR, ITAT, MUMBAI 6. ?5 @+ / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , ( 8+ / ITAT, MUMBAI